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, 2020 

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 August 6, 2020, there were 3,587,205 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, 2020 (unaudited) and December 31, 2019

3

 

 

 

 

Consolidated Statements of Loss and Comprehensive Loss (unaudited) for the three and six months ended June 30, 2020 and June 30, 2019

4

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2020 and June 30, 2019

5

 

 

 

 

Consolidated Statements of Stockholders’ Equity (unaudited) for the six months ended June 30, 2020 and June 30, 2019

6

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

8

 

 

 

Item 2.

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

22

 

 

 

 

 

 

Item 4.

Controls and Procedures

32

 

 

Part II.   Other Information

34

 

 

 

Item 1A.

Risk Factors

34

 

 

 

Item 6.

Exhibits

59

 

 

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

 

 

 

Signatures

61

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,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents [note 5]

 

$

12,111

 

 

$

16,664

 

Amounts receivable

 

 

 

 

 

8

 

Prepaid expenses and other assets

 

 

545

 

 

 

662

 

Total current assets

 

 

12,656

 

 

 

17,334

 

Restricted cash [note 5]

 

 

50

 

 

 

50

 

Property and equipment, net

 

 

56

 

 

 

57

 

Right-of-use assets [note 7]

 

 

240

 

 

 

329

 

Other assets

 

 

446

 

 

 

187

 

License agreement [note 3 and 4]

 

 

1,976

 

 

 

2,087

 

Goodwill [note 4]

 

 

1,034

 

 

 

1,034

 

Total assets

 

$

16,458

 

 

$

21,078

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

523

 

 

$

859

 

Accrued liabilities other

 

 

314

 

 

 

304

 

Accrued clinical liabilities

 

 

73

 

 

 

387

 

Accrued compensation

 

 

735

 

 

 

1,116

 

Current portion of long-term obligations [note 7]

 

 

165

 

 

 

203

 

Total current liabilities

 

 

1,810

 

 

 

2,869

 

Long-term obligations [note 7]

 

 

110

 

 

 

159

 

Total liabilities

 

 

1,920

 

 

 

3,028

 

Commitments and contingencies [note 7]

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.001 par value, 9,158 shares designated, zero

issued and outstanding at June 30, 2020 and zero issued and outstanding at December 31, 2019.

 

 

 

 

 

 

Series B convertible preferred stock, $0.001 par value, 6,256 shares designated, zero

issued and outstanding at June 30, 2020 and 1,121 issued and outstanding at December 31, 2019

 

 

 

 

 

 

Common stock, $0.001 par value, 150,000,000 shares authorized, 1,937,703 issued and outstanding at June 30, 2020 and 1,474,258 issued and outstanding at December 31, 2019, respectively.

 

 

51

 

 

 

41

 

Additional paid-in capital

 

 

66,429

 

 

 

63,709

 

Accumulated deficit

 

 

(51,946

)

 

 

(45,704

)

Accumulated other comprehensive income

 

 

4

 

 

 

4

 

Total stockholders' equity

 

 

14,538

 

 

 

18,050

 

Total liabilities and stockholders' equity

 

$

16,458

 

 

$

21,078

 

Going concern [note 1]

 

 

 

 

 

 

 

 

Subsequent events [note 8]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

1,103

 

 

 

2,032

 

 

 

2,644

 

 

 

6,087

 

General and administrative

 

 

1,815

 

 

 

1,630

 

 

 

3,631

 

 

 

3,515

 

Total operating expenses

 

 

2,918

 

 

 

3,662

 

 

 

6,275

 

 

 

9,602

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

3

 

 

 

41

 

 

 

45

 

 

 

103

 

Other expenses

 

 

(7

)

 

 

(3

)

 

 

(12

)

 

 

(29

)

Total other income (expense)

 

 

(4

)

 

 

38

 

 

 

33

 

 

 

74

 

Net loss

 

$

(2,922

)

 

$

(3,624

)

 

 

(6,242

)

 

 

(9,528

)

Comprehensive loss

 

$

(2,922

)

 

$

(3,624

)

 

$

(6,242

)

 

$

(9,528

)

Basic and diluted net loss per common share

 

$

(1.68

)

 

$

(10.08

)

 

$

(3.79

)

 

$

(27.39

)

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

 

 

1,744,014

 

 

 

359,484

 

 

 

1,645,426

 

 

 

347,836

 

 

See accompanying notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4


Achieve Life Sciences, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(6,242

)

 

$

(9,528

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization [note 3]

 

 

126

 

 

 

130

 

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

 

 

610

 

 

 

607

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Amounts receivable

 

 

8

 

 

 

 

Prepaid expenses and other assets

 

 

(142

)

 

 

510

 

Accounts payable

 

 

(336

)

 

 

563

 

