1. Nature of operation
Acasti Pharma Inc. (Acasti(“Acasti” or the Corporation)“Corporation”) is incorporated under the Business Corporations Act (Québec) (formerly Part 1A of the Companies Act (Québec)). The Corporation is domiciled in Canada and its registered office is located 3009,at 2572 boul. de la Concorde Est, Suite 102,Daniel-Johnson, 2nd Floor Laval, Québec, H7E 2B5Canada H7T 2R3.
The Corporation’s Class A common shares, no par value per share (“Common Shares”), are listed on the Nasdaq Capital Market (the “Nasdaq”) and, through March 27, 2023, the Corporation's Common Shares were also listed on the TSX Venture Exchange (“TSXV”), in each case, under the symbol “ACST”. On March 13, 2023, the Corporation received approval to voluntarily delist from the TSXV. Effective as at the close of trading on March 27, 2023, the Corporation's Common Shares are no longer listed and posted for trading on the TSXV.
In August 2021, the Corporation completed the acquisition via a share-for-share merger of Grace Therapeutics, Inc. (“Grace”), a privately held emerging biopharmaceutical company focused on developing innovative drug delivery technologies for the treatment of rare and orphan diseases. The post-merger Corporation is focused on building a late-stage specialty pharmaceutical company specializing in rare and orphan diseases and developing and commercializing products that improve clinical outcomes using its novel drug delivery technologies. The Corporation is subjectseeks to a numberapply new proprietary formulations to existing pharmaceutical compounds to achieve enhanced efficacy, faster onset of risks associated with its ongoing priorities, including the conductaction, reduced side effects, more convenient delivery and increased patient compliance; all of its clinical program and its results, the establishment of strategic alliances and the development of newwhich could result in improved patient outcomes. The active pharmaceutical products and their marketing. The Corporation’s current product in development requires approval from the U.S Food and Drug Administration and equivalent regulatory organizations in other countries before their sale can be authorized.
The Corporation has incurred significant operating losses and negative cash flows from operations since inception. To date,ingredients chosen by the Corporation has financed its operations through the public offering and private placement of Common Shares, units consisting of Common Shares and warrants and convertible debt, the proceeds from research grants and research tax credits, and the exercises of warrants, rights and options. To achieve the objectives of its business plan, Acasti plans to raise the necessary funds through additional securities offerings and the establishment of strategic alliances as well as additional research grants and research tax credits. The ability of the Corporation to complete the needed financing and ultimately achieve profitable operations is dependent on a number of factors outside of the Corporation’s control.
Adoption of U.S. GAAP
These interim condensed consolidated financial statements of the Corporation have been prepared in accordance with generally accepted accounting principlesfor further development may be already approved in the United States of America (U.S. GAAP). Comparative figures ,target indication or could be repurposed for the three month period ended June 30, 2019, which were previously presenteduse in accordance with International Financial Reporting Standards (”IFRS”) as issued by the International Accounting Standards Board, have been adjusted as required to be compliant with the Corporation’s accounting policies under U.S. GAAPnew indications.
Basis of presentation
These unaudited Interim Consolidated Financial Statements have been prepared using accounting policies consistent with those used in preparing the Corporation’s March 31, 2020 Annual Consolidated Financial Statements, except as disclosed in Note 3 – Recent accounting pronouncements and policies, and should be read in conjunction with such statements and Notes thereto.
Going concern uncertainty:
The following summarizes the principal conditions or events relevant to the Corporation’s going concern assessment, which primarily considers the period of one year from the issuance date of these financial statements. The Corporation has incurred operating losses and negative cash flows from operations in each year since its inception. The Corporation’s current assets of $14.0 million as at June 30, 2020 include cashCorporation expects to incur significant expenses and cash equivalents totaling $12.1 million. The Corporation’s current liabilities total $6.0 million at June 30, 2020 and are comprised primarily of amounts duecontinued operating losses for the foreseeable future.
In May 2023, the Corporation implemented a strategic realignment plan to or accrued for creditors. Assuming positive Phase 3 results, Management projectsenhance shareholder value that additional funds will be neededresulted in the future for us to file an NDA to obtain FDA approval for CaPreCorporation engaging a new management team, streamlining its research and development activities and greatly reducing its workforce. Following the realignment, the Corporation is a smaller, more focused organization, based in the United States, and concentrated on its development of its lead product GTX-104. Further development of GTX-102 and GTX-101 will occur at such time when the Company is able to secure additional funding, or enters into strategic partnerships for license or sale with third parties.
On September 24, 2023, the Corporation entered into a securities purchase agreement with certain institutional and accredited investors. Gross proceeds to the Corporation from this private placement were $7,500, before deducting fees and expenses. The Corporation issued and sold an aggregate of 1,951,371 Common Shares, pre-funded warrants (the "Pre-funded Warrants") to purchase up to an aggregate of 2,106,853 Common Shares, each at a purchase price of $1.8481 per Common Share and accompanying common warrants (the "Common Warrants" and, together with the Pre-funded Warrants, the "Warrants") to purchase up to an aggregate of 2,536,391 Common Shares. The Corporation currently intends to use the net proceeds from the private placement for clinical trial expenses to further scale up our manufacturing capabilities,the Phase 3 clinical trial for GTX-104, pre-commercial planning, working capital and other general corporate purposes. The Corporation believes its cash runway, including net proceeds from this financing, will be sufficient to complete marketfund the Corporation’s operations into the second calendar quarter of 2026.
The Corporation will require additional capital to fund its daily operating needs beyond that time. The Corporation does not expect to generate revenue from product sales unless and until it successfully completes drug development and obtains regulatory approval, which the Corporation expects will take several years and is subject to significant uncertainty. To date, the Corporation has financed its operations primarily through public offerings and private placements of its Common Shares, warrants and convertible debt and the proceeds from research tax credits. Until such time that the Corporation can generate significant revenue from drug product sales, if ever, it will require additional financing, which is expected to be sourced from a combination of public or private equity or debt financing or other pre-commercialization activities.non-dilutive sources, which may include fees, milestone payments and royalties from collaborations with third parties. Arrangements with collaborators or others may require the Corporation to relinquish certain rights related to its technologies or drug product candidates. Adequate additional financing may not be available to the Corporation on acceptable terms, or at all. The Corporation’s inability to raise capital as and when needed could have a negative impact on its financial condition and its ability to pursue its business strategy. The Corporation plans include raisingto raise additional capital throughin order to maintain adequate liquidity. Negative results from studies or trials, if any, or depressed prices of the Corporation’s stock could impact the Corporation’s ability to raise additional securities offerings, as well as non-dilutive sources of capital such as grants or loans and license and milestone payments from strategic alliances, however there can be no assurance as to when or whether Acasti will complete any financings or strategic alliances. In particular, raisingfinancing. Raising additional equity capital is subject to market conditions that are not within the Corporation’s control. If the Corporation does notis unable to raise additional funds, or find one or more strategic partners, itthe Corporation may not be able to realize its assets and discharge its liabilities in the normal course of business.
