Filing identity and reporting period
The supplied filing is Acasti Pharma Inc.’s annual report on Form 20-F for the fiscal year ended March 31, 2019, with comparative fourth-quarter figures for the three months ended March 31, 2018. It is not a filing by Grace Therapeutics, Inc.; the company and period in the request metadata do not match the filing. Financial amounts below are in thousands of Canadian dollars unless noted.
Business context
Acasti is a clinical-stage biopharmaceutical company developing CaPre, a krill-oil-derived omega-3 candidate initially intended to treat severe hypertriglyceridemia. It had no product sales or revenue and depended on CaPre’s development and future commercialization. The company reported under IFRS as issued by the IASB.
Financial performance and position
| Metric | FY ended Mar. 31, 2019 | FY ended Mar. 31, 2018 |
|---|---|---|
| Revenue | Nil | Nil |
| Operating loss | $45,015 | $19,696 |
| Net loss | $51,566 | $21,504 |
| Basic and diluted loss per share | $0.95 | $1.23 |
| Operating cash used | $32,476 | $12,519 |
- For Q4 ended March 31, 2019, net loss was $16,806, versus $8,140 in Q4 2018; loss per share was $0.22 versus $0.32. Q4 non-IFRS operating loss was $12,095 versus $6,427.
- Research and development expense rose to $38,366 from $15,669, principally reflecting TRILOGY Phase 3 clinical-trial and manufacturing-scale-up costs. General and administrative expense was $6,649, compared with $4,027.
- At March 31, 2019, cash and cash equivalents were $22,521 and marketable securities were $11,892, together approximately $34,413. Current assets were $37,331; current liabilities were $18,246; working capital was $19,085.
- Total assets were $48,471, total liabilities $34,509, and equity $13,962. Current unsecured convertible debentures had a carrying value of $1,817 (principal $2,000), carried 8% interest, and matured in February 2020. Derivative warrant liabilities were $16,263; the filing says these were expected to be settled in shares rather than cash.
- There is no meaningful sales margin to report because revenue was nil. The filing does not provide a clear operating margin measure applicable to this pre-commercial business.
Changes versus prior year and unusual items
- Annual net loss increased by $30,062, mainly due to the $24,062 increase in non-IFRS operating loss as Phase 3 spending accelerated, plus higher financial expenses.
- Financial expenses increased to $6,551 from $1,808, largely because remeasurement of derivative warrant liabilities produced a $6,287 expense. The share-price-sensitive fair-value changes can materially affect reported earnings without representing equivalent operating cash use.
- Cash from financing activities was $58,862, primarily from 2018 public offerings. The offerings increased shares outstanding to 78,132,734 from 25,638,215 at the prior year-end. The company also had an ATM facility of up to US$30 million, unused at March 31, 2019.
- A $990 settlement expense was accrued for a former CEO, to be paid through 900,000 common shares at $1.10 per share, plus $64 of legal-fee reimbursement.
- Annual operating cash use increased to $32,476. Financing inflows and investment in marketable securities substantially affected the year-end cash position.
Outlook, risks and contingencies
- Management reported that both TRILOGY Phase 3 studies were fully randomized and expected topline results by December 2019 for TRILOGY 1 and January 2020 for TRILOGY 2. Subject to positive results, it planned an NDA filing by mid-2020 and a potential U.S. launch in the second half of 2021. These are forward-looking expectations, not assured outcomes.
- The auditor issued an unqualified opinion on the financial statements but highlighted a material uncertainty that casts substantial doubt on Acasti’s ability to continue as a going concern. Management expected additional funding would be needed for NDA preparation, manufacturing scale-up and commercialization beyond available resources; access to financing or partners was not assured.
- Key risks include clinical or regulatory failure or delay, rejection of the intended FDA 505(b)(2) pathway, manufacturing scale-up and third-party supply risks, uncertain market uptake and reimbursement, competition, and the need for additional capital. CaPre depended on third-party manufacturers, and the company had no redundant supply arrangement.
- The filing cited risks relating to alternative krill-oil supply after Neptune discontinued production, currency exposure, and intellectual-property rights licensed through Neptune/Aker. The license term runs to the last licensed patent’s expiry in 2022; Acasti believed its own patents would then support commercialization, but that expectation is uncertain.
- Other disclosed matters include opposition to a New Zealand patent and an opposition to a Japanese patent, as well as NASDAQ’s May 2019 notice that the share price had not met the US$1.00 minimum bid-price rule; the stated initial compliance deadline was November 12, 2019.
- The company did not expect to pay cash dividends in the foreseeable future. U.S. investors were warned of significant potential PFIC tax consequences.
Important facts for investors to verify
- Confirm the intended issuer and period: this filing is Acasti Pharma Inc., fiscal 2019, not Grace Therapeutics or calendar 2018 Q4.
- Check subsequent TRILOGY results, FDA interactions, regulatory pathway and NDA timing against the projections in this report.
- Assess cash runway using subsequent cash balances, burn rate, financing, ATM usage and commercial-preparation spending; the auditor’s going-concern warning is material.
- Review dilution exposure from the public offerings, warrants, options, convertible debentures and any later equity issuance.
- Verify the cash-settlement terms and valuation sensitivity of warrant liabilities, and the terms and completion of the former-CEO share settlement.
- Confirm manufacturing capacity, qualified alternative krill-oil suppliers, patent status and the company’s rights after the Neptune/Aker license expires.