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 June 30, 2019

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)

 

Delaware

 

95-4343413

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification Number)

1040 West Georgia Street, Suite 1030, Vancouver, British Columbia, 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 August 8, 2019, there were 8,097,763 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

3

 

 

 

Item 1

Consolidated Financial Statements (unaudited)

3

 

 

 

 

Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018

3

 

 

 

 

Consolidated Statements of Loss and Comprehensive Loss (unaudited) for the three and six months ended June 30, 2019 and June 30, 2018

4

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2019 and June 30, 2018

5

 

 

 

 

Consolidated Statements of Stockholders’ Equity (unaudited) for the six months ended June 30, 2019 and June 30, 2018

6

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

 

 

 

 

 

Item 4.

Controls and Procedures

29

 

 

Part II.   Other Information

31

 

 

 

Item 1A.

Risk Factors

31

 

 

 

Item 6.

Exhibits

52

 

 

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

 

 

 

Signatures

53

2


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) 

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents [note 5]

 

$

10,446

 

 

$

9,515

 

Short-term investments [note 5]

 

 

 

 

 

5,089

 

Prepaid expenses and other assets

 

 

356

 

 

 

933

 

Total current assets

 

 

10,802

 

 

 

15,537

 

Restricted cash [note 5]

 

 

50

 

 

 

50

 

Property and equipment, net

 

 

71

 

 

 

35

 

Operating lease right-of-use assets [note 7]

 

 

414

 

 

 

 

Other assets

 

 

185

 

 

 

118

 

License agreement [note 3 and 4]

 

 

2,199

 

 

 

2,310

 

Goodwill [note 4]

 

 

1,034

 

 

 

1,034

 

Total assets

 

$

14,755

 

 

$

19,084

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

707

 

 

$

144

 

Accrued liabilities other

 

 

342

 

 

 

748

 

Accrued clinical liabilities

 

 

892

 

 

 

1,199

 

Accrued compensation

 

 

855

 

 

 

1,168

 

Current portion of obligations [note 7]

 

 

16

 

 

 

11

 

Current portion of lease liability [note 7]

 

 

176

 

 

 

 

Total current liabilities

 

 

2,988

 

 

 

3,270

 

Long-term obligations [note 7]

 

 

20

 

 

 

12

 

Long-term lease liability [note 7]

 

 

243

 

 

 

 

Total liabilities

 

 

3,251

 

 

 

3,282

 

Commitments and contingencies [note 7]

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.001 par value, 5,000,000 shares authorized, zero issued and outstanding at June 30, 2019 and 579 issued and outstanding at December 31, 2018.

 

 

 

 

 

 

Common stock, $0.001 par value, 150,000,000 shares authorized, 8,097,763 issued and outstanding at June 30, 2019 and 6,721,117 issued and outstanding at December 31, 2018, respectively.

 

 

19

 

 

 

18

 

Additional paid-in capital

 

 

50,318

 

 

 

41,161

 

Accumulated deficit

 

 

(38,837

)

 

 

(25,381

)

Accumulated other comprehensive income

 

 

4

 

 

 

4

 

Total stockholders' equity

 

 

11,504

 

 

 

15,802

 

Total liabilities and stockholders' equity

 

$

14,755

 

 

$

19,084

 

Going concern [note 1]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

3


Achieve Life Sciences, Inc.

Consolidated Statements of Loss and Comprehensive Loss

(Unaudited)

(In thousands, except per share and share amounts)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,032

 

 

 

1,045

 

 

 

6,087

 

 

 

2,246

 

General and administrative

 

 

1,630

 

 

 

1,751

 

 

 

3,515

 

 

 

3,564

 

Total operating expenses

 

 

3,662

 

 

 

2,796

 

 

 

9,602

 

 

 

5,810

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

41

 

 

 

17

 

 

 

103

 

 

 

27

 

Other expenses

 

 

(3

)

 

 

(9

)

 

 

(29

)

 

 

(27

)

Total other income (expense)

 

 

38

 

 

 

8

 

 

 

74

 

 

 

 

Net loss

 

 

(3,624

)

 

 

(2,788

)

 

 

(9,528

)

 

 

(5,810

)

OTHER COMPREHENSIVE LOSS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$

(3,624

)

 

$

(2,788

)

 

$

(9,528

)

 

$

(5,810

)

Basic and diluted net loss per common share

 

$

(0.50

)

 

$

(1.82

)

 

$

(1.37

)

 

$

(4.18

)

Weighted average shares used in computation of basic and diluted net loss per common share

 

 

7,189,672

 

 

 

1,529,532

 

 

 

