Acasti Pharma(ACST) - 2020 Q4 - Annual Report

Part I Business Acasti Pharma develops CaPre for severe hypertriglyceridemia, progressing its TRILOGY Phase 3 program through a 505(b)(2) regulatory pathway - Acasti's lead product candidate, CaPre, is an OM3 phospholipid therapeutic being developed for severe hypertriglyceridemia (sHTG), a condition affecting an estimated three to four million people in the United States[13] - The company is conducting the TRILOGY Phase 3 program, consisting of two pivotal studies (TRILOGY 1 and TRILOGY 2), to evaluate CaPre's safety and efficacy in approximately 500 patients[66] - The TRILOGY 1 trial did not meet its primary endpoint due to an unusually large placebo effect, with a 30.5% median TG reduction in the CaPre group versus 27.5% in the placebo group at 12 weeks[74] - Acasti is pursuing a 505(b)(2) regulatory pathway to leverage the extensive safety data of the approved drug LOVAZA, which could streamline CaPre's development and reduce costs and risks[94] About CaPre and Hypertriglyceridemia Hypertriglyceridemia, linked to cardiovascular disease, is targeted by CaPre, an OM3 fatty acid composition from krill oil offering potentially superior absorption - Elevated TG levels (≥ 200 mg/dL) are associated with a greater risk of coronary artery disease and pancreatitis; studies suggest that lowering TG levels may reduce these risks[20] - CaPre is composed of OM3 fatty acids (EPA and DHA) from krill oil, delivered as a combination of phospholipid esters and free fatty acids, which may allow for more efficient absorption compared to fish oil-based OM3 ethyl ester drugs like LOVAZA and VASCEPA[22] Potential Market and Competition The U.S. market for OM3 therapeutics for HTG exceeded $1.65 billion in 2019, with significant unmet needs due to dissatisfaction with existing treatments - The U.S. market for OM3 therapeutics for HTG was valued at more than $1.65 billion as of August 2019, with significant growth potential following Amarin's expanded label for VASCEPA[25][28] - Physician market research indicates 100% of those interviewed believe there is a moderate to high unmet medical need for treating HTG, citing dissatisfaction with current OM3s due to insufficient TG lowering, negative LDL-C effects, and absorption issues with low-fat meals[31] - Key competitors include GlaxoSmithKline's LOVAZA (now with generic versions) and Amarin's VASCEPA; Amarin's VASCEPA has gained significant market share, reaching about 64% by dollars as of August 2019[114][35] Clinical and Nonclinical Data Clinical data shows CaPre significantly reduces triglycerides, has no negative LDL-C effect, potentially increases HDL-C, and offers superior bioavailability without a food effect - Phase 2 trials (COLT and TRIFECTA) showed CaPre significantly lowered TGs, had no deleterious effect on LDL-C, and showed potential to increase HDL-C, a combination referred to as the "trifecta effect"[46][56] - A Bridging Study demonstrated that CaPre has better bioavailability than LOVAZA in a fasting state and a comparable safety profile under fed (high-fat meal) conditions, supporting the 505(b)(2) regulatory pathway[49] - Unlike competitors, CaPre's absorption is not meaningfully affected by the fat content of a meal, which is a significant clinical advantage for HTG patients on a low-fat diet[51][54] - Nonclinical studies in mice suggest CaPre may promote insulin secretion, a mechanism different from metformin, and showed more robust effects on certain beneficial metabolites (like PDX) compared to icosapent ethyl (VASCEPA)[41][43] TRILOGY Phase 3 Program TRILOGY Phase 3's first trial failed its primary endpoint due to a high placebo response; TRILOGY 2 results are pending, and an additional study may be required - TRILOGY 1 topline results showed a 30.5% median TG reduction for CaPre versus a 27.5% reduction for placebo at 12 weeks, failing to reach statistical significance due to the unexpectedly large placebo effect[74] - Post-hoc analysis identified a "Pre-Randomization TG Normalization" phenomenon, where TG levels dropped significantly before patients even started the drug or placebo; correcting for this showed a stronger therapeutic effect for CaPre, though still not statistically significant[80][87] - The FDA confirmed that pivotal analysis for TRILOGY 2 must be performed on the full Intent to Treat (ITT) population as originally planned; depending on TRILOGY 2's outcome, an additional study may be needed for an NDA submission[92][17] - Topline results for the TRILOGY 2 trial are expected by the end of August 2020[18][78] Intellectual Property and Commercialization Strategy Acasti expands its global patent portfolio for its HTG composition, planning an independent U.S. launch for CaPre and seeking partnerships for ex-U.S. markets - The company has filed patent applications in over 20 jurisdictions and currently holds more than 20 issued or allowed patents for its "Concentrated Therapeutic Phospholipid Composition" to treat HTG[100] - Acasti's commercialization strategy involves launching CaPre itself in the U.S. market while seeking