Achieve Life Sciences(ACHV) - 2025 Q2 - Quarterly Report

Part I. Financial Information Item 1. Consolidated Financial Statements (Unaudited) Unaudited consolidated financial statements reveal the company's financial position, performance, and cash flows, noting increased losses and capital-raising activities Consolidated Balance Sheets Consolidated Balance Sheet Highlights | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (%) | | :----------------------------- | :----------------------------- | :------------------------------- | :--------- | | Cash and cash equivalents | $51,874 | $12,753 | 306.8% | | Marketable securities | $3,523 | $21,607 | -83.7% | | Total current assets | $56,903 | $36,467 | 56.0% | | Total assets | $58,935 | $38,633 | 52.5% | | Total liabilities | $17,267 | $17,734 | -2.6% | | Total stockholders' equity | $41,668 | $20,899 | 99.4% | Consolidated Statements of Loss and Comprehensive Loss Consolidated Statements of Loss Highlights | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Change (%) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------- | | Research and development expenses | $6,707 | $5,113 | 31.2% | | General and administrative expenses | $5,856 | $3,318 | 76.5% | | Net loss | $(12,718) | $(8,461) | 50.3% | | Basic and diluted net loss per common share | $(0.37) | $(0.25) | 48.0% | Consolidated Statements of Loss Highlights | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Change (%) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :--------- | | Research and development expenses | $13,804 | $7,912 | 74.5% | | General and administrative expenses | $11,653 | $6,501 | 79.2% | | Net loss | $(25,545) | $(14,955) | 70.8% | | Basic and diluted net loss per common share | $(0.74) | $(0.50) | 48.0% | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Change (YoY) | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :----------- | | Net loss | $(25,545) | $(14,955) | 70.8% | | Net cash used in operating activities | $(20,157) | $(10,209) | 97.4% | | Net cash provided by financing activities | $41,222 | $55,957 | -26.4% | | Net cash provided by (used in) investing activities | $18,056 | $(46,568) | Shift to net provision | | Net increase (decrease) in cash, cash equivalents and restricted cash | $39,121 | $(820) | Significant increase | | Cash, cash equivalents and restricted cash at end of the period | $51,894 | $14,776 | 251.2% | Consolidated Statements of Stockholders' Equity Consolidated Stockholders' Equity Highlights | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (%) | | :-------------------------- | :----------------------------- | :------------------------------- | :--------- | | Common Stock Shares | 49,685,072 | 34,685,072 | 43.2% |\n| Additional Paid-in Capital | $272,670 | $226,343 | 20.5% |\n| Accumulated Deficit | $(231,123) | $(205,578) | -12.4% |\n| Total Stockholders' Equity | $41,668 | $20,899 | 99.4% | - The June 2025 public offering resulted in the issuance of 15,000,000 shares, contributing $41,222k to total stockholders' equity[26] Notes to Consolidated Financial Statements - Achieve Life Sciences, Inc. is a late-stage clinical specialty pharmaceutical company focused on developing cytisinicline for nicotine dependence[29] - The company has an accumulated deficit of $231.1 million as of June 30, 2025, and relies on future financing to support ongoing clinical development and commercialization[32] - A dispute exists with Sopharma regarding the engagement of third-party manufacturers for the NDA submission, which Sopharma alleges is a breach of agreement[38] Financial Instrument Summary | Financial Instrument | June 30, 2025 (in thousands) | | :------------------- | :----------------------------- | | Convertible debt | $9,548 | | Contingent consideration | $1,337 | - The New Convertible Term Loan, with an original principal of $10.0 million, matures on December 1, 2027, and includes potential additional tranches and conversion features into common stock[65][67][69] - The June 2025 public offering generated approximately $41.2 million in net proceeds from the sale of 15,000,000 shares and accompanying warrants, with an additional $4.0 million from the underwriters' option exercise[87][170] Stock-Based Compensation Expense Summary | Expense Category | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------- | :-------------------------------------------- | :-------------------------------------------- | | Research and development | $1,333 | $899 | | General and administrative | $3,787 | $1,843 | | Total stock-based compensation | $5,120 | $2,742 | - As of June 30, 2025, total unrecognized compensation expense for stock options was $2.2 million (over ~1.74 years) and for restricted stock units was $2.7 million (over ~0.63 years)[101][103] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses cytisinicline development, regulatory milestones, financial performance, and liquidity for commercialization Overview - Achieve Life Sciences, Inc. is a late-stage clinical specialty pharmaceutical company dedicated to addressing the global nicotine dependence epidemic through the development and commercialization of cytisinicline[122] - Cytisinicline is a plant-based alkaloid believed to treat nicotine dependence by interacting with nicotine receptors, reducing withdrawal symptoms and nicotine satisfaction[124] - The company plans to commence commercial sales of cytisinicline in the U.S. in the second half of 2026, leveraging AI-enhanced marketing and digital infrastructure[126] Key Financial Metrics Summary | Metric | Value (as of June 30, 2025) | | :------------------------------------------ | :-------------------------- | | Net