10-Q

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

☐ 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)


Delaware		95-4343413
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)

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)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol	Name of exchange on which registered
Common Stock, par value $0.001 per share	ACHV	The NASDAQ Capital Market

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.


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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


		Page Number

Part I. Financial Information		5

Item 1	Consolidated Financial Statements (unaudited)	5

	Consolidated Balance Sheets as of March 31, 2023 (unaudited) and December 31, 2022	5

	Consolidated Statements of Loss and Comprehensive Loss (unaudited) for the three months ended March 31, 2023 and March 31, 2022	6

	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2023 and March 31, 2022	7

	Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended March 31, 2023 and March 31, 2022	8

	Notes to Consolidated Financial Statements (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21


Item 4.	Controls and Procedures	31

Part II. Other Information		32

Item 1A.	Risk Factors	32

Item 6.	Exhibits	61

Items 2, 3 and 4 are not applicable and therefore have been omitted.

Signatures		62

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.

•

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.

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)


	March 31,			December 31,
	2023			2022

ASSETS
Current assets:
Cash and cash equivalents [note 6]	$	16,514		$	24,771
Grant receivable [note 3]		89			105
Prepaid expenses and other assets		1,621			2,454
Total current assets		18,224			27,330
Right-of-use assets [note 9]		109			66
Other assets and restricted cash [note 6]		68			123
License agreement [note 4 and note 5]		1,363			1,418
Goodwill [note 5]		1,034			1,034
Total assets	$	20,798		$	29,971
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,063		$	1,660
Accrued liabilities other		699			403
Accrued clinical liabilities		1,363			1,729
Accrued compensation		747			1,678
Current portion of long-term obligations [note 9]		58			58
Convertible debt [note 6 and note 7]		16,371			16,071
Total current liabilities		20,301			21,599
Long-term obligations [note 9]		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.

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.

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.

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.

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.

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:


	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.

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