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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM
10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
March 31,
2023
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO
____________.
Commission file number
033-80623
Achieve Life Sciences, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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95-4343413
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(State or Other Jurisdiction of
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(I.R.S. Employer
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Incorporation or Organization)
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Identification Number)
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22722 29th Drive SE,
Suite 100,
Bothell,
WA
98021
1040 West Georgia Street,
Suite 1030,
Vancouver,
British Columbia,
Canada
V6E 4H1
(Address of Principal Executive Offices)
(604)
210-2217
(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section
12(b) of the Act:
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Title of each class
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Trading Symbol
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Name of exchange on which registered
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Common Stock, par value $0.001 per share
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ACHV
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The
NASDAQ Capital
Market
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☒
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Smaller reporting company
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☒
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Emerging growth company
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☐
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable
date.
As of May 9, 2023
there were
18,040,760
shares of the registrant’s Common Stock, $0.001 par value per
share, outstanding.
Achieve Life Sciences, Inc.
Index to Form 10-Q
2
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements involve a
number of risks and uncertainties. We caution readers that any
forward-looking statement is not a guarantee of future performance
and that actual results could differ materially from those
contained in the forward-looking statement. These statements are
based on current expectations of future events. Such statements
include, but are not limited to, statements about future financial
and operating results, plans, objectives, expectations and
intentions, costs and expenses, interest rates, outcome of
contingencies, financial condition, results of operations,
liquidity, business strategies, cost savings, objectives of
management and other statements that are not historical facts. You
can find many of these statements by looking for words like
“believes,” “expects,” “anticipates,” “estimates,” “may,” “should,”
“will,” “could,” “plan,” “intend” or similar expressions in this
Quarterly Report on Form 10-Q or in documents incorporated by
reference into this Quarterly Report on Form 10-Q. We intend that
such forward-looking statements be subject to the safe harbors
created thereby. Examples of these forward-looking statements
include, but are not limited to:
•
our ability to raise additional capital as needed to fund our
planned development and commercialization efforts and repay our
existing debt;
•
progress and preliminary and future results of any clinical
trials;
•
anticipated regulatory filings and U.S. Food and Drug
Administration responses, recommendations, requirements or
additional future clinical trials;
•
the performance of, and our ability to obtain sufficient supply of
cytisinicline in a timely manner from, third-party suppliers and
manufacturers;
•
timing and plans for the expansion of our focus to address other
methods of nicotine addiction;
•
timing and amount of future contractual payments, product revenue
and operating expenses
•
market acceptance of our products and the estimated potential size
of these markets; and
•
our expectations regarding the impact of the macroeconomic and
geopolitical environment, including inflation, rising interest
rates, increased volatility in the debt and equity markets,
instability in the global banking system, global health crises and
pandemics and geopolitical conflict, and their potentially material
adverse impact on our business and the execution of our preclinical
studies and clinical trials.
These forward-looking statements are based on the current beliefs
and expectations of our management and are subject to significant
risks and uncertainties. If underlying assumptions prove inaccurate
or unknown risks or uncertainties materialize, actual results may
differ materially from current expectations and projections.
Factors that might cause such a difference include those discussed
in Item 1A “Risk Factors,” as well as those discussed elsewhere in
the Quarterly Report on Form 10-Q. You are cautioned not to place
undue reliance on these forward-looking statements, which speak
only as of the date of this Quarterly Report on Form 10-Q or, in
the case of documents referred to or incorporated by reference, the
date of those documents.
All subsequent written or oral forward-looking statements
attributable to us or any person acting on our behalf are expressly
qualified in their entirety by the cautionary statements contained
or referred to in this section. We do not undertake any obligation
to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date of
this Quarterly Report on Form 10-Q or to reflect the occurrence of
unanticipated events, except as may be required under applicable
U.S. securities law. If we do update one or more forward-looking
statements, no inference should be drawn that we will make
additional updates with respect to those or other forward-looking
statements.
Summary of Risk Factors
An investment in our common stock involves various risks, and
prospective investors are urged to carefully consider the matters
discussed in the section titled “Risk Factors” prior to making an
investment in our common stock. These risks include, but are not
limited to, the following:
•
Substantial doubt exists as to our ability to continue as a going
concern. Our ability to continue as a going concern is subject to
material uncertainty and dependent on our success at raising
additional capital sufficient to meet our obligations on a timely
basis. If we fail to obtain additional financing when needed, we
may be unable to complete the development, regulatory approval and
commercialization of our product candidate.
•
We have incurred substantial debt, which could impair our
flexibility and access to capital and adversely affect our
financial position, and our business would be materially adversely
affected if we are unable to service our debt
obligations.
3
•
We have incurred losses since inception, have a limited operating
history on which to assess our business and anticipate that we will
continue to incur losses for the foreseeable future.