The Corporation currently has no arranged sourcesremains subject to risks similar to other development-stage companies in the biopharmaceutical industry, including compliance with government regulations, protection of financing other than its “At-The-Market” sales agreement, which provides for only conditional sellingproprietary technology, dependence on third-party contractors and consultants and
9
potential product liability, among others. Please refer to the risk factors included in Part 1, Item 1A of the Corporation’s shares.Annual Report on Form 10-K for the year ended March 31, 2023, filed with the SEC on June 23, 2023 (the “Annual Report”).
AsReverse stock split
On June 29, 2023, the Board of Directors of the Corporation approved an amendment to the Corporation's Articles of Incorporation to implement a result, therereverse stock split of the Corporation's Common Shares, at a ratio of 1-for-6 (the “Reverse Stock Split”). On July 4, 2023, the Corporation filed Articles of Amendment to its Articles of Incorporation with the Registraire des entreprises du Québec, to implement the Reverse Stock Split. All references in these financial statements to number of Common Shares, warrants and options, price per share and weighted-average number of shares outstanding have been adjusted to reflect the Reverse Stock Split, which became effective on July 10, 2023.
2. Summary of significant accounting policies:
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X under the Securities Exchange Act of 1934. Any reference in these notes to applicable guidance is a substantial doubt aboutmeant to refer to the Corporation’s ability to continueauthoritative U.S. GAAP as a going concern.found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Acasti pharma INC.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
Three-month periods ended June 30, 2020 and June 30, 2019
Going concern uncertainty (continued):
The unaudited condensed consolidated financial statements have been prepared on a going concernthe same basis which assumesas the Corporation will continue its operations in the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the ordinary course of business. Theseaudited annual consolidated financial statements do not include anyas of and for the year ended March 31, 2023, and, in the opinion of management, reflect all adjustments, toconsisting of normal recurring adjustments, necessary for the carrying valuesfair presentation of the Corporation’s consolidated financial position as of December 31, 2023, the consolidated results of its operations for the three and classificationnine months ended December 31, 2023 and 2022, its statements of assetsshareholders’ equity for the three and liabilitiesnine months ended December 31, 2023 and reported expenses that might result2022, and its consolidated cash flows for the nine months ended December 31, 2023 and 2022.
These unaudited condensed consolidated financial statements should be read in conjunction with the Corporation’s audited consolidated financial statements and the accompanying notes for the year ended March 31, 2023 included in the Corporation’s Annual Report. The condensed consolidated balance sheet data as of March 31, 2023 presented for comparative purposes was derived from the outcome of this uncertainty and that may be necessary if the going concern basis was not appropriate for theseCorporation’s audited consolidated financial statements. IfThe results for the Corporation was unable to continue as a going concern, material impairmentthree and nine months ended December 31, 2023 are not necessarily indicative of the carrying valuesoperating results to be expected for the full year or for any other subsequent interim period.
The Corporation’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended March 31, 2023 included in the Annual Report. There have been no changes to the Corporation's significant accounting policies since the date of the Corporation’s assets, includingaudited consolidated financial statements for the intangible asset, could be required.year ended March 31, 2023 included in the Annual Report.
Use of estimates
The preparation of thethese financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income, and expenses. Actual results may differ from these estimates.
Estimates are based on management’s best knowledge of current events and actions that management may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Estimates and assumptions include the measurement of stock-based compensation, derivative warrant liabilities, (note 5)accruals for research and stock-based compensation (note 9).development contracts and contract organization agreements, and valuation of intangibles and goodwill. Estimates and assumptions are also involved in measuringdetermining the accrual of services rendered with respectextent to research and developments expenditures at each reporting date, as well as in determining which research and development expenses qualify for investmentresearch and development tax credits and in what amounts.credits. The Corporation recognizes the tax credits once it has reasonable assurance that they will be realized. Recorded tax credits
Recent accounting pronouncements
The Corporation has considered recent accounting pronouncements and concluded that they are subjecteither not applicable to review and approval by tax authorities and, therefore, could be different from the amounts recorded.
Acasti pharma INC.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
Three-month periods ended June 30, 2020 and June 30, 2019
In June 2016,Corporation's business or that the FASB issued ASU 2016-13-Financial Instruments-Credit Losses (Topic 326), which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost, the new guidance eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losseseffect is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amountnot expected to be collected. ASU 2016-13 will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, and any other financial assets not excluded from the scope that have the contractual rightmaterial to receive cash. ASU 2016-13 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2022. Management has not yet evaluated the impact of this ASU on the consolidated financial statements.statements as a result of future adoption.
3. Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 are as follows:
In August 2018, the FASB issued ASU 2018-15 Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred10
| Total |
| Quoted prices in active markets (Level 1) |
| Significant other observable inputs (Level 2) |
| Significant unobservable inputs (Level 3) |
| |
| $ |
| $ |
| $ |
| $ |
| |
Assets |
|
|
|
|
|
|
|
|
|
Guaranteed investment certificates and term deposits |
| 16,485 |
| 16,485 |
| — |
| — |
|
Guaranteed investment certificates and term deposits |
| 6,569 |
| 6,569 |
| — |
| — |
|
Total assets |
| 23,054 |
| 23,054 |
| — |
| — |
|
Liabilities |
|
|
|
|
|
|
|
|
|
Derivative warrant liabilities |
| 3,332 |
| — |
| — |
| 3,332 |
|
Total liabilities |
| 3,332 |
| — |
| — |
| 3,332 |
|
Assets measured at fair value on a recurring basis as of March 31, 2023 are as follows:
| Total |
| Quoted prices in active markets (Level 1) |
| Significant other observable inputs (Level 2) |
| Significant unobservable inputs (Level 3) |
| |
| $ |
| $ |
| $ |
| $ |
| |
Assets |
|
|
|
|
|
|
|
|
|
Guaranteed investment certificate classified as a |
| 15 |
| 15 |
| — |
| — |
|
Total assets |
| 15 |
| 15 |
| — |
| — |
|
There were no changes in a Cloud Computing Arrangement That is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs in such cloud computing arrangements with the requirements for capitalizing implementation costs incurred to developvaluation techniques or obtain internal-use software. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and early adoption is permitted. Entities can choose to adopt the new guidance prospectivelytransfers between Levels 1, 2 or retrospectively. Management has adopted the accounting standard update. However, the adoption of this update did not have any impact on the reported amounts as at June 30, 2020.