Accrued liabilities other

 

 

10

 

 

 

(402

)

Accrued clinical liabilities

 

 

(314

)

 

 

(307

)

Accrued compensation

 

 

(381

)

 

 

(313

)

Lease obligation [note 7]

 

 

2

 

 

 

10

 

Net cash used in operating activities

 

 

(6,659

)

 

 

(8,730

)

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from the April 2020 financing

 

 

1,579

 

 

 

 

Financing costs relating to December 2019 public offering

 

 

(34

)

 

 

 

Proceeds from exercise of warrants, net of issuance costs

 

 

589

 

 

 

4,199

 

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

 

 

 

 

 

423

 

Financing costs relating to purchase agreement with Lincoln Park Capital

 

 

(14

)

 

 

 

Net cash provided by financing activities

 

 

2,120

 

 

 

4,622

 

Investing Activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(14

)

 

 

(52

)

Purchase of investments

 

 

 

 

 

(25

)

Proceeds from maturities of investments

 

 

 

 

 

5,114

 

Net cash provided by (used in) investing activities

 

 

(14

)

 

 

5,037

 

Effect of exchange rate changes on cash

 

 

 

 

 

2

 

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

 

 

(4,553

)

 

 

931

 

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

 

 

16,714

 

 

 

9,565

 

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

 

$

12,161

 

 

$

10,496

 

 

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, 2019

 

 

1,474,258

 

 

$

41

 

 

 

1,121

 

 

$

 

 

$

63,709

 

 

$

4

 

 

$

(45,704

)

 

$

18,050

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

302

 

 

 

 

 

 

 

 

 

302

 

Costs relating to December 2019 financing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34

)

 

 

 

 

 

 

 

 

(34

)

Costs relating to purchase agreement with Lincoln Park Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

(13

)

Shares issued on conversion of Series B preferred shares

 

 

93,379

 

 

 

2

 

 

 

(1,121

)

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,320

)

 

 

(3,320

)

Balance, March 31, 2020

 

 

1,567,637

 

 

$

43

 

 

 

 

 

$

 

 

$

63,962

 

 

$

4

 

 

$

(49,024

)

 

$

14,985

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

308

 

 

 

 

 

 

 

 

 

308

 

Costs relating to purchase agreement with Lincoln Park Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Shares issued on exercise of warrants

 

 

89,281

 

 

 

 

 

 

 

 

 

 

 

 

589

 

 

 

 

 

 

 

 

 

589

 

Shares issued - April 2020 private placement

 

 

280,782

 

 

 

6

 

 

 

 

 

 

 

 

 

1,573

 

 

 

 

 

 

 

 

 

1,579

 

Shares issued on conversion of preferred shares

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Adjustment of fractional shares on reverse stock split

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,922

)

 

 

(2,922

)

Balance, June 30, 2020

 

 

1,937,703

 

 

$

51

 

 

 

 

 

$

 

 

$

66,429

 

 

$

4

 

 

$

(51,946

)

 

$

14,538

 

 

 

 

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, 2018

 

 

336,055

 

 

$

18

 

 

 

579

 

 

$

 

 

$

41,161

 

 

$

4

 

 

$

(25,381

)

 

$

15,802

 

Restricted stock unit settlements

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

336,059

 

 

$

18

 

 

 

579

 

 

$

 

 

$

41,455

 

 

$

4

 

 

$

(31,288

)

 

$

10,189

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

317

 

 

 

 

 

 

 

 

 

317

 

Shares issued - from purchase agreement with Lincoln Park Capital

 

 

6,200

 

 

 

 

 

 

 

 

 

 

 

 

423

 

 

 

 

 

 

 

 

 

423

 

Shares issued on exercise of warrants

 

 

55,390

 

 

 

1

 

 

 

 

 

 

 

 

 

4,198

 

 

 

 

 

 

 

 

 

4,199

 

Issuance of inducement warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,925

 

 

 

 

 

 

(3,925

)

 

 

 

Shares issued on conversion of preferred shares

 

 

7,237

 

 

 

 

 

 

(579

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,624

)

 

 

(3,624

)

Balance, June 30, 2019

 

 

404,886

 

 

$

19

 

 

 

 

 

$

 

 

$

50,318

 

 

$

4

 

 

$

(38,837

)

 

$

11,504

 

 

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.

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, 2019 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, 2019 and filed with the United States Securities and Exchange Commission, or the SEC, on March 13, 2020.

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.