6,956,722

 

 

 

1,389,209

 

 

See accompanying notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4


Achieve Life Sciences, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(9,528

)

 

$

(5,810

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization [note 3]

 

 

130

 

 

 

154

 

Stock-based compensation [note 6 [c] and note 6 [d]]

 

 

607

 

 

 

378

 

Cumulative adjustment on adoption of lease standard

 

 

(3

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Amounts receivable

 

 

 

 

 

(21

)

Prepaid expenses and other assets

 

 

510

 

 

 

433

 

Accounts payable

 

 

563

 

 

 

38

 

Accrued liabilities other

 

 

(402

)

 

 

528

 

Accrued clinical liabilities

 

 

(307

)

 

 

(95

)

Accrued compensation

 

 

(313

)

 

 

292

 

Other liabilities

 

 

13

 

 

 

2

 

Net cash used in operating activities

 

 

(8,730

)

 

 

(4,101

)

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from the sale of preferred stock, common stock and warrants, net of issuance costs

 

 

 

 

 

12,193

 

Proceeds from exercise of warrants, net of issuance costs

 

 

4,199

 

 

 

428

 

Proceeds from purchase agreement with Lincoln Park Capital, net of issuance costs

 

 

423

 

 

 

1,280

 

Net cash provided by financing activities

 

 

4,622

 

 

 

13,901

 

Investing Activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(52

)

 

 

(36

)

Proceeds on disposal of assets

 

 

 

 

 

10

 

Purchase of investments

 

 

(25

)

 

 

 

Proceeds from maturities of investments

 

 

5,114

 

 

 

 

Net cash provided by (used in) investing activities

 

 

5,037

 

 

 

(26

)

Effect of exchange rate changes on cash

 

 

2

 

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

931

 

 

 

9,774

 

Cash, cash equivalents and restricted cash at beginning of the period

 

 

9,565

 

 

 

5,556

 

Cash, cash equivalents and restricted cash at end of the period

 

$

10,496

 

 

$

15,330

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5


 

 

 

 

 

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, 2018

 

 

6,721,117

 

 

$

18

 

 

 

579

 

 

$

 

 

$

41,161

 

 

$

4

 

 

$

(25,381

)

 

$

15,802

 

Restricted stock unit settlements

 

 

83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

290

 

 

 

 

 

 

 

 

 

290

 

Adjustments to final October 2018 financing costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Cumulative adjustment on adoption of lease standard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,904

)

 

 

(5,904

)

Balance, March 31, 2019

 

 

6,721,200

 

 

$

18

 

 

 

579

 

 

$

 

 

$

41,455

 

 

$

4

 

 

$

(31,288

)

 

$

10,189

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

317

 

 

 

 

 

 

 

 

 

317

 

Shares issued - from purchase agreement with Lincoln Park Capital

 

 

124,000

 

 

 

 

 

 

 

 

 

 

 

 

423

 

 

 

 

 

 

 

 

 

423

 

Shares issued on exercise of warrants

 

 

1,107,813

 

 

 

1

 

 

 

 

 

 

 

 

 

4,198

 

 

 

 

 

 

 

 

 

4,199

 

Issuance of inducement warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,925

 

 

 

 

 

 

(3,925

)

 

 

 

Shares issued on conversion of preferred shares

 

 

144,750

 

 

 

 

 

 

(579

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,624

)

 

 

(3,624

)

Balance, June 30, 2019

 

 

8,097,763

 

 

$

19

 

 

 

 

 

$

 

 

$

50,318

 

 

$

4

 

 

$

(38,837

)

 

$

11,504

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2017

 

 

1,194,793

 

 

$

12

 

 

 

 

 

$

 

 

$

20,556

 

 

$

5

 

 

$

(12,694

)

 

$

7,879

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

181

 

 

 

 

 

 

 

 

 

181

 

Shares issued - from purchase agreement with Lincoln Park Capital

 

 

80,000

 

 

 

1

 

 

 

 

 

 

 

 

 

1,103

 

 

 

 

 

 

 

 

 

1,104

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,022

)

 

 

(3,022

)

Balance, March 31, 2018

 

 

1,274,793

 

 

$

13

 

 

 

 

 

$

 

 

$

21,840

 

 

$

5

 

 

$

(15,716

)

 

$

6,142

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

197

 

 

 

 

 

 

 

 

 

197

 

Shares issued - from purchase agreement with Lincoln Park Capital

 

 

16,000

 

 

 

 

 

 

 

 

 

 

 

 

174

 

 

 

 

 

 

 

 

 

174

 

Shares issued on conversion of preferred shares

 