loss (six months ended) | $(25.5) million | | Accumulated deficit | $(231.1) million | | Cash, cash equivalents and marketable securities | $55.4 million | | Net cash used in operating activities (six months ended) | $(20.2) million | Cytisinicline Regulatory Progress - In June 2025, an NDA was submitted to the FDA for cytisinicline as a treatment for smoking cessation, supported by efficacy and safety data from Phase 3 ORCA-2 and ORCA-3 trials[128] - Cytisinicline received Breakthrough Therapy designation from the FDA in Q3 2024 for nicotine e-cigarette (vaping) cessation[129] - The FDA agreed on a proposed single Phase 3 study design for a future sNDA submission for vaping cessation, with an intent to initiate clinical development dependent on funding[130] - The ORCA-OL open-label safety trial reached milestones of 300+ subjects completing six months of cumulative treatment in January 2025 and 100+ subjects completing one year in April 2025[132][133] License & Supply Agreements - The company has a license and supply agreement with Sopharma for cytisinicline, granting access to manufacturing, efficacy, and safety data, and exclusive use of trademarks[134] - A dispute arose with Sopharma after the company engaged third-party manufacturers for its NDA submission due to concerns about Sopharma's FDA pre-approval inspection readiness[135] - The fair value of the contingent consideration liability from the Extab Corporation acquisition was estimated at $1.3 million as of June 30, 2025, with a $0.2 million loss recognized for the six months ended June 30, 2025[137] Results of Operations Operating Expenses and Other Income/Expense Highlights | Expense Category | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Change (%) | | :----------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------- | | Research and development | $6,707 | $5,113 | 31.2% | | General and administrative | $5,856 | $3,318 | 76.5% | | Interest income | $192 | $833 | -76.9% | | Interest expense | $(191) | $(804) | -76.3% | | Change in fair value of contingent consideration | $(97) | $(57) | 70.2% | Operating Expenses and Other Income/Expense Highlights | Expense Category | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Change (%) | | :----------------------------- | :-------------------------------------------- | :-------------------------------------------- | :--------- | | Research and development | $13,804 | $7,912 | 74.5% | | General and administrative | $11,653 | $6,501 | 79.2% | | Interest income | $514 | $1,201 | -57.2% | | Interest expense | $(376) | $(1,617) | -76.7% | | Change in fair value of contingent consideration | $(188) | $(109) | 72.5% | - Increases in R&D expenses were primarily due to costs from the ORCA-OL open-label safety trial, which was at full enrollment in 2025[143] - Increases in G&A expenses were mainly due to higher employee costs (including stock-based compensation) and commercial launch preparation costs[145] - Decreases in interest income and expense were primarily due to lower average cash balances and a lower principal balance on the New Convertible Term Loan after refinancing, respectively[146][147] Liquidity and Capital Resources - As of June 30, 2025, the company had an accumulated deficit of $231.1 million, cash, cash equivalents, and marketable securities of $55.4 million, and net cash used in operating activities of $20.2 million for the six months ended June 30, 2025[150] - Existing cash, cash equivalents, and marketable securities are expected to fund current operating expenses and capital expenditures into the second half of 2026, but additional funds are needed for clinical development and commercialization[151] - The company entered into a New Debt Agreement in July 2024 for a $10.0 million convertible term loan, with potential for additional $10.0 million, maturing December 1, 2027[153][154] - Financing activities included net proceeds of approximately $56.1 million from a February 2024 registered direct offering and approximately $41.2 million from a June 2025 public offering (plus $4.0 million from overallotment option exercise)[164][170] Cash Flow Activities Summary | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Operating Activities | $(20,157) | $(10,209) | | Financing Activities | $41,222 | $55,957 | | Investing Activities | $18,056 | $(46,568) | Item 4. Controls and Procedures Management evaluated disclosure controls and procedures, concluding effectiveness, with no material changes to internal control over financial reporting - The company's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025[178] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting during the quarter ended June 30, 2025[179] Part II. Other Information Item 1A. Risk Factors This section details comprehensive risks impacting the business, covering financing, product development, regulatory, commercialization, intellectual property, and operations Risks Related to Our Financial Condition and Capital Requirements - The company requires substantial additional capital to complete development, regulatory approval, and commercialization of cytisinicline, with current funds insufficient for commercialization[182][183] - As of June 30, 2025, the company has $10.0 million in principal debt, secured by substantially all assets (excluding intellectual property), which could impair financial flexibility and access to capital[186][188] - The company has incurred an accumulated deficit of $231.1 million and expects continued losses, having never generated revenue from product sales[193][196] - Cash balances held at third-party financial institutions, including SVB, exceed FDIC insurance