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 September 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, 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 November 6, 2019, there were 8,352,764 shares of the registrant’s Common Stock, $0.001 par value per share, outstanding.
Index to Form 10-Q
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Page |
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3 |
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Item 1 |
3 |
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Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018 |
3 |
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4 |
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5 |
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6 |
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8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
21 |
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Item 4. |
30 |
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31 |
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Item 1A. |
31 |
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Item 6. |
53 |
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Items 2, 3 and 4 are not applicable and therefore have been omitted. |
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54 |
2
Achieve Life Sciences, Inc.
(Unaudited)
(In thousands, except per share and share amounts)
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2019 |
|
|
2018 |
|
||
|
|
|
|
|
|
|
|
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ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents [note 5] |
|
$ |
7,375 |
|
|
$ |
9,515 |
|
Short-term investments [note 5] |
|
|
— |
|
|
|
5,089 |
|
Prepaid expenses and other assets |
|
|
264 |
|
|
|
933 |
|
Total current assets |
|
|
7,639 |
|
|
|
15,537 |
|
Restricted cash [note 5] |
|
|
50 |
|
|
|
50 |
|
Property and equipment, net |
|
|
64 |
|
|
|
35 |
|
Right-of-use assets [note 7] |
|
|
372 |
|
|
|
— |
|
Other assets |
|
|
190 |
|
|
|
118 |
|
License agreement [note 3 and 4] |
|
|
2,143 |
|
|
|
2,310 |
|
Goodwill [note 4] |
|
|
1,034 |
|
|
|
1,034 |
|
Total assets |
|
$ |
11,492 |
|
|
$ |
19,084 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
574 |
|
|
$ |
144 |
|
Accrued liabilities other |
|
|
424 |
|
|
|
748 |
|
Accrued clinical liabilities |
|
|
737 |
|
|
|
1,199 |
|
Accrued compensation |
|
|
1,206 |
|
|
|
1,168 |
|
Current portion of long-term obligations [note 7] |
|
|
198 |
|
|
|
11 |
|
Total current liabilities |
|
|
3,139 |
|
|
|
3,270 |
|
Long-term obligations [note 7] |
|
|
212 |
|
|
|
12 |
|
Total liabilities |
|
|
3,351 |
|
|
|
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 Sept 30, 2019 and 579 issued and outstanding at December 31, 2018. |
|
|
— |
|
|
|
— |
|
Common stock, $0.001 par value, 150,000,000 shares authorized, 8,102,764 issued and outstanding at Sept 30, 2019 and 6,721,117 issued and outstanding at December 31, 2018, respectively. |
|
|
19 |
|
|
|
18 |
|
Additional paid-in capital |
|
|
50,628 |
|
|
|
41,161 |
|
Accumulated deficit |
|
|
(42,510 |
) |
|
|
(25,381 |
) |
Accumulated other comprehensive income |
|
|
4 |
|
|
|
4 |
|
Total stockholders' equity |
|
|
8,141 |
|
|
|
15,802 |
|
Total liabilities and stockholders' equity |
|
$ |
11,492 |
|
|
$ |
19,084 |
|
Going concern [note 1] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
3
Consolidated Statements of Loss and Comprehensive Loss
(Unaudited)
(In thousands, except per share and share amounts)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
1,824 |
|
|
|
1,541 |
|
|
|
7,911 |
|
|
|
3,787 |
|
General and administrative |
|
|
1,893 |
|
|
|
1,753 |
|
|
|
5,408 |
|
|
|
5,317 |
|
Total operating expenses |
|
|
3,717 |
|
|
|
3,294 |
|
|
|
13,319 |
|
|
|
9,104 |
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
40 |
|
|
|
61 |
|
|
|
143 |
|
|
|
88 |
|
Other expenses |
|
|
4 |
|
|
|
(7 |
) |
|
|
(25 |
) |
|
|
(34 |
) |
Total other income (expense) |
|
|
44 |
|
|
|
54 |
|
|
|
118 |
|
|
|
54 |
|
Net loss |
|
|
(3,673 |
) |
|
|
(3,240 |
) |
|
|
(13,201 |
) |
|
|
(9,050 |
) |
OTHER COMPREHENSIVE LOSS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(3,673 |
) |
|
$ |
(3,240 |
) |
|
$ |
(13,201 |
) |
|
$ |
(9,050 |
) |
Basic and diluted net loss per common share |
|
$ |
(0.45 |
) |
|
$ |
(0.71 |
) |
|
$ |
(1.80 |
) |
|
$ |
(3.70 |
) |
Weighted average shares used in computation of basic and diluted net loss per common share |
|
|
8,100,249 |
|
|
|
4,533,943 |
|
|
|
7,342,087 |
|
|
|
2,448,962 |
|
See accompanying notes.