As at June 30, 2020, the Corporation owned a reserve of krill oil for a total value of $691 of which, $499 is expected to be used3 during the next twelvenine months in the R&D production processes and for NKPL66 manufacturing, and therefore it is presented as current other asset in the Balance Sheet.
Acasti pharma INC.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
Three-month periods ended June 30, 2020 and June 30, 2019
December 31, 2023. The warrants issued as part of the public offering of units composed of class A shares (Common Shares) and Common Shares purchase warrants on both May 9, 2018 and May 14, 2018 (see note 6) are derivative liabilities (“Derivative warrant liabilities”) given the warrant indenture contains certain contingent provisions that allow for cash settlement.
The warrants issued as part of a public offering of units composed of class A shares (Common Shares) and Common Shares purchase warrants on December 27, 2017 are derivative liabilities (“Derivative warrant liabilities”) given the currency of the exercise price is different from the Corporation’s functional currency.
The derivative warrant liabilities are measured at fair value at every reporting period and the reconciliation of changes in fair valueon a recurring basis using unobservable inputs that are classified as Level 3 inputs. Refer to Note 8(b) for the three-month periods ended June 30, 2020valuation techniques and 2019 is presentedassumptions used in estimating the following table:
Warrant liabilities issued May 2018 | Warrant liabilities issued December 27, 2017 | |||||||||||||||
| June 30, 2020 | June 30, 2019 | June 30, 2019 | June 30, 2019 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Balance – beginning of period | 1,146 | 6,177 | 1,247 | 6,005 | ||||||||||||
| Change in fair value | 378 | 514 | 131 | 418 | ||||||||||||
| Translation effect | 80 | 115 | 89 | 123 | ||||||||||||
| Balance – end of period | 1,604 | 6,806 | 1,467 | 6,546 | ||||||||||||
| USD $0.66 | ||||||||||||||||
| Fair value per warrant | USD $0.23 | USD $0.67 | USD $0.21 | |||||||||||||
The fair value of the derivative warrant liabilities was estimated using the Black-Scholes option pricing model and based on the following assumptions:liabilities.
4. Receivables
| Warrant liabilities issued May 2018 | Warrant liabilities issued December 27, 2017 | |||||||||||||||
| June 30, 2020 | March 31, 2020 | June 30, 2020 | March 31, 2020 | |||||||||||||
| Exercise price | CAD $1.31 | CAD $1.31 | USD $1.26 | USD $1.26 | ||||||||||||
| Share price | CAD $0.64 | CAD $0.53 | USD $0.47 | USD $0.38 | ||||||||||||
| Risk-free interest | 0.44 | % | 0.66 | % | 0.29 | % | 0.37 | % | ||||||||
| Estimated life (years) | 2.86 | 3.11 | 2.47 | 2.74 | ||||||||||||
| Expected volatility | 116.41 | % | 107.59 | % | 120.55 | % | 125.03 | % | ||||||||
| December 31, 2023 |
| March 31, | |
|
| $ |
| $ |
Sales tax receivables |
| 411 |
| 338 |
Government assistance |
| 356 |
| 412 |
Interest receivable |
| 164 |
| 52 |
Other receivables |
| 28 |
| — |
Total receivables |
| 959 |
| 802 |
11
15
Acasti pharma INC.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
Three-month periods ended June 30, 2020 and June 30, 2019
On February 14, 2019, the Corporation entered into an “at-the-market” (ATM) sales agreement with B. Riley FBR, Inc. (“B. Riley”) pursuant to which the Common Shares may be sold from time to time for aggregate gross proceeds of up to $30 million, with sales only being made on the NASDAQ Stock Market. The Common Shares would be issued at market prices prevailing at the time of the sale and, as a result, prices may vary between purchasers and during the period of distribution. The ATM has a 3-year term and requires the Corporation to pay between 3% and 4% commission to B. Riley based on volume of sales made.
During the three-month period ended June 30, 2020, a total of 2.3 million common shares were sold for total net proceeds of approximately $1.8 million under the ATM program. The shares were sold at the prevailing market prices, which resulted in an average price of approximately $0.81 per share. Accordingly, proportional costs of $10 related to the common shares sold, have been reclassified from deferred financings costs to equity.
On June 29, 2020, the Corporation entered into an amended and restated sales agreement (the Sales Agreement) with B. Riley, Oppenheimer & Co. Inc. and H.C. Wainwright & Co., LLC (collectively, the “Agents”) to amend the existing ATM program. Under the terms of the Sales Agreement, the Corporation may issue and sell from time to time its common shares (the Shares) having an aggregate offering price of up to US$75,000,000 through the Agents.
Subject to the terms and conditions of the Sales Agreement, the Agents will use their commercially reasonable efforts to sell the Shares from time to time, based upon the Corporation’s instructions. The Corporation has no obligation to sell any of the Shares and may at any time suspend sales under the Sales Agreement. The Corporation and the Agents may terminate the Sales Agreement in accordance with its terms. Under the terms of the Sales Agreement, the Corporation has provided the Agents with customary indemnification rights and the Agents will be entitled to compensation, at a commission rate equal to 3.0% of the gross proceeds from each sale of the Shares.
Costs incurred to register the Sales Agreement amounted to $130 and were recorded as deferred financing costs in the Consolidated Balance Sheet. Accordingly, the remaining balance of the costs incurred during February 2019 for an amount of $115 were written off to financing expenses.