•
We have never generated any revenue from product sales and may
never be profitable.
•
We are dependent upon a single company for the manufacture and
supply of cytisinicline.
•
Cytisinicline is currently our sole product candidate and there is
no guarantee that we will be able to successfully develop and
commercialize cytisinicline.
•
The development of our product candidate is dependent upon securing
sufficient quantities of cytisinicline from trees and other plants,
which grows outside of the United States in a limited number of
locations.
•
If we do not obtain the necessary regulatory approvals in the
United States and/or other countries, we will not be able to sell
cytisinicline.
•
Cytisinicline may cause undesirable side effects or have other
properties that could delay or prevent regulatory approval, limit
the commercial viability of an approved label, or result in
significant negative consequences following marketing approval, if
any.
•
It is difficult to evaluate our current business, predict our
future prospects and forecast our financial performance and
growth.
•
We expect to continue to rely on third parties to manufacture
cytisinicline for use in clinical trials, and we intend to
exclusively rely on Sopharma to produce and process cytisinicline,
if approved, which may be impacted by the military conflict between
Russia and Ukraine, including the possibility of expanded regional
or global conflict and related economic sanctions.
•
Our commercialization of cytisinicline could be stopped, delayed or
made less profitable if Sopharma fails to obtain approval of
government regulators, fails to provide us with sufficient
quantities of product, or fails to do so at acceptable quality
levels or prices.
•
Sopharma may breach its supply agreement with us and sell
cytisinicline into our territories or permit third parties to
export cytisinicline into our territories and negatively affect our
commercialization efforts of our products in our
territories.
•
We face substantial competition, and our competitors may discover,
develop or commercialize products faster or more successfully than
us.
•
We may not be successful in obtaining or maintaining necessary
rights to cytisinicline, product compounds and processes for our
development pipeline through acquisitions and
in-licenses.
4
PART
I. FINANCIAL INFORMATION
Item
1. Consolidated Financial Statements
Achieve Life Sciences, Inc.
Consolidated
Balance Sheets
(Unaudited)
(In thousands, except per share and share amounts)
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March 31,
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December 31,
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2023
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2022
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ASSETS
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Current assets:
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Cash and cash equivalents [note
6]
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$
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16,514
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$
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24,771
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Grant receivable
[note 3]
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89
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105
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Prepaid expenses and other assets
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1,621
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2,454
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Total current assets
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18,224
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27,330
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Right-of-use assets
[note 9]
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109
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66
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Other assets and restricted cash
[note 6]
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68
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123
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License agreement
[note 4 and note 5]
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1,363
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1,418
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Goodwill [note
5]
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1,034
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1,034
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Total assets
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$
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20,798
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$
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29,971
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$
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1,063
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$
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1,660
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Accrued liabilities other
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699
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403
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Accrued clinical liabilities
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1,363
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1,729
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Accrued compensation
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747
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1,678
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Current portion of long-term obligations [note
9]
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58
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58
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Convertible debt
[note 6 and note 7]
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16,371
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16,071
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Total current liabilities
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20,301
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21,599
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Long-term obligations
[note 9]
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54
|
|
|
|
69
|
|
|
Total liabilities
|
|
|
20,355
|
|
|
|
21,668
|
|
|
Commitments and contingencies
[note 9]
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
Series A convertible preferred stock, $0.001 par
value,
9,158 shares
designated,
zero
issued and outstanding at March 31, 2023 and
zero issued
and outstanding at December 31, 2022
|
|
|
—
|
|
|
|
—
|
|
|
Series B convertible preferred stock, $0.001 par
value,
6,256 shares
designated,
zero
issued and outstanding at March 31, 2023 and
zero issued
and outstanding at December 31, 2022
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, $0.001 par
value,
150,000,000 shares
authorized,
17,930,362 issued
and outstanding at March 31, 2023 and
17,897,029 issued
and outstanding at December 31, 2022
|
|
|
87
|
|
|
|
87
|
|
|
Additional paid-in capital
|
|
|
145,280
|
|
|
|
144,148
|
|
|
Accumulated deficit
|
|
|
(144,928
|
)
|
|
|
(135,936
|
)
|
|
Accumulated other comprehensive income
|
|
|
4
|
|
|
|
4
|
|
|
Total stockholders' equity
|
|
|
443
|
|
|
|
8,303
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
20,798
|
|
|
$
|
29,971
|
|
|
Going concern
[note 1]
|
|
|
|
|
|
|
See accompanying notes.
5
Achieve Life Sciences, Inc.