limits, posing a risk if these institutions fail[200][201] Risks Related to the Development of Our Product Candidate Cytisinicline - Cytisinicline is the company's sole product candidate, and there is no guarantee of successful FDA approval or commercialization[202] - The development and commercialization of cytisinicline depend on securing sufficient quantities from natural plant sources, which grow in limited non-U.S. locations, posing supply risks[204] - The FDA may require additional clinical or nonclinical studies for cytisinicline, or may not grant marketing approval at all, despite the NDA submission[205][207] - Clinical trials, including the ongoing ORCA-OL trial, are costly and risky; earlier positive results are not necessarily predictive of future success, and unforeseen adverse events or impurities (e.g., nitrosamines) could delay or prevent approval[209][212][215][216] - The use or misuse of cytisinicline could lead to product liability claims, potentially revoking regulatory approvals or causing substantial financial and reputational harm[221][222] - Business operations may be negatively affected by extreme weather conditions, natural disasters (e.g., earthquakes near Sopharma's facilities), and climate change, impacting cytisinicline supply[229][230] Risks Related to Regulatory Approval of Cytisinicline and Other Legal Compliance Matters - Failure to obtain necessary regulatory approvals from the FDA or foreign authorities will prevent the sale of cytisinicline[232] - Disruptions at the FDA, including impacts from the Supreme Court's Chevron doctrine reversal, government shutdowns, or staffing changes, could slow product review and approval[235][236][237][238][239] - Healthcare legislative and executive reform measures, such as the Inflation Reduction Act, could increase costs, limit reimbursement, or reduce demand for cytisinicline[240][242] - Even with regulatory approval, the company will face costly ongoing compliance requirements for manufacturing, labeling, promotion, and post-marketing studies, with non-compliance leading to penalties[245][248][249] - The company is subject to federal and state healthcare fraud and abuse laws, false claims laws, and health information privacy and security laws, with potential for substantial penalties for non-compliance[251][254][255] - Misconduct by employees, contractors, or partners, including noncompliance with regulatory standards or improper use of information, could lead to regulatory sanctions and reputational harm[256] - Breakthrough Therapy designation for vaping cessation does not guarantee faster development, regulatory review, or ultimate marketing approval[260][261] Risks Related to our Business Operations - The company's limited operating history and sole reliance on cytisinicline make it difficult to evaluate its business, predict prospects, and forecast financial performance and growth[262] - Future success depends on attracting, retaining, and motivating qualified personnel, including key executives; the inability to do so could impede research, development, and commercialization[263][264] - Expanding the organization for potential commercialization of cytisinicline may lead to difficulties in managing growth, operational mistakes, and diversion of resources[265][266] - Investing in additional indications for cytisinicline, such as e-cigarette cessation, is highly uncertain and may not yield commercially successful products after significant capital investment[267][268] - Internal computer systems or those of third-party collaborators are vulnerable to security breaches and cyber-attacks, which could disrupt development programs, lead to data loss, and incur liabilities[269][271] - Future integration of AI tools, either directly or through third parties, introduces legal, regulatory, ethical, and data privacy risks that could adversely impact the business and reputation[272] Risks Related to Our Reliance on Third Parties - The company relies on third parties, including Sopharma, to manufacture cytisinicline; a dispute with Sopharma over engaging alternative manufacturers could delay commercialization or lead to litigation[273][275][276] - Manufacturing risks include difficulties in scaling production, quality control, contamination (e.g., nitrosamines), and geopolitical instability (e.g., Ukraine conflict) impacting supply from Sopharma[279][282] - Reliance on third-party CROs for clinical trials means failure to perform or comply with regulatory requirements could delay development or invalidate trial results[284][285] - Inability to establish or maintain third-party collaborations on commercially reasonable terms could adversely affect research, development, and commercialization efforts[286][287] - Contractual indemnification provisions could expose the company to material adverse effects if obligations exceed insurance coverage or collaborators fail to indemnify[288][289] - Reliance on third-party service providers for distribution, warehousing, government price reporting, and adverse event reporting means their failure to perform could impair product delivery and lead to regulatory sanctions[290][293][294][295] Risks Related to Commercialization of Cytisinicline - The company lacks a sales and marketing infrastructure and relies on third parties (e.g., Omnicom partnership) to commercialize cytisinicline, posing risks if these efforts are unsuccessful or delayed[296][297] - The market for new products is highly competitive, with larger competitors possessing greater resources, potentially developing superior or more cost-efficient products[301][303] - Commercial success depends on market acceptance by physicians, patients, and