On May 10, 2019, the Corporation announced the settlement regarding legal claims made by its former chief executive (“CEO”) officer with respect to the termination of his employment. Pursuant to the settlement agreement, the Corporation agreed to issue 900,000 common shares at $0.82 (CAD $1.10) per share to the former CEO. In addition, the Corporation agreed to reimburse the former CEO for legal fees of $48 (CAD $64.) Furthermore, pursuant to the settlement agreement, the Corporation received a full and final release from the former CEO on all procedures in connection with the termination of his employment. This settlement was accrued as a short-term liability as at March 31, 2019 and the expense of $786 (CAD $1,054) was included as part of General and administrative expenses. During May 2019, the shares were issued and the liability of $739 (CAD $990) reclassified as Equity.
Acasti pharma INC.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
Three-month periods ended June 30, 2020 and June 30, 2019
The warrants of the Corporation are composed of the following as at June 30, 2020 and March 31, 2020:
| June 30, 2020 | March 31, 2020 | |||||||||||||||
| Number outstanding |
Amount | Number outstanding |
Amount | |||||||||||||
| $ | $ | |||||||||||||||
| Liability | ||||||||||||||||
| May 2018 over-allotment | 6,593,750 | 1,604 | 6,593,750 | 1,146 | ||||||||||||
| Warrants 2018 (i) | ||||||||||||||||
| Series December 2017 US Public offering | 7,072,962 | 1,467 | 7,072,962 | 1,247 | ||||||||||||
| Warrants 2017 (ii) | ||||||||||||||||
| 13,666,712 | 3,071 | 13,666,712 | 2,393 | |||||||||||||
Equity | ||||||||||||||||
| Public offering warrants | ||||||||||||||||
| Public offering Broker warrants May 2018(iii) | 222,976 | 89 | 222,976 | 89 | ||||||||||||
| Series December 2017 US Broker warrants (iv) | 259,121 | 161 | 259,121 | 161 | ||||||||||||
| Public offering warrants February 2017 (v) | 1,723,934 | 631 | 1,723,934 | 631 | ||||||||||||
| 2,206,031 | 881 | 2,206,031 | 881 | |||||||||||||
17
Acasti pharma INC.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
Three-month periods ended June 30, 2020 and June 30, 2019
Government assistance is comprised of a government grant from the Canadian federal government and research and development investment tax credits receivable from the QuebecQuébec provincial government, which relate to qualifiablequantifiable research and development expenditures under the applicable tax laws. The amounts recorded as receivables are subject to a government tax audit and the final amounts received may differ from those recorded. For
5. Short-term investments
The Corporation holds various marketable securities, with maturities greater than 3 months at the three-month periods ended June 30, 2020time of purchase, as follows:
| December 31, 2023 |
|
| March 31, |
| |||
| $ |
|
| $ |
| |||
Term deposits issued in CAD currency earning interest at 3% and maturing on March 29, 2024 |
|
| 15 |
|
|
| 15 |
|
Term deposits issued in USD currency earning interest at 5.62% and maturing on January 4, 2024 |
|
| 3,500 |
|
|
| — |
|
Term deposits issued in USD currency earning interest at 5.65% and maturing on February 5, 2024 |
|
| 3,054 |
|
|
| — |
|
Total short-term investments |
|
| 6,569 |
|
|
| 15 |
|
6. Trade and 2019,other payables
| December 31, 2023 |
|
| March 31, 2023 |
| |||
|
| $ |
|
| $ |
| ||
Trade payables |
|
| 913 |
|
|
| 1,242 |
|
Accrued liabilities and other payables |
|
| 532 |
|
|
| 946 |
|
Employee salaries and benefits payable |
|
| 301 |
|
|
| 1,148 |
|
Total trade and other payables |
|
| 1,746 |
|
|
| 3,336 |
|
7. Leases
The Corporation has historically entered into lease arrangements for its research and development and quality control laboratory facility located in Sherbrooke, Québec. As of December 31, 2023, the Corporation had one operating lease with required future minimum payments. On March 14, 2022, the Corporation renewed the lease agreement effective April 1, 2022, resulting in a commitment of $556 over a 24-month base lease term with an option to renew for an additional 48-month term. In April 2023, the Corporation elected not to renew the additional 48-month option to renew, with the lease expected to terminate March 31, 2024. The Corporation accounted for the change in lease term as a lease modification under ASC 842. Due to the modification in lease term, the Corporation remeasured the lease liability and right-of-use asset associated with the lease. As of the effective date of modification, the Corporation recorded $50an adjustment to the right-of-use asset and $75, respectively,lease liability in the amount of $369 based on the net present value of lease payments discounted using an estimated incremental borrowing rate of 4.3%.
Supplemental balance sheet information related to leases as of December 31, 2023 was as follows:
|
| December 31, 2023 |
| March 31, 2023 |
|
| $ |
| $ |
Operating lease right of use asset |
| 23 |
| 463 |
Operating lease liability, current |
| 24 |
| 75 |
Operating lease liability, long-term |
| — |
| 410 |
Total operating lease liability |
| 24 |
| 485 |
Supplemental lease expense related to leases is as follows:
|
| Three months ended |
| Nine months ended | ||||
|
| December 31, 2023 |
| December 31, 2022 |
| December 31, 2023 |
| December 31, 2022 |
|
| $ |
| $ |
| $ |
| $ |
Operating lease cost |
| 23 |
| 22 |
| 70 |
| 69 |
Total lease expense |
| 23 |
| 22 |
| 70 |
| 69 |
12
The following table contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Corporation’s operating lease for the nine-month period ended December 31, 2023:
Operating cash flows for operating lease |
| $ | 70 |
|
Weighted-average remaining lease term (in years) |
|
| 0.25 |
|
Weighted-average discount rate |
|
| 4.3 | % |
As the Corporation's lease does not provide an implicit rate, the Corporation utilized its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Corporation could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.