regional or country-specific strategic partners for commercialization outside the United States[110] Risk Factors The company faces significant risks from COVID-19, going concern doubts, CaPre's uncertain Phase 3 outcome, third-party reliance, intense competition, and potential NASDAQ delisting - There is substantial doubt about the company's ability to continue as a going concern, as it has incurred operating losses since inception and will require additional capital to fund operations beyond January 2021[171][172][173] - The company's prospects depend entirely on the success of CaPre, its only drug candidate; the TRILOGY 1 trial did not reach statistical significance, making the outcome of the TRILOGY 2 trial critical and uncertain[197][176] - Acasti relies on third-party CROs to conduct its clinical trials and on third-party manufacturers to produce CaPre, exposing it to risks of non-performance, delays, and compliance failures with cGMP and cGCP regulations[182][187] - The company faces intense competition from established products like LOVAZA and VASCEPA; a recent court ruling invalidating Amarin's patents for VASCEPA could lead to generic competition sooner than expected, potentially creating downward pricing pressure for CaPre[206][209] - The company has failed to maintain the NASDAQ's minimum bid price of $1.00 per share and has until at least November 9, 2020, to regain compliance to avoid delisting[291][292] Properties Acasti Pharma leases its head office and R&D lab in Québec, owning proprietary manufacturing equipment but relying on third parties for CaPre production - The company leases its head office in Laval, Québec and its R&D lab in Sherbrooke, Québec[309] - Acasti does not own a manufacturing facility but owns the proprietary equipment for production and relies on third-party manufacturers for CaPre[309] Legal Proceedings The company settled legal claims with its former CEO on May 10, 2019, by issuing 900,000 common shares and reimbursing nominal legal fees - The company settled a legal claim with its former CEO by issuing 900,000 common shares and reimbursing legal fees[311] Part II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Acasti's common shares trade on Nasdaq and TSX Venture, with no anticipated cash dividends, and a significant risk of PFIC classification for U.S. tax purposes - Common shares are traded on The Nasdaq Capital Market and the TSX Venture Exchange under the symbol "ACST"[314] - The company has never paid cash dividends and does not intend to in the foreseeable future, retaining earnings to finance growth[315] - There is a significant risk that Acasti may be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which could result in unfavorable tax treatment for U.S. shareholders on gains or distributions[304][335] Management's Discussion and Analysis of Financial Condition and Results of Operation For FY2020, Acasti reported a $25.5 million net loss, reduced by lower R&D expenses, with $14.2 million in cash, raising going concern doubts and necessitating additional financing Comparative Financial Highlights (in thousands of U.S. dollars) | Metric | Year Ended March 31, 2020 | Year Ended March 31, 2019 | | :--- | :--- | :--- | | Net Loss | $(25,513) | $(39,366) | | Loss Per Share (Basic & Diluted) | $(0.30) | $(0.73) | | Non-GAAP Operating Loss | $(22,315) | $(30,555) | | Total Assets | $22,853 | $36,896 | | Total Shareholders' Equity | $12,994 | $11,045 | Breakdown of Operating Expenses (in thousands of U.S. dollars) | Expense Category | Year Ended March 31, 2020 | Year Ended March 31, 2019 | | :--- | :--- | :--- | | Research and Development | $15,974 | $29,373 | | General and Administrative | $5,799 | $4,539 | | Sales and Marketing | $2,665 | $494 | - The decrease in net loss for FY2020 was primarily driven by a $13.4 million reduction in R&D expenses as the TRILOGY Phase 3 clinical program advanced towards completion[384][397] - As of March 31, 2020, cash and cash equivalents totaled $14.2 million; management projects these funds will sustain operations into the first calendar quarter of 2021, raising substantial doubt about the company's ability to continue as a going concern without additional financing[373][406][408] - During the year ended March 31, 2020, the company generated $13.2 million from financing activities, primarily from its "at-the-market" (ATM) program ($7.0 million net proceeds) and warrant exercises ($7.7 million)[409][411] Controls and Procedures As of March 31, 2020, management concluded that the company's disclosure controls and internal control over financial reporting were effective, with no material changes - Management concluded that as of March 31, 2020, the company's disclosure controls and procedures were effective[456] - Based on an assessment using the COSO framework, management concluded that internal control over financial reporting was effective as of March 31, 2020[457] Part III Directors, Executive Officers and Corporate Governance The report details the Board of Directors and senior management, with three of four directors deemed independent, and