Acasti Pharma(US:ACST)2022-02-13 16:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated interim financial statements for the three and nine months ended December 31, 2021, reflecting the Grace Therapeutics acquisition and a 1-for-8 reverse stock split Condensed Consolidated Interim Balance Sheet Highlights (in thousands of U.S. dollars) | Account | December 31, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $33,013 | $50,942 | | Intangible assets | $65,208 | $0 | | Total assets | $114,227 | $62,458 | | Total current liabilities | $2,897 | $1,579 | | Total liabilities | $3,165 | $6,798 | | Total shareholder's equity | $111,062 | $55,660 | Condensed Consolidated Interim Statements of Loss (in thousands of U.S. dollars, except per share data) | Metric | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Research and development expenses | $(2,179) | $(678) | $(3,233) | $(3,720) | | General and administrative expenses | $(1,808) | $(1,105) | $(7,441) | $(4,078) | | Net loss | $(3,778) | $(3,220) | $(5,915) | $(14,032) | | Basic and diluted loss per share | $(0.09) | $(0.26) | $(0.23) | $(1.18) | Condensed Consolidated Interim Statements of Cash Flows Highlights (Nine Months Ended, in thousands of U.S. dollars) | Cash Flow Activity | December 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(14,089) | $(12,559) | | Net cash from (used in) investing activities | $(3,533) | $(1,441) | | Net cash from financing activities | $0 | $24,812 | | Net (decrease) increase in cash | $(17,929) | $12,306 | - On August 27, 2021, the company acquired Grace Therapeutics, issuing common shares valued at approximately $60.8 million, which was accounted for as a business combination, resulting in the recognition of $65.2 million in intangible assets related to in-process research and development (IPR&D)636568 - A 1-for-8 reverse stock split of the company's common stock was made effective on August 31, 2021, with all share and per-share data in the financial statements retroactively adjusted to reflect this split53 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, detailing the strategic shift post-Grace Therapeutics acquisition, progress of lead drug candidates, and analysis of financial results, liquidity, and capital resources Business Overview and Clinical Programs Following the Grace Therapeutics acquisition, Acasti is now a late-stage specialty pharmaceutical company focused on rare and orphan diseases, advancing three clinical-stage assets: GTX-104, GTX-102, and GTX-101, utilizing the 505(b)(2) regulatory pathway - The company's strategy is to apply new proprietary formulations to existing pharmaceutical compounds to achieve enhanced efficacy, faster onset, and reduced side effects, targeting a potentially shorter path to regulatory approval via the Section 505(b)(2) pathway114115 Key Clinical Programs Overview | Drug Candidate | Indication | Description | Market Opportunity (U.S. $ millions) | Near-Term Milestone | | :--- | :--- | :--- | :--- | :--- | | GTX-104 | Subarachnoid Hemorrhage (SAH) | IV formulation of nimodipine | ~$300 | Complete pivotal PK study in H1 2022; start Phase 3 safety study in H2 2022 | | GTX-102 | Ataxia Telangiectasia (A-T) | Oral-mucosal betamethasone spray | ~$150 | Conduct PK bridging study and confirmatory Phase 3 trial | | GTX-101 | Postherpetic Neuralgia (PHN) | Topical bupivacaine spray | ~$400 (PHN) | Conduct dose-ranging Phase 1 clinical trials | - For GTX-104, a pivotal PK bridging study initiated in September 2021 showed interim results from the first 20 subjects met primary endpoints, demonstrating comparable bioavailability to oral nimodipine with much lower variability138139 Results of Operations The company's net loss increased for the three-month period but decreased for the nine-month period ended December 31, 2021, driven by higher R&D and G&A expenses, offset by reduced impairment charges and a positive change in derivative warrant liabilities Net Loss Comparison (in thousands of U.S. dollars) | Period | Net Loss (2021) | Net Loss (2020) | Change | | :--- | :--- | :--- | :--- | | Three Months Ended Dec 31 | $(3,778) | $(3,220) | $558 Increase | | Nine Months Ended Dec 31 | $(5,915) | $(14,032) | $8,117 Decrease | - R&D expenses for Q3 2021 increased by $1.5 million year-over-year, mainly due to advancing the GTX-104, GTX-102, and GTX-101 programs acquired in the Grace merger189196 - General & Administrative expenses for the nine months ended Dec 31, 2021, increased by $3.4 million year-over-year, primarily due to legal, accounting, and professional fees related to the Grace merger and the renewal of the at-the-market (ATM) program192201 Liquidity and Capital Resources As of December 31, 2021, the company held $33.0 million in cash, with primary cash usage in operating activities, and no funds raised via the ATM program, while the Grace acquisition significantly altered its financial position - The company held $33.0 million in cash and cash equivalents as of December 31, 2021206 - On November 10, 2021, the company renewed its at-the-market (ATM) program, allowing for the sale of common shares up to an aggregate offering price of $75 million, though no shares were sold under the ATM program during the nine months ended December 31, 2021212213 Contractual Obligations at December 31, 2021 (in thousands of U.S. dollars) | Obligation | Total | Less than 1 year | | :--- | :--- | :--- | | Trade and other payables | $2,843 | $2,843 | | Operating lease obligations | $22 | $22 | | RKO supply agreement | $2,800 | $2,800 | | Total | $5,665 | $5,665 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, including