Future minimum lease payments under the Corporation’s operating lease as of December 31, 2023 were as follows:
| December 31, 2023 |
| ||
|
| $ |
| |
2024 |
|
| 24 |
|
2025 and thereafter |
|
| — |
|
Total lease payments |
|
| 24 |
|
Less: interest |
|
| — |
|
Total lease liability |
|
| 24 |
|
8. Common shares and warrants
a. Common Shares
Authorized capital stock
Unlimited number of shares
Private Placement
On September 24, 2023, the Corporation entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional and accredited investors in connection with a private placement of the Corporation's securities (the “Offering”). Pursuant to the Purchase Agreement, the Corporation agreed to offer and sell 1,951,371 Common Shares, at a purchase price of $1.848 per Common Share and Pre-funded Warrants to purchase up to 2,106,853 Common Shares at a purchase price equal to the purchase price per Common Share less $0.0001. Each Pre-funded Warrant is exercisable for one Common Share at an exercise price of $0.0001 per Common Share, is immediately exercisable, and will expire once exercised in full. Pursuant to the Purchase Agreement, the Corporation also issued to such institutional and accredited investors Common Warrants to purchase Common Shares, exercisable for an aggregate of 2,536,391 Common Shares. Under
13
the terms of the Purchase Agreement, for each Common Share and each Pre-funded Warrant issued in the Offering, an accompanying five-eighths (0.625) of a Common Warrant was issued to the purchaser thereof. Each whole Common Warrant is exercisable for one Common Share at an exercise price of $3.003 per Common Share, is immediately exercisable, and will expire on the earlier of (i) the 60th day after the date of the acceptance by the U.S. Food and Drug Administration of a New Drug Application for the Corporation’s product candidate GTX-104 or (ii) five years from the date of issuance.
The Offering closed on September 25, 2023. The net proceeds to the Corporation from the Offering were $7,338, after deducting fees and expenses.
At-the-Market (“ATM”) Program
On June 29, 2020, the Corporation entered into an amended and restated sales agreement (the “Sales Agreement”) with B. Riley FBR, Inc. (“B.Riley”), Oppenheimer & Co. Inc. and H.C. Wainwright & Co., LLC (collectively, the “Agents”) to amend the Corporation’s existing ATM program. Under the terms of the Sales Agreement, which had a three-year term, the Corporation could issue and sell from time to time, Common Shares having aggregate gross proceeds of up to $75,000 through the Agents. Subject to the terms and conditions of the Sales Agreement, the Agents would use their commercially reasonable efforts to sell the Common Shares from time to time, based upon the Corporation’s instructions. The Corporation had no obligation to sell any of the Common Shares and could, at any time, suspend sales under the Sales Agreement. The Corporation and the Agents could terminate the Sales Agreement in accordance with its terms. Under the terms of the Sales Agreement, the Corporation provided the Agents with customary indemnification rights and the Agents were entitled to compensation at a commission rate equal to 3.0% of the gross proceeds from each sale of the Common Shares. The Sales Agreement expired pursuant to its terms on June 29, 2023.
During the nine months ended December 31, 2023, no Common Shares were sold under the ATM program. During the nine months ended December 31, 2022, 54,108 Common Shares were sold for total net proceeds of $304 with commissions, legal expenses and costs related to the share sale amounting to $10. The Common Shares were sold at the prevailing market prices, which resulted in an average price of approximately $5.70 per share.
b. Warrants
On May 9, 2023, warrants issued pursuant to the Corporation’s May 2018 Canadian public offering to acquire 137,370 Common Shares at an exercise price of CAD $62.88 expired.
As further discussed above, on September 25, 2023, the Corporation issued Warrants exercisable for 4,643,244 Common Shares in the Offering pursuant to the terms of the Purchase Agreement entered into with certain institutional and accredited investors. As of December 31, 2023, no Warrants have been exercised.
The Common Warrants issued as a reductionpart of researchthe Offering are derivative warrant liabilities given the warrant indenture did not meet the fixed-for-fixed criterion and development expensesthat the Common Warrants are not indexed to the Corporation’s own stock. Proceeds were allocated amongst Common Shares, Pre-funded Warrants, and Common Warrants by applying the residual method, with fair value of the Common Warrants determined using the Black-Scholes model, resulting in an initial warrant liability of $1,631 and $45 of issuance costs allocated to Common Warrants. Accordingly, $2,822 and $3,047 of gross proceeds were allocated to Common Shares and Pre-funded Warrants, respectively; and $78 and $84 of issuance costs were allocated to Common Shares and Pre-funded Warrants, respectively. For the nine months ended December 31, 2023, Common Warrants were revalued at fair value. Any changes in fair value of the Common Warrants are reflected in the ConsolidatedCorporations Statements of Loss and Comprehensive Loss.
The derivative warrant liabilities are measured at fair value at each reporting period and the reconciliation of changes in fair value is presented in the following table:
In
|
|
|
|
| December 31, 2023 | December 31, 2022 | |
|
| $ | $ |
Beginning balance |
| — | 10 |
Issued during the year |
| 1,631 | — |
Change in fair value |
| 1,701 | (10) |
Ending balance |
| 3,332 | — |
The warrant liability was determined based on the fair value of warrants at the issue date and the reporting dates using the Black-Scholes model with the following weighted-average assumptions will expire on the earlier of (i) the 60th day after the date of the acceptance by the U.S. Food and Drug Administration of a New Drug Application for the Corporation's product candidate GTX-104 or (ii) five years from the date on issuance.
14
|
|
|
|
|
|
| September 25, 2023 |
| December 31, 2023 |
Risk-free interest rate |
| 5.00% |
| 4.15% |
Share price |
| $1.78 |
| $2.89 |
Expected warrant life |
| 2.54 |
| 2.28 |
Dividend yield |
| 0% |
| 0% |
Expected volatility |
| 80.90% |
| 80.84% |
The weighted-average assumptions were prorated based on the probability of the warrant liability expiring on the 60th day after the date of the acceptance by the U.S. Food and Drug Administration of a New Drug Application for the Corporation's product candidate GTX-104 and of it expiring on five years from the date of issuance. The weighted-average fair values of the Common Warrants were determined to be $0.64 and $1.31 per Common Warrant, as of September 2019,25, 2023 and December 31, 2023, respectively. The risk-free interest rate at the issue date and on the reporting date of December 31, 2023 was based on the interest rate corresponding to the U.S. Treasury rate issue with a remaining term equal to the expected term of the warrants. The expected volatility was based on the historical volatility for the Corporation.
At December 31, 2023, the Corporation was awarded uphad outstanding Common Warrants to CAD $750,000 in non-dilutivepurchase 2,536,391 Common Shares, with an exercise price of $3.003, all of which were classified as derivative warrant liability. At December 31, 2023, the Corporation had outstanding Pre-funded Warrants to purchase 2,106,853 Common Shares, with an exercise price of $0.0001, all of which were classified within shareholders' equity. The Common Warrants will expire on the earlier of (i) the 60th day after the date of the acceptance by the U.S. Food and non-repayable fundingDrug Administration of a New Drug Application for the Corporation's product candidate GTX-104 or (ii) five years from the National Research Councildate of Canada Industrial Research Assistance Program (NRC IRAP) to apply towards eligible research and development disbursements of the Corporation’s unique commercial production platform for CaPre. During the three-month period ended June 30, 2020issuance.
