Business context and reporting period
Achieve Life Sciences, Inc. is a clinical-stage pharmaceutical company developing cytisinicline for smoking cessation and nicotine addiction. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2022. The company had no approved products or product-sales revenue.
Financial results and liquidity
Amounts below are in U.S. dollars; financial statement amounts are in thousands unless stated otherwise.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $7.2 million | $9.2 million | $11.6 million | $14.9 million |
| General and administrative expense | $2.9 million | $2.1 million | $5.7 million | $4.4 million |
| Net loss | $10.5 million | $11.3 million | $18.0 million | $19.3 million |
| Net loss per share | $1.08 | $1.53 | $1.89 | $2.85 |
| Cash used in operating activities | Not separately stated | Not separately stated | $15.1 million | $15.5 million |
Gross and operating margins are not meaningful because the company had no product revenue. At June 30, 2022, cash and cash equivalents were $29.4 million, working capital was positive $25.8 million, total assets were $34.0 million, total liabilities were $20.8 million, and stockholders’ equity was $13.2 million. Accumulated deficit was $111.6 million.
Convertible debt had $15.0 million principal and a $15.46 million carrying value, including accrued paid-in-kind interest; no amounts had been drawn on the additional term-loan facility of up to $10.0 million. The company received $1.5 million gross from ATM stock sales in the first half and reported approximately $23.5 million remaining under the $25 million ATM program at June 30. Common shares outstanding rose to 9,681,855 from 9,453,542 at year-end 2021.
Material changes versus the prior comparable period
- First-half R&D expense fell 22% year over year, primarily reflecting the timing of Phase 3 trial activity: ORCA-2 spending ramped up in the first half of 2021, while ORCA-3 began in January 2022. Management expected R&D expense to rise in the second half of 2022 as ORCA-V1 began.
- First-half G&A expense rose 29%, attributed to higher clinical-trial media and awareness costs, stock-based compensation, patent-related legal costs, and insurance premiums.
- Net loss narrowed by about 7% for the first half. Interest expense of $0.8 million was recorded in the period, principally related to the convertible debt.
- Operating cash use was modestly lower year over year, but financing inflows declined to $1.5 million from $21.7 million, largely because the prior-year period included net proceeds from a public offering.
Outlook, clinical progress, and key risks
- Funding and going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern and said current resources are insufficient to fund planned operations for the next twelve months without additional financing. It also stated that existing cash, cash equivalents, and restricted cash were expected to fund current operating expenses and capital expenditures into 2023. These statements distinguish current spending from planned operations; further financing is needed, with no assurance it will be available on acceptable terms. Without funding, development or operations may need to be delayed, reduced, or stopped.
- Smoking-cessation program: Management reported positive topline Phase 3 ORCA-2 results: both 6- and 12-week cytisinicline treatment met the primary abstinence endpoint versus placebo. The 12-week arm’s abstinence rate during weeks 9–12 was 32.6% versus 7.0% for placebo; the 6-week arm’s rate during weeks 3–6 was 25.3% versus 4.4%. No treatment-related serious adverse events were reported. These are company-reported topline results; ORCA-3 is the confirmatory Phase 3 trial, and enrollment was expected to finish in Q3 2022.
- Vaping-cessation program: ORCA-V1, a Phase 2 study planned for approximately 150 adult e-cigarette users, began in June 2022. NIDA grant funding of approximately $2.8 million is expected to cover about half of the study’s total costs. Topline results were anticipated in the first half of 2023.
- Regulatory and development items: The company said two chronic toxicology studies had been completed and submitted to the FDA; completed carcinogenicity studies were expected to be submitted in Q3 2022. Cytisinicline was not FDA-approved, and additional clinical, regulatory, and manufacturing work remained necessary.
- Debt and dilution: Convertible debt matures in December 2023, with a possible extension to December 2024 subject to lender approval. It bears a floating cash-interest component plus 7% annual compounding interest; lenders may convert at $9.34 per share, subject to terms, and mandatory conversion applies after the stock-price trigger described in the filing. The debt is secured by substantially all assets, including intellectual property. Future ATM sales or debt conversion could dilute existing holders.
- Operating risks: The company relies on Sopharma as its sole cytisinicline manufacturer and supplier; Sopharma’s production is in Bulgaria, and the filing cites possible disruption from the Russia-Ukraine conflict, sanctions, natural-resource constraints, or manufacturing issues. Other risks include clinical-trial execution, regulatory approval, competition, COVID-19-related disruption, and the difficulty of obtaining capital amid inflation and rising interest rates.
- Controls: Management concluded disclosure controls and procedures were effective as of June 30, 2022; no material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- Whether the company secured additional financing sufficient to support its planned development program and address the going-concern uncertainty.
- ORCA-3 enrollment and results, and whether the confirmatory trial supports an eventual FDA application.
- ORCA-V1 progress, results, and the extent to which grant funding covers actual trial costs.
- Whether the FDA received the carcinogenicity-study submissions as expected and whether further studies or regulatory requirements arise.
- Cash burn, remaining ATM capacity, share issuance, convertible-debt interest and conversion terms, and any borrowing or covenant developments.
- Continuity, quality, and cost of cytisinicline supply from Sopharma, including any effects from geopolitical or manufacturing disruptions.