outlines the company's governance committees and ethical policies - The Board of Directors is composed of four members: Jan D'Alvise (President & CEO), Roderick N. Carter (Chairman), Jean-Marie (John) Canan, and Donald Olds[461] - Three of the four directors (Carter, Canan, and Olds) are considered independent; CEO Jan D'Alvise is not independent[528][529] - The Audit Committee is chaired by Jean-Marie Canan, who is designated as the "audit committee financial expert"[474][475] - The company has adopted a Code of Business Conduct and Ethics, along with policies for disclosure, insider trading, and whistleblowing to promote ethical conduct[541][543] Executive Compensation Acasti's executive compensation combines base salary, short-term cash bonuses, and long-term stock options, with CEO Jan D'Alvise receiving $2.19 million in FY2020, aligning interests Summary Compensation for Named Executive Officers (Fiscal Year 2020) | Name and Principal Position | Salary ($) | Bonus ($) | Option Awards ($) | Total Compensation ($) | | :--- | :--- | :--- | :--- | :--- | | Jan D'Alvise, President and CEO | 410,703 | 154,781 | 1,620,863 | 2,186,347 | | Pierre Lemieux, COO | 264,128 | 80,018 | 603,458 | 947,604 | | Brian Groch, CCO | 289,615 | 87,000 | 357,461 | 734,106 | - The compensation program consists of base salary, a Short-Term Incentive Plan (STIP) with cash bonuses, and a Long-Term Incentive Plan (LTIP) with stock options[479] - Non-executive director compensation for FY2020 included annual cash retainers and fees totaling $72,500 for the Chairman, $50,000 for the Audit Committee Chair, and $47,500 for the GHR Committee Chair, supplemented by option awards[518][520] - The company has established share ownership guidelines requiring executives and non-employee directors to hold a certain value of company stock, aligning their interests with shareholders[489] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters As of May 31, 2020, directors and executive officers collectively owned 3.8% of common shares; Acuitas Group Holdings, LLC is the only 5%+ beneficial owner, with equity compensation details provided Equity Compensation Plan Information (as of March 31, 2020) | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 9,936,486 | CAD$1.00 | 1,329,382 | - As of May 31, 2020, all directors and executive officers as a group beneficially owned 3.8% of the company's common shares[525] - Acuitas Group Holdings, LLC is the only known beneficial owner of 5% or more of the company's voting securities[525] Principal Accounting Fees and Services For FY2020, Acasti incurred CAD$437,210 in fees from KPMG LLP for audit, audit-related, and tax services, all pre-approved by the Audit Committee Auditor Fees (Fiscal Years 2020 & 2019) | Fee Category | FY 2020 (CAD$) | FY 2019 (CAD$) | | :--- | :--- | :--- | | Audit Fees | 308,160 | 403,500 | | Audit-Related Fees | 82,390 | 53,000 | | Tax Fees | 46,660 | 28,100 | | All Other Fees | 0 | 0 | | Total | 437,210 | 484,600 | Part IV Exhibits, Financial Statement Schedules This section presents consolidated financial statements for FY2020 and FY2019, along with an index of all exhibits filed, including corporate governance documents and certifications - This section includes the company's consolidated financial statements and a list of all exhibits filed with the report, including corporate governance documents and material contracts[564][565] Financial Statements Consolidated Financial Statements Audited consolidated financial statements for FY2020 and FY2019, prepared under U.S. GAAP, show a $25.5 million net loss for FY2020, with the auditor expressing substantial doubt about going concern Consolidated Balance Sheet Highlights (as of March 31, in thousands of U.S. dollars) | Account | 2020 | 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $14,240 | $16,871 | | Total current assets | $16,079 | $27,966 | | Total assets | $22,853 | $36,896 | | Total current liabilities | $7,395 | $13,668 | | Total liabilities | $9,859 | $25,851 | | Total shareholders' equity | $12,994 | $11,045 | Consolidated Statement of Loss (for the year ended March 31, in thousands of U.S. dollars) | Account | 2020 | 2019 | | :--- | :--- | :--- | | Loss from operations | $(24,438) | $(34,406) | | Financial expenses | $(1,075) | $(4,960) | | Net loss | $(25,513) | $(39,366) | | Loss per share | $(0.30) | $(0.73) | Consolidated Statement of Cash Flows (for the year ended March 31, in thousands of U.S. dollars) | Account | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(22,944) | $(24,787) | | Net cash from (used in) investing activities | $8,138 | $(9,442) | | Net cash from financing activities | $13,176 | $45,690 | | Net (decrease) increase in cash | $(2,631) | $10,448 | - The independent auditor's report expresses substantial doubt about the company's ability to continue as a going concern due to recurring operating losses and negative cash flows[579] - The company retrospectively adopted U.S. GAAP and changed its reporting currency from Canadian dollars to U.S. dollars, with comparative figures adjusted accordingly[580][581]