Grace Therapeutics, Inc. quarterly report, Q2 FY2023

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Business context and reporting period

The supplied filing is Acasti Pharma Inc.’s Form 10-Q, not a filing identified as Grace Therapeutics, Inc. Grace is a wholly owned subsidiary acquired by Acasti in August 2021. The report covers the quarter and six months ended September 30, 2022 (Acasti’s fiscal second quarter), and was filed November 14, 2022. Amounts below are in U.S. dollars unless stated otherwise; financial statement amounts are in thousands.

Acasti is a clinical-stage biopharmaceutical company developing rare-disease drug candidates GTX-104, GTX-102 and GTX-101. It reported no product revenue and expects no product-sales revenue unless and until candidates complete development and receive regulatory approval.

Financial performance and position

  • Operating expenses: Q2 R&D was $3.292 million, G&A $1.680 million and sales and marketing $0.136 million; operating loss was $5.108 million. For the six months, those expenses were $5.882 million, $3.598 million and $0.357 million, respectively, and operating loss was $9.837 million.
  • Net loss: Q2 net loss was $4.929 million, or $0.11 per share, versus net income of $0.981 million, or $0.03 per share, in the prior-year quarter. Six-month net loss was $9.453 million, or $0.21 per share, versus a $2.137 million loss, or $0.07 per share, a year earlier.
  • Cash flow: Six-month operating cash use was $8.865 million, compared with $9.505 million in the prior-year period. Investing activities provided $13.162 million, mainly from short-term investment maturities; financing provided $0.304 million from ATM share sales. Cash increased $4.587 million to $34.926 million.
  • Liquidity: Current assets were $37.505 million and current liabilities $3.805 million at September 30, 2022; reported working capital was $33.700 million. Cash plus short-term investments was approximately $34.940 million, with short-term investments of just $0.014 million.
  • Assets and obligations: Total assets were $120.911 million, including $69.810 million of acquired in-process R&D and $12.964 million of goodwill. Total liabilities were $20.747 million, including a $16.492 million deferred tax liability. The filing reports no material borrowings; non-current lease liabilities were $0.450 million.
  • Margins: No revenue was reported, so revenue-based margins are not meaningful.

Material changes versus the prior comparable period

  • Six-month R&D expense rose $4.828 million to $5.882 million, principally reflecting development of the three Grace-acquired candidates. GTX-101 accounted for $2.243 million of six-month third-party clinical and research costs; GTX-104, $0.439 million; and GTX-102, $0.584 million.
  • Six-month G&A declined $2.035 million to $3.598 million, mainly because merger-related legal, tax, accounting and other professional fees were lower. Sales and marketing increased $0.332 million to $0.357 million as personnel were added.
  • The prior-year quarter’s $4.548 million financial income was primarily a $3.435 million favorable change in warrant fair value and foreign-exchange gain. Q2 2022 financial income was only $0.024 million; the prior-year gain makes the year-over-year net-income comparison less indicative of operating performance.
  • Functional currency changed from Canadian dollars to U.S. dollars effective April 1, 2022. Acasti sold 324,648 shares through its ATM program during the six months for net proceeds of approximately $0.304 million, at an average price of about $0.95 per share.

Outlook, risks and unusual items

  • Development outlook: GTX-104’s PK bridging study reported in May 2022; Acasti planned to seek FDA feedback on a Phase 3 safety study design and expected to enroll the first patient in the first half of 2023. The study was expected to take about 18 months. GTX-102’s PK bridging study began in September 2022, with results expected before year-end 2022 and a Phase 3 study planned for the second half of 2023, subject to results and FDA guidance. GTX-101’s single-dose PK study began in July 2022; results were expected before year-end 2022, followed by a multiple-ascending-dose study in 2023.
  • These milestones and candidate benefits are forward-looking and subject to clinical, regulatory, financing, manufacturing and commercial risks. Management expects significant ongoing expenses and losses and states that additional financing will be needed; acceptable financing may not be available.
  • Aker supply dispute: Acasti disputes Aker’s claim that it must accept and pay for the remaining $2.8 million of a krill-oil supply commitment related to discontinued CaPre development. No liability was recorded. The dispute remained unresolved, and any required payment or inability to recover value from the product could cause a loss.
  • Nasdaq listing: Acasti received notice in July 2022 that its share price had failed the $1.00 minimum bid-price requirement. It had until January 23, 2023, to regain compliance, subject to possible additional time and listing conditions.
  • Acasti reported no impairment of goodwill or acquired in-process R&D in its August 2022 assessment. The valuation depends on uncertain clinical-success, sales and discount-rate assumptions; management disclosed that changes in assumptions could trigger impairment.
  • Stockholder litigation relating to the Grace merger was dismissed on September 30, 2022, subject to possible appeal. The company reported no accrued legal reserves at quarter-end. COVID-19 had not caused significant disruption to date, but future effects remained uncertain.
  • Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported. The company stated that there were no material changes to the risk factors in its latest Form 10-K.

Important facts for investors to verify

  • Confirm the issuer and period: this is Acasti Pharma Inc.’s report for the quarter ended September 30, 2022, not a Grace Therapeutics standalone filing.
  • Check subsequent developments in GTX-104, GTX-102 and GTX-101 studies, FDA interactions, timelines and funding needs against the forward-looking milestones stated here.
  • Monitor cash burn, financing activity and potential dilution, including ATM sales and outstanding options.
  • Track resolution and potential financial impact of the $2.8 million Aker dispute, and verify whether the Nasdaq bid-price deficiency was cured.
  • Review the assumptions supporting the $82.8 million carrying value of acquired in-process R&D and goodwill, and any subsequent impairment indicators or valuation changes.