Consolidated
Statements of Loss and Comprehensive Loss
(Unaudited)
(In thousands, except per share and share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
Research and development
|
|
|
5,534
|
|
|
|
4,388
|
|
|
General and administrative
|
|
|
3,044
|
|
|
|
2,838
|
|
|
Total operating expenses
|
|
|
8,578
|
|
|
|
7,226
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
Interest income
|
|
|
162
|
|
|
|
4
|
|
|
Interest expense
[note 7]
|
|
|
(573
|
)
|
|
|
(357
|
)
|
|
Other income (expense)
|
|
|
(3
|
)
|
|
|
6
|
|
|
Total other (expense)
|
|
|
(414
|
)
|
|
|
(347
|
)
|
|
Net loss and comprehensive loss
|
|
$
|
(8,992
|
)
|
|
$
|
(7,573
|
)
|
|
Basic and diluted net loss per common share
[note 8[d]]
|
|
$
|
(0.50
|
)
|
|
$
|
(0.80
|
)
|
|
Weighted average shares used in computation of basic and diluted
net loss per common share
[note 8[d]]
|
|
|
17,917,769
|
|
|
|
9,458,745
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
6
Achieve Life Sciences, Inc.
Consolidated
Statements of Cash Flows
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,992
|
)
|
|
$
|
(7,573
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
[note 4]
|
|
|
58
|
|
|
|
60
|
|
|
Stock-based compensation [note
8[c], note 8[e], note 8[f] and note 8[g]]
|
|
|
1,085
|
|
|
|
823
|
|
|
Shares issued as settlement with trade vendor
|
|
|
—
|
|
|
|
26
|
|
|
Accrued interest on SVB convertible debt
[note 7]
|
|
|
300
|
|
|
|
271
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Grant receivable
[note 3]
|
|
|
16
|
|
|
|
153
|
|
|
Prepaid expenses and other assets
|
|
|
886
|
|
|
|
(10
|
)
|
|
Accounts payable
|
|
|
(597
|
)
|
|
|
(423
|
)
|
|
Accrued liabilities other
|
|
|
296
|
|
|
|
300
|
|
|
Accrued clinical liabilities
|
|
|
(366
|
)
|
|
|
870
|
|
|
Accrued compensation
|
|
|
(931
|
)
|
|
|
(1,277
|
)
|
|
Lease obligation
[note 9]
|
|
|
(58
|
)
|
|
|
1
|
|
|
Net cash used in operating activities
|
|
|
(8,303
|
)
|
|
|
(6,779
|
)
|
|
Financing Activities:
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants
|
|
|
77
|
|
|
|
24
|
|
|
Proceeds from ATM, net of issuance costs
|
|
|
—
|
|
|
|
91
|
|
|
Financing costs relating to convertible debt with SVB
|
|
|
—
|
|
|
|
(20
|
)
|
|
Financing costs relating to November 2022 private
placement
|
|
|
(30
|
)
|
|
|
—
|
|
|
Net cash provided by financing activities
|
|
|
47
|
|
|
|
95
|
|
|
Effect of exchange rate changes on cash
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
Net decrease in cash, cash equivalents and restricted
cash
|
|
|
(8,257
|
)
|
|
|
(6,685
|
)
|
|
Cash, cash equivalents and restricted cash at beginning of the
period
|
|
|
24,821
|
|
|
|
43,072
|
|
|
Cash, cash equivalents and restricted cash at end of the
period
|
|
$
|
16,564
|
|
|
$
|
36,387
|
|
See accompanying notes.
7
Achieve Life Sciences, Inc.
Consolidated Statements
of Stockholders’ Equity
(Unaudited)
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Total,
|
|
|
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
Balance, December 31, 2022
|
|
|
17,897,029
|
|
|
$
|
87
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
144,148
|
|
|
$
|
4
|
|
|
$
|
(135,936
|
)
|
|
$
|
8,303
|
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,085
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,085
|
|
|
Shares issued on exercise of warrants
|
|
|
33,333
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
77
|
|
|
|
—
|
|
|
|
—
|
|
|
|
77
|
|
|
Financing costs relating to November 2022 private
placement
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(30
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(30
|
)
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,992
|
)
|
|
|
(8,992
|
)
|
|
Balance, March 31, 2023
|
|
|
17,930,362
|
|
|
$
|
87
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
145,280
|
|
|
$
|
4
|
|
|
$
|
(144,928
|
)
|
|
$
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Total,
|
|
|
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
Balance, December 31, 2021
|
|
|
9,453,542
|
|
|
$
|
79
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
121,545
|
|
|
$
|
4
|
|
|
$
|
(93,586
|
)
|
|
$
|
28,042
|
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
823
|
|
|
|
—
|
|
|
|
—
|
|
|
|
823
|
|
|
Shares issued on exercise of warrants
|
|
|
3,709
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24
|
|
|
|
—
|
|
|
|
—
|
|
|
|
24
|
|
|
Shares issued from purchase agreement with Virtu
|
|
|
12,742
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
91
|
|
|
|
—
|
|
|
|
—
|
|
|
|
91
|
|
|
Shares issued as settlement with trade vendor
|
|
|
3,584
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
26
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,573
|
)
|
|
|
(7,573
|
)
|
|
Balance, March 31, 2022
|
|
|
9,473,577
|
|
|
$
|
79
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
122,509
|
|
|
$
|
4
|
|
|
$
|
(101,159
|
)
|
|
$
|
21,433
|
|
See accompanying notes.