Reverse Stock Split

 

On July 29, 2020, we filed a certificate of amendment to our Second Amended and Restated Certificate of Incorporation, as amended, and effected as of July 31, 2020 a 1-for-20 reverse stock split of our issued and outstanding shares of common stock. As a result of the reverse stock split, each 20 shares of the outstanding common stock were combined into one share of common stock without any change to the par value per share. The reverse stock split did not affect the number of authorized shares of common stock which remains at 150,000,000. The reverse stock split was approved by our board of directors and stockholders and is intended to allow us to regain compliance with the NASDAQ’s continued listing criteria related to the Minimum Bid Price Rule. However, there can be no assurance that we will regain compliance until a written confirmation from NASDAQ has been issued.

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.

 

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 $51.9 million through June 30, 2020. During the three and six months ended June 30, 2020, we incurred a net loss of $2.9 million and $6.2 million. As of June 30, 2020, we had a cash and cash equivalents balance of $12.1 million and a positive working capital balance of $10.8 million. During the six months ended June 30, 2020, net cash used in operations was $6.7 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.

8


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. The uncertainty with respect to our operations and the market generally due to the COVID-19 pandemic may also make it challenging to raise additional capital on favorable terms, if at all. 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.

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, 2019 in our Annual Report on Form 10-K filed with the SEC, on March 13, 2020. Since December 31, 2019, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them. 

 

 

3. 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:

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

Gross Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

 

Value

 

 

Amortization

 

 

Value

 

 

Value

 

 

Amortization

 

 

Value

 

License Agreements

 

$

3,117

 

 

$

(1,141

)

 

$

1,976

 

 

$

3,117

 

 

$

(1,030

)

 

$

2,087

 

 

For the three and six months ended June 30, 2020, we recorded license agreement amortization expense of $0.1 million and $0.1 million, respectively. 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. The following table outlines the estimated future amortization expense related to intangible assets held as of June 30, 2020:

 

Year Ending December 31,

 

 

 

 

2020

 

$

111

 

2021

 

 

223

 

2022

 

 

223

 

2023

 

 

223

 

Thereafter

 

 

1,196

 

Total

 

$

1,976

 

 

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 June 30, 2020.

 

 

9


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 term to 2037. In addition, we 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, 2020, we had paid the University of Bristol $125,000 pursuant to the University of Bristol License Agreement.

10


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.

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.

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):

 

June 30, 2020

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

1,102

 

 

$

 

 

$

 

 

$

1,102

 

Money market securities (cash equivalents)

 

 

11,009

 

 

 

 

 

 

 

 

 

11,009

 

Restricted cash

 

 

50

 

 

 

 

 

 

 

 

 

50

 

Total assets

 

$

12,161

 

 

$

 

 

$

 

 

$

12,161

 

 

11


Cash and cash equivalents consist of the following (in thousands):

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

June 30, 2020

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Cash

 

$

1,102

 

 

$

 

 

$

 

 

$

1,102

 

Money market securities

 

 

11,009

 

 

 

 

 

 

 

 

 

11,009

 

Total cash and cash equivalents

 

$

12,111

 

 

$

 

 

$

 

 

$

12,111

 

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.

 

 

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. 

[b]

Issued and outstanding shares

 

Purchase Agreement and Financing with Lincoln Park Capital

On September 14, 2017 we and Lincoln Park Capital Fund, LLC, or LPC, entered into a share and unit purchase agreement, which was amended on March 12, 2020, or the Purchase Agreement, pursuant to which we have the right to sell to LPC up to $11.0 million in shares of our common stock, par value $0.001 per share, subject to certain limitations and conditions set forth in the Purchase Agreement. On May 22, 2018 we obtained the requisite stockholder authorization to sell shares of our common stock to LPC in excess of 20% of our outstanding shares of common stock (as of the date we entered into the Purchase Agreement) in order to be able to sell to LPC the full amount remaining under the Purchase Agreement. 

Pursuant to the Purchase Agreement, LPC initially purchased 1,644 of our units, or the Units, at a purchase price of $608.00 per unit, with each Unit consisting of (a) one share of our common stock and (b) one warrant to purchase one-quarter of a share of common stock at an exercise price of $699.20 per share, or Warrant.  Each Warrant became exercisable six months following the issuance date until the date that is five years and six months after the issuance date and is subject to customary adjustments.  The Warrants were issued only as part of the Units in the initial purchase of $1.0 million and no warrants shall be issued in connection with any other purchases of common stock under the Purchase Agreement.

After the initial purchase, if our stock price is above $1.00, as often as every other business day over the 54-month term of the Purchase Agreement, and up to an aggregate amount of an additional $10.0 million (subject to certain limitations) of shares of common stock, we have the right, from time to time, in our sole discretion and subject to certain conditions to direct LPC to purchase up to 7,500 shares of common stock. The purchase price of shares of common stock pursuant to the Purchase Agreement will be based on prevailing market prices of common stock at the time of sales without any fixed discount, and we will control the timing and amount of any sales of common stock to LPC. As consideration for entering into the Purchase Agreement, we issued to LPC 617 shares of common stock in September 2017 and, in connection with the amendment of the Purchase Agreement in March 2020, we paid to LPC $0.1 million as an expense reimbursement. The consideration of 617 shares of our common stock were fair valued based on the closing price of our common stock as at the transaction date and recognized as part of offering expenses.