4
Achieve Life Sciences, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
|
Nine Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
Operating Activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(13,201 |
) |
|
$ |
(9,050 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization [note 3] |
|
|
192 |
|
|
|
220 |
|
Stock-based compensation [note 6 [c] and note 6 [d]] |
|
|
917 |
|
|
|
588 |
|
Cumulative adjustment on adoption of lease standard |
|
|
(3 |
) |
|
|
— |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Amounts receivable |
|
|
— |
|
|
|
(16 |
) |
Prepaid expenses and other assets |
|
|
597 |
|
|
|
212 |
|
Accounts payable |
|
|
430 |
|
|
|
245 |
|
Accrued liabilities other |
|
|
(320 |
) |
|
|
317 |
|
Accrued clinical liabilities |
|
|
(462 |
) |
|
|
(210 |
) |
Accrued compensation |
|
|
39 |
|
|
|
613 |
|
Other liabilities |
|
|
9 |
|
|
|
(1 |
) |
Net cash used in operating activities |
|
|
(11,802 |
) |
|
|
(7,082 |
) |
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 |
|
|
|
1,274 |
|
Proceeds from purchase agreement with Lincoln Park Capital, net of issuance costs |
|
|
423 |
|
|
|
1,280 |
|
Net cash provided by financing activities |
|
|
4,622 |
|
|
|
14,747 |
|
Investing Activities: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(52 |
) |
|
|
(36 |
) |
Proceeds on disposal of assets |
|
|
— |
|
|
|
10 |
|
Purchase of investments |
|
|
(25 |
) |
|
|
(1,390 |
) |
Proceeds from maturities of investments |
|
|
5,114 |
|
|
|
— |
|
Net cash provided by (used in) investing activities |
|
|
5,037 |
|
|
|
(1,416 |
) |
Effect of exchange rate changes on cash |
|
|
3 |
|
|
|
— |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
(2,140 |
) |
|
|
6,249 |
|
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 |
|
$ |
7,425 |
|
|
$ |
11,805 |
|
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 |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
310 |
|
|
|
— |
|
|
|
— |
|
|
|
310 |
|
Restricted stock unit settlements |
|
|
5,001 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,673 |
) |
|
|
(3,673 |
) |
Balance, September 30, 2019 |
|
|
8,102,764 |
|
|
$ |
19 |
|
|
|
— |
|
|
$ |
— |
|
|
$ |
50,628 |
|
|
$ |
4 |
|
|
$ |
(42,510 |
) |
|
$ |
8,141 |
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
210 |
|
|
|
— |
|
|
|
— |
|
|
|
210 |
|
Shares issued - from purchase agreement with Lincoln Park Capital |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
2 |
|
Shares issued on conversion of preferred shares |
|
|
469,750 |
|
|
|
1 |
|
|
|
(1,879 |
) |
|
|
— |
|
|
|
(5 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4 |
) |
Restricted stock unit settlements |
|
|
5,319 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Shares issued on exercise of warrants |
|
|
187,500 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
754 |
|
|
|
— |
|
|
|
— |
|
|
|
754 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,240 |
) |
|
|
(3,240 |
) |
Balance, September 30, 2018 |
|
|
4,901,095 |
|
|
$ |
16 |
|
|
|
652 |
|
|
$ |
— |
|
|
$ |
35,887 |
|
|
$ |
5 |
|
|
$ |
(21,744 |
) |
|
$ |
14,164 |
|
See accompanying notes.
7
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. 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.
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 that have generated an accumulated deficit of $42.5 million through September 30, 2019. During the three and nine months ended September 30, 2019, we incurred a net loss of $3.7 million and $13.2 million, respectively. As of September 30, 2019, we had a cash and cash equivalents balance of $7.4 million and a positive working capital balance of $4.5 million. During the nine months ended September 30, 2019, net cash used in operations was $11.8 million.
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.
8
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.
9
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:
|
|
September 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 |
|
|
$ |
(974 |
) |
|
$ |
2,143 |
|
|
$ |
3,117 |
|
|
$ |
(807 |
) |
|
$ |
2,310 |
|
For the three and nine months ended September 30, 2019, we recorded license agreement amortization expense of $0.1 million and $0.2 million, respectively. For the three and nine months ended September 30, 2018, we recorded license agreement amortization expense of $0.1 million and $0.2 million, respectively. The following table outlines the estimated future amortization expense related to intangible assets held as of September 30, 2019:
Year Ending December 31, |
|
|
|
|
2019 |
|
$ |
56 |
|
2020 |
|
|
223 |
|
2021 |
|
|
223 |
|
2022 |
|
|
223 |
|
2023 |
|
|
223 |
|
Thereafter |
|
|
1,195 |
|
Total |
|
$ |
2,143 |
|
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 had occurred as of September 30, 2019.