8
Achieve Life Sciences, Inc.
Notes
to Consolidated Financial Statements
(Unaudited)
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND GOING CONCERN
UNCERTAINTY
Achieve Life Sciences, Inc. (referred to as “Achieve,” “we,” “us,”
or “our”) is a clinical-stage pharmaceutical company committed to
the global development and commercialization of cytisinicline for
smoking cessation and nicotine addiction. We were incorporated in
the state of Delaware, and operate out of Seattle, Washington and
Vancouver, British Columbia.
The unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the
United States, or U.S. GAAP, for interim financial information and
with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required to be
presented for complete financial statements. The accompanying
unaudited consolidated financial statements reflect all adjustments
(consisting only of normal recurring items) which are, in the
opinion of management, necessary for a fair presentation of the
results for the interim periods presented. The accompanying
consolidated Balance Sheet at December 31, 2022 has been derived
from the audited consolidated financial statements included in our
Annual Report on Form 10-K for the year then ended. The unaudited
consolidated financial statements and related disclosures have been
prepared with the assumption that users of the interim financial
information have read or have access to the audited consolidated
financial statements for the preceding fiscal year. Accordingly,
these financial statements should be read in conjunction with the
audited consolidated financial statements and the related notes
thereto included in the Annual Report on Form 10-K for the year
ended December 31, 2022 and filed with the U.S. Securities and
Exchange Commission, or the SEC, on March 16, 2023.
The consolidated financial statements include the accounts of
Achieve and our wholly owned subsidiaries, Achieve Life Sciences
Technologies Inc., Achieve Life Science, Inc., Extab Corporation,
and Achieve Pharma UK Limited. All intercompany balances and
transactions have been eliminated.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming
we will continue to operate as a going concern, which contemplates
the realization of assets and liabilities and commitments in the
normal course of business.
We have historically experienced recurring losses from operations
and have incurred an accumulated deficit of $144.9
million through March 31, 2023. As of March 31, 2023, we had cash
and cash equivalents of $16.5
million and a negative working capital balance of
$2.1
million. For the three months ended March 31, 2023, we incurred a
net loss of $9.0
million and net cash used in operating activities was
$8.3
million.
Substantial doubt exists as to our ability to continue as a going
concern. Our ability to continue as a going concern is subject to
material uncertainty and dependent on our ability to obtain
additional financing. We have historically financed our operations
through equity and debt financings. There can be no assurance that
financing from these or other sources will be available to us in
the future. Without additional funds, we may be forced to delay,
scale back or eliminate some of our research and development, or
R&D, activities or other operations and potentially delay
product development in an effort to provide sufficient funds to
continue our operations. If any of these events occurs, our ability
to achieve our development and commercialization goals would be
adversely affected.
Our current resources are insufficient to fund our planned
operations for the next twelve months. We will continue to require
substantial additional capital to continue our clinical development
activities. Accordingly, we will need to raise substantial
additional capital to continue to fund our operations from the sale
of our securities, debt, partnering arrangements, non-dilutive
fundraising or other financing transactions in order to finance the
remaining development and commercialization of our product
candidate. The amount and timing of our future funding requirements
will depend on many factors, including the pace and results of our
clinical development efforts. The uncertainty with respect to our
operations and the market generally due to increasing interest
rates and inflation may also make it challenging to raise
additional capital on favorable terms, if at all. In addition,
current macroeconomic conditions have caused turmoil in the banking
sector. For example, on March 10, 2023, Silicon Valley Bank, or
SVB, one of our banking partners, was closed by the California
Department of Financial Protection and Innovation, which appointed
the Federal Deposit Insurance Corporation, or FDIC, as receiver. On
March 26, 2023, it was announced that First-Citizens Bank &
Trust Company would assume all of SVB’s deposits and loans as of
March 27, 2023 and since that date we continue to have full access
to our cash and cash equivalents. Failure to raise capital as and
when needed, on favorable terms or at all, will have a negative
impact on our financial condition and our ability to develop our
product candidate. We expect our R&D expenses to substantially
increase in connection with our ongoing activities, particularly as
we advance our product candidate in clinical
development.