9. Stock-based compensation
At December 31, 2023, the Corporation claimed $26 in connection with this program, which has been recorded as a reduction of research and development expenses in the Consolidated Statements of Loss and Comprehensive Loss.
| Three-month periods ended | ||||||||
June 30, 2020 | June 30, 2019 | |||||||
| $ | $ | |||||||
| Interest Income | 25 | 103 | ||||||
| Foreign exchange gain | 60 | 56 | ||||||
| Financing fees | (121 | ) | - | |||||
| Interest payable on convertible debenture | - | (30 | ) | |||||
| Accretion of interest on convertible debenture | - | (37 | ) | |||||
| Change in fair value of warrant liabilities | (509 | ) | (932 | ) | ||||
| Financial (expenses) income | (545 | ) | (840 | ) | ||||
At June 30, 2020 the Corporation hashad in place a stock option plan for directors, officers, employees, and consultants of the Corporation (“Stock Option Plan”).
The Stock Option Plan provides for the granting of options to purchase Common Shares. Under the terms of the Stock Option Plan, the exercise price of the stock options granted under the Stock Option Plan may not be lower than the closing price of the Corporation’s Common Shares on the Nasdaq Capital Market at the close of such market the day preceding the grant. The maximum number of Common Shares that may be issued upon exercise of options granted under the amended Stock Option Plan shall not exceed 20% of the aggregate number of issued and outstanding shares of the Corporation as of July 28, 2022. The terms and conditions for acquiring and exercising options are set by the Corporation’s Board of Directors, in accordance with and subject to, among others, the terms and conditionsfollowing limitations: the term of the stock option plan.options cannot exceed ten years and (i) all options granted to a director will be vested evenly on a monthly basis over a period of at least twelve (12) months, and (ii) all options granted to an employee will be vested evenly on a quarterly basis over a period of at least thirty-six (36) months.
The total number of sharesoptions issued to any one consultant within any twelve-month period cannot exceed 2%2% of the Corporation’s total issued and outstanding sharesCommon Shares (on a non-diluted basis). The Corporation is not authorized to granttotal number of options issued within any twelve-month period such numberto all directors, employees and/or consultants of options under the stock option plan that could resultCorporation (or any subsidiary of the Corporation) conducting investor relations services, cannot exceed in a number of Common Shares issuable pursuant to options granted to (a) related persons exceeding 2%the aggregate 2% of the Corporation’s issued and outstanding Common Shares (on a non-diluted basis) on, calculated at the date an option is granted or (b)to any one eligible person in a twelve-month period exceeding 2% of the Corporation’s issued and outstanding Common Shares (on a non-diluted basis) on the date an option is granted.such person.
Acasti pharma INC.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
Three-month periods ended June 30, 2020 and June 30, 2019
The following table summarizes information about activities within the stock option planStock Option Plan for the three-month periods ended:nine-month period ended December 31, 2023:
| Number of |
|
| Weighted-average |
|
| Weighted-average |
| ||||
|
|
|
|
| $ |
|
| $ |
| |||
Outstanding, March 31, 2023 |
|
| 740,957 |
|
|
| 13.60 |
|
|
| 11.23 |
|
Granted |
|
| 607,670 |
|
|
| 2.50 |
|
|
| 2.13 |
|
Exercised |
|
| (12,500 | ) |
|
| 1.27 |
|
|
| 2.27 |
|
Forfeited/Cancelled |
|
| (614,334 | ) |
|
| 12.89 |
|
|
| 1.61 |
|
Outstanding, December 31, 2023 |
|
| 721,793 |
|
|
| 3.68 |
|
|
| 2.02 |
|
Exercisable, December 31, 2023 |
|
| 217,480 |
|
|
| 5.34 |
|
|
| 1.67 |
|
15
| June 30, 2020 | June 30, 2019 | |||||||||||||||
| Weighted average exercise price | Number of options | Weighted average exercise price | Number of options | |||||||||||||
| CAD $ | CAD $ | |||||||||||||||
| Outstanding at beginning of period | 1.00 | 9,936,486 | 1.25 | 4,046,677 | ||||||||||||
| Granted | - | - | 1.31 | 791,617 | ||||||||||||
| Exercised | - | - | 0.77 | (3,000 | ) | |||||||||||
| Forfeited | - | - | 0.77 | (1,000 | ) | |||||||||||
| Expired | - | - | - | - | ||||||||||||
| Outstanding at end of period | 1.00 | 9,936,486 | 1.26 | 4,834,294 | ||||||||||||
| Exercisable at end of period | 1.28 | 4,132,146 | 1.53 | 2,193,033 | ||||||||||||
No stockForfeited and cancelled options were as a result of the Corporation's restructuring that occurred during the nine months ended December 31, 2023. On July 14, 2023, the Corporation's Board of Directors approved the grant of options to purchase 446,502 Common Shares at an exercise price of $2.64 per Common Share under the Corporation's Stock Option Plan. On December 19, 2023, the Corporation's Board of Directors approved the grant of options to purchase 161,168 Common Shares at an exercise price of $2.125 per Common Share under the Corporation's Stock Option Plan.
The weighted-average grant date fair value of awards for options granted during the three-month periodnine months ended June 30, 2020.December 31, 2023 was $2.13. The fair value of options granted was estimated using the Black-Scholes option pricing model, resulting in the following weighted-average assumptions for the options granted:
| December 31, 2023 |
| December 31, 2022 | |
|
| Weighted-average |
| Weighted-average |
Exercise price 1 |
| $2.50 |
| $0.81 |
Share price 1 |
| $2.50 |
| $0.81 |
Dividend |
| — |
| — |
Risk-free interest |
| 3.95% |
| 3.27% |
Estimated life (years) |
| 5.66 |
| 5.73 |
Expected volatility |
| 117.80% |
| 117.56% |
1 Original CAD price of $1.10 has been converted to USD using a conversion rate of 0.7378 as of December 31, 2022.
Compensation expense recognized under the Stock Option Plan is summarized as follows:
| Three months ended |
|
| Nine months ended |
| |||||||||||
|
| December 31, 2023 |
|
| December 31, 2022 |
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||||
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Research and development expenses |
|
| 61 |
|
|
| 139 |
|
|
| 145 |
|
|
| 481 |
|
General and administrative expenses |
|
| 265 |
|
|
| 280 |
|
|
| 523 |
|
|
| 930 |
|
Sales and marketing expenses |
|
| - |
|
|
| 24 |
|
|
| 16 |
|
|
| 78 |
|
|
| 326 |
|
|
| 443 |
|
|
| 684 |
|
|
| 1,489 |
| |
As of December 31, 2023, there was $671 of total unrecognized compensation cost, related to non-vested stock optionoptions, which is expected to be recognized over a remaining weighted-average vesting period of 1.31 years.