third-party payors, which is uncertain and requires significant investment in education[304][305] - Obtaining adequate reimbursement and insurance coverage for cytisinicline is uncertain, and increasing efforts by payors to limit healthcare costs could restrict pricing and profitability[308][313][314] - Sopharma could breach its supply agreement, selling cytisinicline into the company's territories or permitting third-party exports, increasing competition and negatively impacting commercialization[319] - The illegal distribution and sale of counterfeit cytisinicline or unapproved versions by third parties could harm patient safety, the company's reputation, and financial performance[320][321][322] - Inability to form future collaborations for cytisinicline on acceptable terms may force the company to alter its development and commercialization plans, requiring additional capital and expertise[325][326] - Efforts to identify, license, discover, develop, or commercialize additional product candidates are uncertain and may fail to yield commercially viable products, adversely affecting the business[327][328] Risks Related to our Intellectual Property - Reliance on trade secret protection and confidentiality agreements carries risks of disclosure or independent discovery by competitors, potentially impairing competitive position[332][333] - Third-party claims of intellectual property infringement could prevent or delay development and commercialization efforts, leading to substantial litigation expenses, damages, or the need for licenses[334][338] - Inability to obtain or maintain adequate patent protection for product candidates, or challenges to existing patents, could allow competitors to enter the market[339][341] - Changes in patent law, including recent U.S. Supreme Court rulings, could diminish the value of patents, especially for naturally occurring substances like cytisinicline[344][345] - Risk of claims that employees, consultants, or independent contractors have wrongfully used or disclosed confidential information or trade secrets of third parties, leading to litigation and potential loss of IP rights[346] - Patents have a limited lifespan, and delays in regulatory approvals could reduce the effective period of patent protection, allowing competitors to launch products earlier[347][349] - Protecting intellectual property rights globally is expensive and challenging, as foreign laws may offer less protection, potentially allowing competitors to use technologies in other jurisdictions[355][356] Risks Related to Our Common Stock - The market price for the company's common stock is highly volatile, influenced by factors such as clinical trial results, regulatory approvals, and macroeconomic conditions[357][360] - Sales of a substantial number of common shares, conversion of convertible debt, or exercise of outstanding warrants and options could cause significant dilution and a decline in stock price[359][365] - Future capital raises through equity or debt securities may result in further dilution for existing stockholders or impose restrictive covenants[366][368][369] - As a smaller reporting company, reduced disclosure requirements may make the common stock less attractive to investors, potentially leading to a less active trading market and increased price volatility[370] - Lack of or unfavorable research reports from equity analysts could decrease demand for the stock, leading to a decline in stock price and trading volume[371] General Risk Factors - The company is at risk of securities class action litigation, which could result in substantial costs and diversion of management's attention[372] - Complying with public company laws and regulations incurs significant legal, accounting, and governance expenses, and challenges in attracting and retaining qualified personnel[373] - Shareholder activism could disrupt business operations, increase costs, and divert management's attention[374] - Anti-takeover provisions under Delaware law and the company's bylaws could make an acquisition more difficult and limit stockholders' ability to replace management or choose a favorable judicial forum[375][376] - Failure to maintain effective internal control over financial reporting could harm the company's reputation, results of operations, and financial condition[377][378] - Pre-merger net operating loss carryforwards and certain other tax attributes are subject to limitations due to an ownership change, potentially impacting cash flow and results of operations[379] - U.S. federal tax reform (e.g., Tax Cuts and Jobs Act) and changes in other tax laws could increase the company's tax burden and adversely affect its business and financial condition[381][382][383] Item 6. Exhibits This section lists all documents filed as exhibits to the Form 10-Q, including warrants, an employment agreement, and certifications - Exhibit 4.1: Form of Warrant to Purchase Common Stock or Pre-Funded Warrants[385] - Exhibit 10.1: Executive Employment Agreement, dated May 9, 2025, by and between Achieve Life Sciences, Inc. and Richard Stewart[385] - Exhibits 31.1 and 31.2: Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934[385] - Exhibits 32.1 and 32.2: Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350[385] - Exhibits 101.INS, 101.SCH, and 104: Inline XBRL Instance Document, Taxonomy Extension Schema, and Cover page formatted as Inline XBRL[385] Signatures This section contains the formal signatures, certifying the submission of the Quarterly Report on Form 10-Q - The report was signed by Mark Oki, Chief Financial Officer (Principal Financial Officer) of Achieve Life Sciences, Inc. on August 7, 2025[389]