9
As disclosed in Note 7, we are required to keep substantially all
of our cash and cash equivalents with a single financial
institution, SVB, as required by the covenants of our Debt
Agreement (Note 7 – Convertible Debt), and we have a loan and
security agreement, or Loan Agreement, with SVB under which we have
the option to borrow up to $10.0
million of term loans having an aggregate original principal amount
of up to $10.0
million, or Term Loans. As of
March 31, 2023,
no
amounts had been drawn under the Term Loans. The availability of
Term Loans under the Loan Agreement expired on
April 30, 2023,
with no amounts drawn under the facility. There can be no assurance
that SVB, First Citizens or any successor lender(s) will be willing
to work with us on any modifications to the current Convertible
Debt agreement.
The consolidated financial statements do not include any
adjustments to the amounts and classification of assets and
liabilities that might be necessary should we be unable to continue
as a going concern. Such adjustments could be material.
2. ACCOUNTING POLICIES
The preparation of financial statements in accordance with U.S.
GAAP requires management to make estimates and assumptions that
affect reported amounts and related disclosures. We have discussed
those estimates that we believe are critical and require the use of
complex judgment in their application in our audited financial
statements for the year ended December 31, 2022 in our Annual
Report on Form 10-K filed with the SEC, on March 16, 2023. Since
December 31, 2022, there have been no material changes to our
critical accounting policies or the methodologies or assumptions we
apply under them.
3. GOVERNMENT GRANT
In July 2021, we announced that we were awarded a grant from the
National Institute on Drug Abuse, or NIDA, of the National
Institutes of Health, or NIH, to evaluate the use of cytisinicline
as a treatment for cessation of nicotine e-cigarette use. This
initial grant award, in the amount of $0.3
million, commenced on August 1, 2021, and was utilized to complete
critical regulatory and clinical operational activities, such as
protocol finalization, clinical trial site identification, drug
packaging, and submission of a new Investigational New Drug
Application, or IND, to the U.S. Food and Drug Administration, or
FDA, for investigating cytisinicline in nicotine e-cigarette
users.
In November 2021, we announced that the FDA had completed their
review and accepted the IND application to investigate
cytisinicline as a cessation treatment in this population. In June
2022, following NIH review of completed milestones, we announced
that we were awarded the next grant funding from the NIDA in the
amount of approximately $2.5
million, which we have used to conduct the ORCA-V1 Phase 2 clinical
trial.
In June 2022, we announced the initiation of the ORCA-V1 Phase 2
clinical trial. ORCA-V1 will evaluate the efficacy and safety of
3
mg cytisinicline dosed three times daily compared to placebo in
approximately 160 adult e-cigarette users at five clinical trial
locations in the United States. Participants were randomized to
receive cytisinicline or placebo for 12 weeks in combination with
standard cessation behavioral support.
The full grant award of $2.8
million is expected to cover approximately half of the total
ORCA-V1 clinical study costs. The Primary Investigators for the
grant are our Chief Medical Officer, Dr. Cindy Jacobs, and Dr.
Nancy Rigotti, Professor of Medicine at Harvard Medical School and
Director, Tobacco Research and Treatment Center, Massachusetts
General Hospital.
For the three months ended March 31, 2023,
we incurred $0.5
million in qualifying R&D expenditures under the NIDA/NIH
grant, which has been recorded as a reduction in R&D
expense.
As of March 31, 2023, we had $0.1
million in grant receivable related to the NIDA/NIH grant. Of the
$2.5
million grant awarded, we have received $1.6
million in reimbursements from NIDA/NIH.
4. INTANGIBLES
All of our intangible assets are subject to amortization and are
amortized using the straight-line method over their estimated
useful life.
We acquired license and supply agreements in relation to
cytisinicline upon the acquisition of Extab Corporation, or Extab,
on May 18, 2015. The agreements were determined to have a fair
value of $3.1
million with an estimated useful life of
14
years.
The components of intangible assets were as follows:
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023
|
|
|
December 31, 2022
|
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
License Agreements
|
|
$
|
3,117
|
|
|
$
|
(1,754
|
)
|
|
$
|
1,363
|
|
|
$
|
3,117
|
|
|
$
|
(1,699
|
)
|
|
$
|
1,418
|
|
For each of the three months ended March 31, 2023 and
2022,
we recorded license agreement amortization expense of
$0.1
million.
The following table outlines the estimated future amortization
expense related to intangible assets held as of
March 31, 2023:
|
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
2023
|
|
|
167
|
|
|
2024
|
|
|
223
|
|
|
2025
|
|
|
223
|
|
|
Thereafter
|
|
|
750
|
|
|
Total
|
|
$
|
1,363
|
|
We evaluate the carrying amount of intangible assets periodically
by taking into account events or circumstances that may warrant
revised estimates of useful life or that indicate the asset may be
impaired. We conducted an analysis of potential impairment
indicators for long lived assets, including the license and supply
agreements for the active pharmaceutical ingredient cytisinicline,
and concluded that there were
no
indicators of impairment identified as of
March 31, 2023.