 

1,656,750

 

 

 

1

 

 

 

(6,627

)

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

3

 

Shares issued - June 2018 public offering

 

 

1,160,500

 

 

 

1

 

 

 

9,158

 

 

 

 

 

 

12,193

 

 

 

 

 

 

 

 

 

12,194

 

Shares issued on exercise of warrants

 

 

130,500

 

 

 

 

 

 

 

 

 

 

 

 

520

 

 

 

 

 

 

 

 

 

520

 

Adjustment of fractional shares on reverse stock split

 

 

(17

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,788

)

 

 

(2,788

)

Balance, June 30, 2018

 

 

4,238,526

 

 

$

15

 

 

 

2,531

 

 

$

 

 

$

34,926

 

 

$

5

 

 

$

(18,504

)

 

$

16,442

 

 

6


Achieve Life Sciences, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

 

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

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. We were incorporated in the state of Delaware, and operate out of Vancouver, British Columbia and Seattle, Washington.

 

On May 23, 2018, we effected a one-for-ten reverse stock split on our shares of common stock. Unless otherwise noted, impacted amounts and share information included in the financial statements and notes thereto have been retroactively adjusted for the stock split as if such stock split occurred on the first day of the first period presented. Certain amounts in the notes to the financial statements may be slightly different than previously reported due to rounding of fractional shares as a result of the reverse stock split.

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, 2018 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, 2018 and filed with the United States Securities and Exchange Commission, or the SEC, on March 14, 2019.

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.

Liquidity and Going Concern Uncertainty

We have historically experienced recurring losses from operations that have generated an accumulated deficit of $38.8 million through June 30, 2019. During the three and six months ended June 30, 2019, we incurred a net loss of $3.6 million and $9.5 million, respectively. As of June 30, 2019, we had a cash and cash equivalents balance of $10.4 million and a positive working capital balance of $7.8 million.

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.

 

Substantial doubt exists as to our ability to continue as a going concern. Our ability to continue as a going concern is uncertain and dependent on our ability to obtain additional financing. There is no assurance that we will obtain financing from other sources. We have, thus far, financed our operations through the closing of the arrangement between us and OncoGenex Pharmaceuticals, Inc. pursuant to a Merger Agreement dated January 5, 2017, or the Arrangement, and through debt and equity financings (Note 6—Common Stock). Without additional funds, we may be forced to delay, scale back or eliminate some of our research and development 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 12 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, partnering arrangements or other financing transactions in order to finance the 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. 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 research and development expenses to substantially increase in connection with our ongoing activities, particularly as we advance our product candidate in clinical development.

7


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, 2018 in our Annual Report on Form 10-K filed with the SEC, on March 14, 2019. Since December 31, 2018, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them.

Recently Adopted Accounting Policies

In May 2014, the Financial Accounting Standards Board, or FASB issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606): Revenue from Contracts with Customers, which guidance in this update will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance when it becomes effective. ASU No. 2014-09 affects any entity that enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principal of ASU No. 2014-09 is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, which will be our fiscal year 2018 (or December 31, 2018), and entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Early adoption is permitted. We have updated our policies and procedures to reflect the adoption of ASU No. 2014-09. The adoption of this standard did not have an impact on our financial position or results of operations.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after 15 December 2018. The adoption of this standard did not have a significant impact on our financial position or results of operations.

 

In February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update ASU No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use, or ROU, model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases were classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the consolidated statements of loss and comprehensive loss.

 

We elected to adopt the standard on the effective date of January 1, 2019, using the modified retrospective method. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. We elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also elected the available practical expedients and implemented internal controls to enable the preparation of financial information on adoption.

 

The standard had a material impact on our consolidated balance sheets, but did not have an impact on our consolidated statements of loss and comprehensive loss. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged.

 

 

3. INTANGIBLES

All of our intangible assets are subject to amortization and are amortized using the straight-line method over their estimated useful life.

8


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:

 

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

 

Value

 

 

Amortization

 

 

Value

 

 

Value

 

 

Amortization

 

 

Value

 

License Agreements

 

$

3,117

 

 

$

(918

)

 

$

2,199

 

 

$

3,117

 

 

$

(807

)

 

$

2,310

 

 

For the three and six months ended June 30, 2019, we recorded license agreement amortization expense of $0.1 million and $0.1 million, respectively. For the three and six months ended June 30, 2018, we recorded license agreement amortization expense of $0.1 million and $0.1 million, respectively. The following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2019:

 

Year Ending December 31,

 

 

 

 

2019

 

$

112

 

2020

 

 

223

 

2021

 

 

223

 

2022

 

 

223

 

2023

 

 

223

 

Thereafter

 

 

1,195

 

Total

 

$

2,199

 

 

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 no impairment has occurred as of June 30, 2019.

