Achieve Life Sciences, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. The company is a clinical-stage pharmaceutical developer focused on cytisinicline for smoking cessation and nicotine addiction. It has no approved products and has generated no product revenue.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | No product revenue reported | |||
| Research and development expense | $9.9 million | $4.6 million | $21.5 million | $19.5 million |
| General and administrative expense | $2.8 million | $2.1 million | $8.5 million | $6.5 million |
| Net loss | $13.1 million | $6.7 million | $31.1 million | $26.0 million |
| Basic and diluted loss per share | $1.35 | $0.71 | $3.24 | $3.39 |
| Net cash used in operating activities | — | $26.4 million | $24.2 million |
Operating margins are not meaningful because the company reported no product revenue. Q3 R&D expense rose primarily with the timing and activity of the ORCA-3 and ORCA-V1 trials; nine-month G&A growth reflected higher trial-related media and awareness costs, stock-based compensation, legal expenses and insurance premiums. Nine-month interest expense was $1.2 million, compared with none in the prior-year period, mainly reflecting convertible debt.
At September 30, 2022, cash and cash equivalents were $18.2 million, down from $43.0 million at December 31, 2021; working capital was positive at $14.0 million. Total assets were $23.7 million, total liabilities $22.7 million, and stockholders’ equity $1.0 million. Convertible debt had a $15.0 million principal amount and $15.8 million carrying value. The company reported $18.2 million cash and cash equivalents plus $0.05 million restricted cash; cash, cash equivalents and restricted cash totaled $18.25 million.
Financing activities provided $1.6 million in the first nine months of 2022, versus $21.7 million in 2021, when the company completed a public offering. In 2022, financing included approximately $1.5 million in net ATM proceeds, employee stock-purchase-plan proceeds and warrant exercises. The company had not drawn on its additional term-loan commitment at quarter-end.
Changes, outlook and key developments
- Nine-month net loss increased about 20% year over year as operating expenses and interest expense rose. The nine-month loss per share was lower than the prior-year figure, while Q3 loss per share increased.
- The $15 million convertible debt accrues a floating cash interest rate plus 7% annual paid-in-kind interest, matures in December 2023, and may be extended with lender approval. Lenders may convert at $9.34 per share; mandatory conversion applies if the share price reaches $24 for 30 consecutive trading days. The debt is secured by substantially all assets, including intellectual property.
- The company may sell up to $25 million of common stock under its ATM; approximately $23.5 million remained available at September 30. Further ATM sales or debt conversion could dilute existing shareholders.
- Management reported substantial doubt about the company’s ability to continue as a going concern and said current resources were insufficient to fund planned operations for the next 12 months. It also stated it believed existing cash, cash equivalents and restricted cash could fund current operating expenses and capital expenditures into 2023. Additional financing is required; without it, the company may delay, reduce or stop development activities. The filing does not reconcile these runway statements into a definitive funding runway.
- ORCA-2 Phase 3 results, announced in April 2022, showed statistically significant abstinence benefits for both six- and 12-week cytisinicline treatment versus placebo; no treatment-related serious adverse events were reported. ORCA-3, a confirmatory Phase 3 smoking-cessation trial, reached its 750-participant enrollment target in September; topline results were expected in Q2 2023.
- ORCA-V1 is a Phase 2 trial of cytisinicline for e-cigarette cessation, partly funded by a NIDA/NIH grant of approximately $2.8 million, expected to cover about half of study costs. The filing reports that enrollment reached its 150-participant target in November 2022, after the quarter-end; topline results were expected in Q2 2023. Renal-impairment and QT studies required for the NDA were expected to run alongside ORCA-3, with results anticipated by mid-2023.
Risks, contingencies and other items
- Funding risk is acute: losses are recurring, the accumulated deficit was $124.7 million, and the company depends on raising capital or obtaining other financing. Financing may be unavailable or dilutive.
- Cytisinicline is the sole product candidate. Development, FDA approval, commercialization, market acceptance and profitability are uncertain; no financial revenue or profitability guidance is provided.
- The company relies on Sopharma in Bulgaria for cytisinicline supply and identifies supply, quality, geopolitical, export, climate and natural-resource risks, including potential effects of the Russia-Ukraine conflict. Replacing the supplier could be difficult.
- Management cited potential impacts from COVID-19, inflation and rising interest rates, including clinical-trial, supply-chain and financing disruption. It reported the pandemic’s impact on financial condition and operations had been minimal as of the filing date.
- The NIDA/NIH grant offsets qualifying R&D expense; the company recorded $0.7 million of qualifying grant-related expenditures in the first nine months and had a $0.1 million grant receivable at quarter-end.
- Reported contractual lease payments totaled $21,000, all due within one year. The filing reported no material indemnification accruals or expenses and no material changes to previously disclosed contractual obligations.
- Management concluded disclosure controls and procedures were effective at September 30, 2022; no material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Whether the company secured sufficient financing after the reported period to address the stated going-concern uncertainty and fund planned operations.
- ORCA-3 and ORCA-V1 topline results, subsequent regulatory plans, and the timing and cost of the required renal-impairment and QT studies.
- Cash burn and remaining liquidity in subsequent filings, including whether management’s stated runway into 2023 changed.
- ATM share sales, potential dilution, convertible-debt interest and conversion terms, and any future borrowing or covenant compliance.
- Sopharma’s ability to provide adequate, timely, quality-controlled cytisinicline supply amid geopolitical and other supply risks.