5. LICENSE AGREEMENTS
Sopharma License and Supply Agreements
We are party to a license agreement, or the Sopharma License
Agreement, and a supply agreement, or the Sopharma Supply
Agreement, with Sopharma, AD, or Sopharma. Pursuant to the Sopharma
License Agreement, we were granted access to all available
manufacturing, efficacy and safety data related to cytisinicline,
as well as a granted patent in several European countries related
to new oral dosage forms of cytisinicline providing enhanced
stability. Additional rights granted under the Sopharma License
Agreement include the exclusive use of, and the right to
sublicense, certain cytisinicline trademarks in all territories
described in the Sopharma License Agreement. Under the Sopharma
License Agreement, we agreed to pay a nonrefundable license fee. In
addition, we agreed to make certain royalty payments equal to a
mid-single digit percentage of all net sales of cytisinicline
products in our territory during the term of the Sopharma License
Agreement, including those sold by a third party pursuant to any
sublicense which may be granted by us. To date, any amounts paid to
Sopharma pursuant to the Sopharma License Agreement have been
immaterial.
6. FAIR VALUE MEASUREMENTS
Assets and liabilities recorded at fair value in the balance sheets
are categorized based upon the level of judgment associated with
the inputs used to measure their fair value. For certain of our
financial instruments including amounts receivable and accounts
payable the carrying values approximate fair value due to their
short-term nature.
ASC 820 “Fair Value Measurements and Disclosures” specifies a
hierarchy of valuation techniques based on whether the inputs to
those valuation techniques are observable or unobservable. In
accordance with ASC 820, these inputs are summarized in the three
broad levels listed below:
•
Level 1 – Quoted prices in active markets for identical
securities.
•
Level 2 – Other significant inputs that are observable through
corroboration with market data (including quoted prices in active
markets for similar securities).
•
Level 3 – Significant unobservable input that reflects management’s
best estimate of what market participants would use in pricing the
asset or liability.
As quoted prices in active markets are not readily available for
certain financial instruments, we obtain estimates for the fair
value of financial instruments through third-party pricing service
providers.
In determining the appropriate levels, we performed a detailed
analysis of the assets and liabilities that are subject to ASC
820.
We invest our excess cash in accordance with investment guidelines
that limit the credit exposure to any one financial institution
other than securities issued by the U.S. Government. These
securities are not collateralized and mature within
one year.
A description of the valuation techniques applied to our financial
instruments measured at fair value on a recurring basis
follows.
11
Financial Instruments
Money Market Securities
Money market securities are classified within Level 1 of the fair
value hierarchy and are valued based on quoted prices in active
markets for identical securities.
The following table presents information about our assets that are
measured at fair value on a recurring basis, and indicates the fair
value hierarchy of the valuation techniques we utilized to
determine such fair value (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market securities (cash equivalents)
|
|
|
12,759
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,759
|
|
|
Restricted cash
|
|
|
50
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
|
Total assets
|
|
$
|
12,809
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,809
|
|
Cash equivalents consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
March 31, 2023
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Money market securities
|
|
$
|
12,759
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,759
|
|
|
Total cash equivalents
|
|
$
|
12,759
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,759
|
|
|
Money market securities (restricted cash)
|
|
|
50
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
|
Total restricted cash
|
|
$
|
50
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
50
|
|
We only invest in A (or equivalent) rated securities. All
securities included in cash and cash equivalents had maturities
of
90
days or less at the time of purchase.
Concentration of Cash and Cash Equivalents Risk
We place our cash primarily in commercial checking accounts with
various financial institutions. As of March 31, 2023, approximately
$3.7
million of our cash and $12.8
million or our cash equivalents is held in a single financial
institution, SVB, as required by the covenants of our Convertible
Debt Agreement (Note 7 – Convertible Debt). Our commercial bank
balances exceed federal insurance limits. We have not experienced
any losses in our cash and cash equivalents for the three months
ended March 31, 2023 and 2022.
Fair Value of Long-Term Debt
December 2021 Convertible Debt
The principal amount, carrying value and related estimated fair
value of our convertible debt reported in the consolidated balance
sheets as of March 31, 2023 and December 31, 2022
was as follows (in thousands).