 

 

4. LICENSE AGREEMENTS

Sopharma License and Supply Agreements

In 2009 and 2010, we entered into 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 including Germany, France and Italy 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, the trademark Tabex in all territories—other than certain countries in Central and Eastern Europe, Scandinavia, North Africa, the Middle East and Central Asia, as well as Vietnam, where Sopharma or its affiliates and agents already market Tabex—in connection with the marketing, distribution and sale of products. 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-teens percentage of all net sales of Tabex branded 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. We have agreed to cooperate with Sopharma in the defense against any actual or threatened infringement claims with respect to Tabex. Sopharma has the right to terminate the Sopharma License Agreement upon the termination or expiration of the Sopharma Supply Agreement. The Sopharma License Agreement will also terminate under customary termination provisions including bankruptcy or insolvency and material breach. To date, any amounts paid to Sopharma pursuant to the Sopharma License Agreement have been immaterial.

A cross-license exists between us and Sopharma whereby we grant to Sopharma rights to any patents or patent applications or other intellectual property rights filed by us in Sopharma territories.

On May 14, 2015, we and Sopharma entered into an amendment to the Sopharma License Agreement. Among other things, the amendment to the Sopharma License Agreement reduced the royalty payments payable by us to Sopharma from a percentage in the mid-teens to a percentage in the mid-single digits and extended the term of the Sopharma License Agreement until May 26, 2029.

On July 28, 2017, we and Sopharma entered into the amended and restated Sopharma Supply Agreement. Pursuant to the amended and restated Sopharma Supply Agreement, for territories as detailed in the licensing agreement, we will exclusively purchase all of our cytisinicline from Sopharma, and Sopharma agrees to exclusively supply all such cytisinicline requested by us, and we extended the

9


term to 2037. In addition, Achieve will have full access to the cytisinicline supply chain and Sopharma will manufacture sufficient cytisinicline to meet a forecast for a specified demand of cytisinicline for the five years commencing shortly after the commencement of the agreement, with the forecast to be updated regularly thereafter. Each of us and Sopharma may terminate the Sopharma Supply Agreement in the event of the other party’s material breach or bankruptcy or insolvency.

University of Bristol License Agreement

In July 2016, we entered into a license agreement with the University of Bristol, or the University of Bristol License Agreement. Under the University of Bristol License Agreement, we received exclusive and nonexclusive licenses from the University of Bristol to certain patent and technology rights resulting from research activities into cytisinicline and its derivatives for use in smoking cessation, including a number of patent applications related to novel approaches to cytisinicline binding at the nicotinic receptor level. Any patents issued in connection with these applications would be scheduled to expire on February 5, 2036 at the earliest.

In consideration of rights granted by the University of Bristol, we agreed to pay amounts of up to $3.2 million, in the aggregate, tied to a financing milestone and to specific clinical development and commercialization milestones resulting from activities covered by the University of Bristol License Agreement. Additionally, if we successfully commercialize product candidates subject to the University of Bristol License Agreement, we are responsible for royalty payments in the low-single digits and payments up to a percentage in the mid-teens of any sublicense income, subject to specified exceptions, based upon net sales of such licensed products.

On January 22, 2018, we and the University of Bristol entered into an amendment to the University of Bristol License Agreement. Pursuant to the amended University of Bristol License Agreement, we received exclusive rights for all human medicinal uses of cytisinicline across all therapeutic categories from the University of Bristol from research activities into cytisinicline and its derivatives. In consideration of rights granted by the amended University of Bristol License Agreement, we agreed to pay an initial amount of $37,500 upon the execution of the amended University of Bristol License Agreement, and additional amounts of up to $1.7 million, in the aggregate, tied to a financing milestone and to specific clinical development and commercialization milestones resulting from activities covered by the amended University of Bristol License Agreement, in addition to amounts under the original University of Bristol License Agreement of up to $3.2 million in the aggregate, tied to specific financing, development and commercialization milestones. Additionally, if we successfully commercialize any product candidate subject to the amended University of Bristol License Agreement or to the original University of Bristol License Agreement, we will be responsible, as provided in the original University of Bristol License Agreement, for royalty payments in the low-single digits and payments up to a percentage in the mid-teens of any sublicense income, subject to specified exceptions, based upon net sales of such licensed products. Up to June 30, 2019, we had paid the University of Bristol $125,000 pursuant to the University of Bristol License Agreement.