credit, currency, interest rate, and liquidity risks, and outlines management strategies for each - The company is exposed to foreign currency risk as a portion of its expenses are in U.S. dollars and Euros, while its functional currency is the Canadian dollar, mitigated by holding cash in both U.S. and Canadian dollars249 - As of December 31, 2021, a hypothetical 5% strengthening of the U.S. dollar and Euro would result in an increase to the net loss of approximately $3.2 million, assuming all other variables remain constant253254 - Liquidity risk is managed by monitoring cash flows and through the Board of Directors' review of operating budgets and material transactions255 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal controls over financial reporting during the quarter - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective259 - No material changes were made to the company's internal controls over financial reporting during the quarter ended December 31, 2021260 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in legal proceedings related to the Grace Therapeutics merger, facing consolidated stockholder lawsuits alleging material omissions, which it believes are without merit and intends to vigorously defend - Four stockholder lawsuits were filed in connection with the Grace merger, alleging violations of Section 14(a) of the Exchange Act due to purported material omissions in public disclosures262 - Two of the four complaints have been voluntarily dismissed without prejudice, while the remaining two have been consolidated, and the plaintiff has been ordered to file an amended complaint263 - Acasti believes the allegations in the complaints are frivolous and without merit and plans to vigorously defend against them263 Item 1A. Risk Factors This section details significant risks associated with investing in the company's common shares, updated post-Grace merger, covering general operations, business, development, commercialization, intellectual property, third-party reliance, and common stock volatility Risks Related to Business and Commercialization The company's success is highly dependent on its lead drug candidates, GTX-104, GTX-102, and GTX-101, facing lengthy, expensive, and uncertain development, regulatory approval, market acceptance, and intense competition - The company's business and future success are substantially dependent on the ability to successfully develop, obtain regulatory approval for, and commercialize its lead product candidates, GTX-104, GTX-102, and GTX-101302 - The company intends to use the 505(b)(2) regulatory pathway, but there is a risk the FDA may not agree with this approach, which would significantly increase the time and cost to get products approved303305 - The company faces significant competition from other biotechnology and pharmaceutical companies that have substantially greater financial and technical resources292293 Risks Related to Intellectual Property and Third-Party Reliance Acasti's success depends on protecting its intellectual property and avoiding infringement, particularly with the 505(b)(2) pathway, and it relies heavily on third-party CMOs and CROs for manufacturing and clinical trials, exposing it to performance and disruption risks - The company's drug development strategy relies heavily on the 505(b)(2) pathway, which requires certifying non-infringement of third-party patents, often resulting in costly litigation341 - Acasti does not have internal manufacturing capabilities and relies on third-party manufacturers (CMOs), which exposes it to risks of manufacturing failures, regulatory compliance issues, and supply disruptions that could delay clinical development and commercialization355356 - The company also relies on third-party CROs to conduct preclinical studies and clinical trials, and if these parties fail to perform their duties successfully or meet deadlines, it could substantially harm the business357 Risks Relating to Common Shares Investment in the company's common shares involves significant risks, including potential PFIC status, price volatility, future dilution from capital raises, and delisting risks from NASDAQ or TSXV, with no expected dividends - The company may be treated as a passive foreign investment corporation (PFIC), which could have adverse tax consequences for U.S. shareholders371372 - The price of the company's common shares may be volatile due to factors such as clinical trial results, regulatory developments, and market conditions, and the company does not expect to pay cash dividends in the foreseeable future378379 - Failure to meet applicable listing requirements could result in the delisting of common shares from the NASDAQ Stock Market or the TSX Venture Exchange, which would negatively impact liquidity and market price383 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities or use of proceeds for the period - None393 Item 3. Defaults upon Senior Securities This section reports no defaults upon senior securities for the period - None393 Item 4. Mine Safety Disclosures This section is not applicable to the company - Not applicable393 Item 5. Other Information This section reports no other information for the period - None393 Item 6. Exhibits This section lists exhibits filed with the quarterly report, including corporate governance documents, warrant agreements, and required CEO/CFO certifications - The report includes a list of filed exhibits, such as corporate formation documents, warrant indentures, and required CEO/CFO certifications under Rules 13a-14(a) and Section 906 of the Sarbanes-Oxley Act395