The aggregate fair value of the principal amount of the convertible
debt is a Level 2 fair value measurement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023
|
|
|
December 31, 2022
|
|
|
|
|
Principal
|
|
|
Carrying
|
|
|
Fair
|
|
|
Principal
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
Amount
|
|
|
Value
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Value
|
|
|
December 2021 Convertible Debt
|
|
$
|
15,000
|
|
|
$
|
16,371
|
|
|
$
|
17,256
|
|
|
$
|
15,000
|
|
|
$
|
16,071
|
|
|
$
|
16,987
|
|
7. CONVERTIBLE DEBT
On December 22, 2021, we entered into a $25.0
million contingent convertible debt agreement, or Original Debt
Agreement, with Silicon Valley Bank, or SVB, and SVB Innovation
Credit Fund VIII, L.P., or, together with SVB, the Lenders. As part
of the Original Debt Agreement, the Lenders funded
$15.0
million in the form of convertible indebtedness, or Convertible
Debt, at closing. On April 26, 2022, we entered into (i) the Loan
Agreement with SVB for the remaining $10.0
million remaining in the Original Debt Agreement, pursuant to which
SVB provided a commitment to extend the Term Loans, and (ii) a
first amendment to the Original Debt Agreement, or the Amendment,
and as amended by the Amendment, the Debt Agreement.
12
Under the terms of the Debt Agreement, the Convertible Debt matures
on
December 22, 2023
and may be extended to
December 22, 2024
upon our written request and SVB’s approval on or prior to December
22, 2023. The Convertible Debt will accrue interest at the
aggregate of (a) a floating rate per annum equal to the greater of
(i)
2.25%
and (ii) the prime rate minus
1.0%,
which interest is payable in cash monthly in arrears, and
(b)
7.0%
per annum, which interest shall compound monthly.
Subject to certain terms and conditions, the Lenders may convert
all or any part of the outstanding Convertible Debt and accrued and
unpaid interest at any time prior to maturity into shares of our
common stock at a conversion price equal to $9.34
per share, subject to customary anti-dilution adjustments.
Additionally, all outstanding Convertible Debt, including accrued
and unpaid interest, will mandatorily convert into shares of our
common stock, at the conversion price, on such date, if any, when
the closing price per share of our common stock has been equal to
or greater than $24.00
for
thirty
consecutive trading days prior to such date).
We have the right, or Call Right, at any time to repay and retire
all (but not less than all) of the outstanding Convertible Debt and
accrued and unpaid interest, if any, prior to its conversion by
payment of a premium determined based on the date of such repayment
equal to:
i.
125%
of the principal amount of the Convertible Debt including accrued
paid-in-kind interest, or PIK, if the Call Right is exercised on or
before the 18-month anniversary of the date of the Debt Agreement;
and
ii.
150%
of the principal amount of the Convertible Debt including accrued
PIK, if the Call Right is exercised after the 18-month anniversary
of the date of the Debt Agreement,
in either case together with all accrued and unpaid interest on the
principal balance of the Convertible Debt. If the Call Right is
exercised by us, the Lenders will retain certain lookback rights in
the event we enter into an agreement to be acquired in the twelve
months following the exercise of the Call Right. We agreed to grant
the Lenders a security interest in virtually all of our assets,
including our patents and other intellectual property as security
for our obligations under the Debt Agreement.
Subject to the terms and conditions of the Loan Agreement, we could
borrow Term Loans under the Loan Agreement until April 30, 2023.
Amounts borrowed under the Loan Agreement incurred interest at a
floating rate equal to the greater of
3.50%
and the Wall Street Journal, or WSJ, prime rate, and will be
subject to interest only payments through April 30, 2024.
Commencing on May 1, 2024, the outstanding loans under the Loan
Agreement will be repaid in 24 consecutive equal monthly
installments of principal plus accrued and unpaid
interest.
The Term Loans mature on
April 1, 2026.
Upon the earliest to occur of the maturity date, repayment of the
Term Loans in full, acceleration of the loans or termination of the
Loan Agreement, we will be required to pay a final payment equal to
the aggregate principal amount of the Term Loan advances extended
by SVB multiplied by
6.0%.
Our obligations under the Loan Agreement are secured by
substantially all of our assets, other than our intellectual
property.
Upon and after borrowing under the Loan Agreement, we must comply
with certain financial covenants as set forth in the Loan Agreement
and the Amendment, including a minimum liquidity ratio of at
least
1.25
to 1.00, or at our election after receiving at least
$30
million in net cash proceeds from the issuance and sale of equity
securities, a minimum market capitalization of at least
$250
million. The Loan Agreement also contains customary affirmative and
restrictive covenants, including covenants regarding the incurrence
of additional indebtedness or liens, investments, transactions with
affiliates, delivery of financial statements, payment of taxes,
maintenance of insurance, dispositions of property, mergers or
acquisitions, among other customary covenants. We are also
restricted from paying dividends or making other distributions or
payments on its capital stock, subject to limited exceptions. The
Loan Agreement includes customary representations and warranties,
events of default and termination provisions. In addition to the
financial covenants described above, the Amendment makes certain
other changes to the Original Debt Agreement related to our entry
into the Loan Agreement. As of
March 31, 2023
no
amounts had been drawn on the Term Loans. The availability of Term
Loans under the Loan Agreement expired on
April 30, 2023,
with
no
amounts drawn under the facility.