Corporation equity incentive plan
The Corporation established an equity incentive plan (the “Equity Incentive Plan”) for employees, directors, and consultants. The Equity Incentive Plan provides for the three-month periods ended June 30, 2020issuance of restricted share units (RSUs), performance share units, restricted shares, deferred share units and 2019 wasother stock-based awards, subject to restricted conditions as follows:
| Three-month periods ended | ||||||||
June 30, 2020 | June 30, 2019 | |||||||
| $ | $ | |||||||
| Research and development expenses | 141 | 79 | ||||||
| General and administrative expenses | 348 | 148 | ||||||
| Sales and marketing expenses | 143 | 23 | ||||||
| 632 | 250 | |||||||
Stock-based compensation payment transactionsmay be determined by the Board of Directors. There were no such awards outstanding as of December 31, 2023 and broker warrants:
The fair value of2022, and no stock-based compensation transactionswas recognized for the period ended December 31, 2023 and 2022 under the Equity Incentive Plan.
10. Loss per share
The Corporation has generated a net loss for all periods presented, therefore diluted loss per share is measured using the Black-Scholes option pricing model. Measurement inputs includesame as basic loss per share pricesince the inclusion of potentially dilutive securities would have had an anti-dilutive effect. All currently outstanding options and warrants could potentially be dilutive in the future.
The Corporation excluded the following potential Common Shares, presented based on measurement date, exercise priceamounts outstanding at each period end, from the computation of diluted net loss per share attributable to common shareholders for the periods indicated because including them would have had an anti-dilutive effect:
| December 31, 2023 |
| December 31, 2022 | |
Options outstanding |
| 721,793 |
| 740,974 |
September 2023 Common Warrants |
| 2,536,391 |
| — |
May 2018 public offering warrants |
| — |
| 137,370 |
Basic and diluted net loss per share is calculated based upon the weighted-average number of Common Shares outstanding during the period. Common Shares underlying the Pre-funded Warrants are included in the calculation of basic and diluted earnings per share.
16
11. Financial instruments
a. Concentration of credit risk
Financial instruments that potentially subject the Corporation to a concentration of credit risk consist primarily of cash, cash equivalents, and short-term investments. Cash, cash equivalents, and short-term investments are all invested in accordance with the Corporation’s Investment Policy with the primary objective being the preservation of capital and the maintenance of liquidity, which risk is managed by dealing only with highly rated Canadian and U.S. institutions. The carrying amount of financial assets, as disclosed in the consolidated balance sheets, represents the Corporation’s credit exposure at the reporting date.
b. Foreign currency risk
The Corporation is exposed to financial risk related to the fluctuation of foreign exchange rates and the degrees of volatility of those rates. Foreign currency risk is limited to the portion of the instrument, expected volatility (based on weighted average historic volatility for a duration equalCorporation's business transactions denominated in currencies other than the Corporation's functional currency of the U.S. dollar. Fluctuations related to foreign exchange rates could cause unforeseen fluctuations in the Corporation's operating results. The Corporation does not use derivative instruments to hedge exposure to foreign exchange risk. The fluctuation of the Canadian dollar in relation to the weighted average life ofU.S. dollar and other foreign currencies will consequently have an impact upon the instruments, life based onCorporation’s net loss.
c. Liquidity risk
Liquidity risk is the average of the vesting and contractual periods for employee awards as minimal prior exercises of options in which to establish historical exercise experience; contractual life for broker warrants), and the risk-free interest rate (based on government bonds). Service and performance conditions attached to the transactions, if any, are not taken into account in determining fair value. The expected life of the stock options is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumptionrisk that the historical volatility over a period similarCorporation will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Corporation manages liquidity risk through the management of its capital structure and financial leverage. It also manages liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews and approves the Corporation's operating budgets, and reviews material transactions outside the normal course of business. The Corporation currently does not have long-term debt nor arranged committed sources of financing and is currently using existing cash and short-term investment balances to the lifefund operations. Refer to Note 1 – Nature of the options is indicative of future trends, which may also not necessarily be the actual outcome.
Operations.
Acasti pharma INC.12. Commitments and contingencies
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
Three-month periods ended June 30, 2020 and June 30, 2019
| Three-month periods ended | ||||||||
June 30, 2020 | June 30, 2019 | |||||||
| $ | $ | |||||||
| Receivables | 71 | (200 | ) | |||||
| Prepaid expenses | 294 | 371 | ||||||
| Deferred financing costs | (19 | ) | - | |||||
| Trade and other payables | (1,544 | ) | 122 | |||||
| (1,198 | ) | 293 | ||||||
|
| |||||||
Research and development contracts and contract research organizations agreements:agreements
The CompanyCorporation utilizes contract manufacturing organizations related to(“CMOs”) for the development and production of clinical materialmaterials and clinicalcontract research organizations (“CROs”) to perform services related to the Company’sits clinical trials. Pursuant to thesethe agreements with manufacturingthese CMOs and contract research organizations,CROs, the CompanyCorporation has either the right to terminate the agreements either without penalties or under certain penalty conditions. There are As of December 31, 2023, the Corporation has no penalties commitments from CMOs and $7,670 of commitments for the next twelve months to be incurred in any open contracts.CROs.