Unless otherwise terminated, the University of Bristol License Agreement will continue until the earlier of July 2036 or the expiration of the last patent claim subject to the University of Bristol License Agreement. We may terminate the University of Bristol License Agreement for convenience upon a specified number of days’ prior notice to the University of Bristol. The University of Bristol License Agreement will terminate under customary termination provisions including bankruptcy or insolvency or its material breach of the agreement. Under the terms of the University of Bristol License Agreement, we provided 100 grams of cytisinicline to the University of Bristol as an initial contribution.

 

 

5. 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 inputs that reflect 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.

10


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

Cash

Significant amounts of cash are held on deposit with large well-established U.S. and Canadian financial institutions.

Money Market Securities

Money market securities are classified within Level I of the fair value hierarchy and are valued based on quoted prices in active markets for identical securities.

U.S. Government and Agency Securities

U.S. Government Securities U.S. government securities are valued using quoted market prices. Valuation adjustments are not applied. Accordingly, U.S. government securities are categorized in Level 1 of the fair value hierarchy.

U.S. Agency Securities U.S. agency securities are comprised of two main categories consisting of callable and non-callable agency issued debt securities. Non-callable agency issued debt securities are generally valued using quoted market prices. Callable agency issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. Actively traded non-callable agency issued debt securities are categorized in Level 1 of the fair value hierarchy. Callable agency issued debt securities are categorized in Level 2 of the fair value hierarchy.

Corporate and Other Debt

Corporate Bonds and Commercial Paper The fair value of corporate bonds and commercial paper is estimated using recently executed transactions, market price quotations (where observable), bond spreads or credit default swap spreads adjusted for any basis difference between cash and derivative instruments. The spread data used are for the same maturity as the bond. If the spread data does not reference the issuer, then data that reference a comparable issuer are used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default swap spreads and recovery rates based on collateral values as significant inputs. Corporate bonds and commercial paper are generally categorized in Level 2 of the fair value hierarchy; in instances where prices, spreads or any of the other aforementioned key inputs are unobservable, they are categorized in Level 3 of the hierarchy.

Warrants

As of June 30, 2019, the fair value of the warrant liability was insignificant. We reassess the fair value of the common stock warrants classified as liabilities at each reporting date utilizing a Black-Scholes pricing model. Inputs used in the pricing model include estimates of stock price volatility, expected warrant life and risk-free interest rate. The computation of expected volatility was based on the historical volatility of comparable companies from a representative peer group selected based on industry and market capitalization for a period that coincides with the expected life of the warrants that are classified as liabilities. Warrants that are classified as liabilities are categorized in Level 3 of the fair value hierarchy. A small change in the estimates used may have a relatively large change in the estimated valuation. Warrants that are classified as equity are not considered liabilities and therefore are not reassessed for their fair values at each reporting date.

11


The following table presents information about our assets and liabilities 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):

 

June 30, 2019

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

2,033

 

 

$

 

 

$

 

 

$

2,033

 

Money market securities (cash equivalents)

 

 

8,413

 

 

 

 

 

 

 

 

 

8,413

 

Restricted cash

 

 

50

 

 

 

 

 

 

 

 

 

50

 

Corporate bonds and commercial paper (short term investments)

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

10,496

 

 

$

 

 

$

 

 

$

10,496

 

 

Cash, cash equivalents and short-term investments consist of the following (in thousands):

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

June 30, 2019

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Cash

 

$

2,033

 

 

$

 

 

$

 

 

$

2,033

 

Money market securities

 

 

8,413

 

 

 

 

 

 

 

 

 

8,413

 

Total cash and cash equivalents

 

$

10,446

 

 

$

 

 

$

 

 

$

10,446

 

Money market securities (restricted cash)

 

 

50

 

 

 

 

 

 

 

 

 

50

 

Total restricted cash

 

$

50

 

 

$

 

 

$

 

 

$

50

 

Corporate bonds and commercial paper

 

 

 

 

 

 

 

 

 

 

 

 

Total short-term investments

 

$

 

 

$

 

 

$

 

 

$

 

 

Our gross realized gains and losses on sales of available-for-sale securities were not material for the three and six months ended June 30, 2019 and 2018.

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. All securities included in short-term investments have maturities of within one year of the balance sheet date.  The cost of securities sold is based on the specific identification method.

 

 

6. 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. 

 

On May 22, 2018, the Company filed an amendment to its Articles of Incorporation and effected as of May 23, 2018 a one-for-ten reverse stock split of its issued and outstanding shares of common stock, $0.001 par value, and a certificate of amendment to its Second Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock from 75,000,000 to 150,000,000.

[b]