Under ASU 2020-06, the embedded conversion feature was not required
to be bifurcated and recognized separately, as a result the
convertible debt including the conversion feature has been
recognized as a single unit of debt. The debt issuance costs have
been recognized against the single unit of debt and will be
amortized into interest expense over the term of the
loan.
As of
March 31, 2023 and December 31, 2022, the Convertible Debt balance
was comprised of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2023
|
|
|
2022
|
|
|
Convertible Debt Information
|
|
|
|
|
|
|
Principal
|
$
|
15,000
|
|
|
$
|
15,000
|
|
|
Transaction Costs
|
|
(50
|
)
|
|
|
(67
|
)
|
|
Accrued paid-in-kind interest
|
|
1,421
|
|
|
|
1,138
|
|
|
|
|
16,371
|
|
|
|
16,071
|
|
13
8. COMMON STOCK
[a] Authorized
150,000,000
authorized common shares, par value of $0.001,
and
5,000,000
preferred shares, par value of $0.001.
[b] Issued and outstanding shares
At-the-Market Sales Agreement
On December 21, 2021, we entered into an At-the-Market Offering
Sales Agreement, or ATM, with Virtu Americas, LLC, as sales agent,
pursuant to which we may sell shares of common stock with an
aggregate offering price of up to $25
million.
Since entry into the ATM, from December 21, 2021 through March 31,
2023,
we offered and sold an aggregate of
200,000
shares of our common stock. These aggregate sales resulted in gross
proceeds to us of approximately $1.5
million. As of
March 31, 2023,
shares of our common stock having an aggregate value of
approximately $23.5
million remained available for sale under the ATM.
During the three months ended March 31, 2023,
we did
not
sell any shares of our common stock pursuant to the ATM.
November 2022 Private Placement
In November 2022, we entered into subscription agreements with
certain accredited investors pursuant to which we sold to the
purchasers in a private placement transaction approximately
4,093,141
units at a purchase price of $4.625
per unit, with
each unit consisting of two shares of common stock and a common
stock purchase warrant to purchase one share of common stock, or
the November 2022 Warrants.
The November 2022 Warrants are exercisable at a price per share of
common stock of $4.50,
subject to adjustment. The November 2022 Warrants are exercisable
beginning on the six-month anniversary of the initial closing date
of the private placement offering, May 18, 2023, or the Initial
Exercise Date, and will expire on the seven year anniversary of the
initial closing date of the private placement offering, or November
18, 2029. The November 2022 Warrants cannot be exercised by a
warrant holder if, after giving effect thereto, such warrant holder
would beneficially own more than
19.99%
of our outstanding common stock. Additionally, subject to certain
exceptions, if, after the Initial Exercise Date, (i) the volume
weighted average price of our common stock for each of
30
consecutive trading days, or the November 2022 Measurement Period,
which November 2022 Measurement Period commenced on November 18,
2022, exceeds
300%
of the exercise price (subject to adjustments for stock splits,
recapitalizations, stock dividends and similar transactions), (ii)
the average daily trading volume for such November 2022 Measurement
Period exceeds $500,000
per trading day and (iii) certain other equity conditions are met,
and subject to a beneficial ownership limitation, then we may call
for cancellation of all or any portion of the November 2022
Warrants then outstanding.
We received approximately $17.8
million in net proceeds from the private placement after deducting
placement agent expenses and commissions and offering
expenses
Equity Award Issuances and Settlements
During the three months ended March 31, 2023 and
2022,
we did
not
issue any shares of common stock to satisfy stock option exercises
and we did
not
issue any common stock to satisfy restricted stock unit
settlements.
14
[c] Stock options
2018 Equity Incentive Plan
As of March 31, 2023, we had reserved, pursuant to the 2018 Equity
Incentive Plan, or the 2018 Plan,
1,862,003
shares of common stock for issuance upon exercise of stock options
and settlement of restricted stock units by employees, directors,
officers and consultants of ours, of which
1,180,905
were reserved for options currently outstanding,
647,625
for restricted stock units currently outstanding, and
33,473
were available for future equity grants.
Under the 2018 Plan, we may grant options to purchase common shares
or restricted stock units to our employees, directors, officers and
consultants. The exercise price of the options is determined by our
board of directors, or Board, but will be at least equal to the
fair value of the shares of common stock at the grant date. The
options vest in accordance with terms as determined by our Board,
typically over
three
to
four years
for options issued to employees and consultants, and over
one
to
three years