During the three and six months ended June 30, 2020, we offered and sold zero shares of our common stock pursuant to the Purchase Agreement with LPC. Since entry into the Purchase Agreement, from September 14, 2017 through June 30, 2020, we offered and sold an aggregate of 27,868 shares of our common stock, including the 1,644 shares that were part of the initial purchase of Units. These aggregate sales resulted in gross proceeds to us of approximately $4.4 million and offering expenses of $0.5 million. As of June 30, 2020, shares of our common stock having an aggregate value of approximately $6.6 million remained available for sale under this offering program.

 

 

12


At The Market Offering Agreement with H.C. Wainwright & Co., LLC

On June 7, 2019, we entered into an At The Market Offering Agreement, or the Offering Agreement, with H.C. Wainwright & Co., LLC, as agent, or H.C. Wainwright, pursuant to which we may offer and sell, from time to time and at our election, through H.C. Wainwright shares of our common stock, par value $0.001 per share, having an aggregate offering price of up to $6.0 million.

Pursuant to the Offering Agreement, H.C. Wainwright may sell the shares our common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act, including sales made by means of ordinary brokers’ transactions, including on The Nasdaq Capital Market, at market prices or as otherwise agreed with H.C. Wainwright. H.C. Wainwright will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares of common stock from time to time, based upon instructions from us, including any price or size limits or other customary parameters or conditions we may impose.

We are not obligated to make any sales of the shares of common stock under the Offering Agreement. The offering of shares of common stock pursuant to the Offering Agreement will terminate upon the earliest of (a) the sale of all of the shares of common stock subject to the Offering Agreement, (b) the termination of the Offering Agreement by H.C. Wainwright or us, as permitted therein, or (c) June 7, 2022.

We will pay H.C. Wainwright a commission rate equal to 3.0% of the aggregate gross proceeds from each sale of shares of common stock and have agreed to provide H.C. Wainwright with customary indemnification and contribution rights. We will also reimburse H.C. Wainwright for certain specified expenses in connection with entering into the Offering Agreement. The Offering Agreement contains customary representations and warranties and conditions to the placements of the shares of common stock pursuant thereto.

From June 7, 2019 to June 30, 2020 we did not offer any shares of our common stock for sale pursuant to the Offering Agreement. As of June 30, 2020, shares of our common stock having an aggregate value of approximately $6.0 million remained available for sale under the Offering Agreement.

The offering expenses and fees have been deferred and will be charged against gross proceeds.

 

December 2019 Public Offering

 

On December 17, 2019, we completed an underwritten registered public offering, pursuant to which we sold 478,875 Class A Units at a price per unit of $12.00 and 6,256 Class B Units at a price per unit of $999.60.

 

Each Class A Unit consisted of one share of our common stock and a warrant to purchase one share of common stock.

 

Each Class B Unit consisted of one share of Series B Convertible Preferred Stock, par value $0.001 per share, convertible at any time at the holder’s option into approximately 83 shares of common stock, and warrants to purchase approximately 83 shares of common stock.

 

Each warrant was immediately exercisable, expires on the five year anniversary of the date of issuance and is exercisable at a price per share of common stock of $6.60, subject to adjustment in the event of subsequent equity sales of common stock or securities convertible into common stock for an exercise price per share less than the exercise price per share of the warrants then in effect, provided, however, that the exercise price of the warrants cannot be reduced to an amount less than $1.20 per share of common stock. Additionally, subject to certain exceptions, if, after December 17, 2019, (i) the volume weighted average price of the common stock for each of 30 consecutive trading days, or the 2019 Measurement Period, which 2019 Measurement Period commences on the closing date, exceeds 300% of the exercise price (subject to adjustments for stock splits, recapitalizations, stock dividends and similar transactions), (ii) the average daily trading volume for such 2019 Measurement Period exceeds $500,000 per trading day and (iii) certain other equity conditions are met, and subject to a beneficial ownership limitation, then the Company may call for cancellation of all or any portion of the warrants then outstanding.

 

The Class A Units and Class B Units were not certificated and the shares of common stock, Series B Convertible Preferred Stock and warrants comprising such Units were immediately separable and were issued separately in the public offering. The Class A and B Units were offered by us pursuant to the registration statement on Form S-1 (File No. 333-234530), and each amendment thereto, which was initially filed with the SEC on November 6, 2019 and declared effective by the SEC on December 17, 2019.