RKO Supply agreementRaw krill oil supply contract
On October 25, 2019, the Corporation signed a supply agreement with Aker Biomarine Antartic AS (‘’Aker’’BioMarine Antarctic AS. (“AKBM”), to purchase raw krill oil product for a committed volume of commercial starting material for CaPre, one of the Corporation’s former drug candidates, for a total fixed value of $3.1M million (take or pay). The delivery$3,100 based on the value of the products has been established following a calendar year basis and it must be completed in the 4th calendar quarterkrill oil at that time. As of 2021. As at June 30, 2020,March 31, 2022, the remaining balance of commitment amounted to $2,800. During the commitmentsecond calendar quarter of 2022, AKBM informed the Corporation that AKBM believed it had satisfied the terms of the supply agreement as to their obligation to deliver the remaining balance of raw krill oil product, and that the Corporation was therefore required to accept the remaining product commitment. The Corporation disagreed with AkerAKBM’s position and believed that AKBM was not entitled to further payment under the supply agreement. Accordingly, no liability was recorded by the Corporation. The dispute remained unresolved as of both March 31, 2023 and 2022. On October 18, 2023, the Corporation entered into an agreement with AKBM to settle any and all potential claims regarding amounts due under the supply agreement (“Settlement Agreement”). Pursuant to $2.8 million.the terms of the Settlement Agreement, in exchange for a release and waiver of claims arising out of the supply agreement by AKBM and any of AKBM’s affiliates, the Corporation and AKBM agreed to the following: (a) AKBM retained ownership of all raw krill oil product, including amounts previously delivered to the Corporation, (b) AKBM acquired and took ownership of all production equipment related to the production of CaPre, (c) AKBM acquired and took ownership of all data from research, clinical trials and pre-clinical studies with respect to CaPre, and (d) AKBM acquired and took ownership over all rights, title and interest in and to all intellectual property rights, including all patents and trademarks, related to CaPre owned by the Corporation. Pursuant to the terms of the Settlement Agreement, AKBM acknowledged that the CaPre assets were transferred on an “as is” basis, and in connection therewith the Corporation disclaimed all representations and warranties in connection with the CaPre assets, including any representations with respect to performance or sufficiency. The value of the raw krill oil previously delivered to the Corporation, the production equipment, and the intellectual property rights related to CaPre were fully impaired in prior reporting periods and had a carrying value of nil as of March 31, 2023. As of December 31, 2023, no liability was recorded by the Corporation.
17
Certain comparative figures
Legal proceedings and disputes
In the ordinary course of business, the Corporation is at times subject to various legal proceedings and disputes. The Corporation assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the three-month period ended June 30, 2019,latest information available. Where it is probable that the Corporation will incur a loss and the amount of the loss can be reasonably estimated, the Corporation records a liability in its consolidated financial statements. These legal contingencies may be adjusted to reflect any relevant developments. Where a loss is not probable or the amount of loss is not estimable, the Corporation does not accrue legal contingencies. While the outcome of legal proceedings is inherently uncertain, based on information currently available, management believes that it has established appropriate legal reserves. Any incremental liabilities arising from pending legal proceedings are not expected to have a material adverse effect on the Corporation’s financial position, results of operations, or cash flows. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the Corporation’s financial position, results of operations, or cash flows. No reserves or liabilities have been adjusted, in order to conform to US GAAP. Adjustments included certain reclassifications within equity for certain warrants, the recognitionaccrued as of deferred tax on legacy transfers of license from Neptune that were subject to an initial recognition exemption under IFRS and different classifications within the statement of cash flows for treatment of interest expense and income.December 31, 2023.
13. Restructuring Costs
ATM Program
Subsequent to June 30, 2020,On May 8, 2023, the Corporation soldcommunicated its decision to terminate a totalsubstantial amount of 4,404,152 Common Shares throughits workforce as part of a plan that intended to align the ATM program, for net proceedsCorporation’s organizational and management cost structure to prioritize resources to GTX-104, thereby reducing losses to improve cash flow and extend available cash resources. The Corporation incurred $1,485 of approximately $3.4 million (netcosts primarily consisting of commissions paid for approximately $0.1 million). The shares were sold at the prevailing market prices which resulted in an average priceemployee severance costs and legal fees.
18
Item 2. Management’s Discussion and Analysis of approximately $0.80 per share.Financial Condition and Results of Operation
This management’s discussion and analysis or (“MD&A,&A”) is presented in order to provide the reader with an overview of the financial results and changes to our consolidated balance sheet as at June 30, 2020 and for the three months period then ended.December 31, 2023. This MD&A also explains the material variations in our results of operations for the three and nine months ended December 31, 2023 and 2022, consolidated balance sheetsheets as of December 31, 2023 and March 31, 2023, and cash flows for the three-month periodsnine months ended June 30, 2020December 31, 2023 and 2019.2022.
Market data, and certain industry data and forecasts included in this MD&A were obtained from internal corporationCorporation surveys and market research and those conducted by third parties hired by us, publicly available information, reports of governmental agencies and industry publications, and independent third partythird-party surveys. We have relied upon industry publications as our primary sources for third-party industry data and forecasts. Industry surveys, publications and forecasts generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information isare not guaranteed. We have not independently verified any of the data from third-party sources or the underlying economic assumptions they have made. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based upon our management’s or contracted third parties’ knowledge of our industry, have not been independently verified. Our estimates involve risks and uncertainties, including assumptions that may prove not to be accurate, and these estimates and certain industry data are subject to change based on various factors, including those discussed in this quarterly report and in our most recently filed annual reportAnnual Report on Form 10-K.
10-K, filed with the Securities and Exchange Commission (the “SEC”) on June 23, 2023 (the “Annual Report”). This MD&A approved bycontains forward-looking information. You should review our Special Note Regarding Forward-Looking Statements presented at the Boardbeginning of Directors on August 13, 2020,this quarterly report.
This MD&A should be read in conjunction with our unaudited condensed consolidated interim consolidated financial statements for the three-month periodsthree and nine months ended June 30, 2020December 31, 2023 and 20192022 included elsewhere in this quarterly report. Our interim financial statements were prepared in accordance with generally accepted accounting principles issued by the Financial Accounting Standards Board in the United States, orU.S. GAAP. Up to and including the third quarter ended December 31, 2019, we prepared our consolidated financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board. The comparative information in our financial statements for the three months ended June 30, 2019, has been adjusted, as necessary, to be compliant with our accounting policies under GAAP. Our financial results are now published in United States dollars. Effective March 31, 2020, the reporting currency used in the consolidated financial statements has changed from Canadian dollars to U.S. dollars. This change in reporting currency has been applied in the interim financial statements retrospectively such that all amounts expressed in our consolidated financial statements and the accompanying notes thereto are in U.S. dollars.
All amounts appearing in this MD&A for the period by periodperiod-by-period discussions are in thousands of U.S. dollars, except share and per share amounts or unless otherwise indicated.
Business Overview
We are a biopharmaceutical innovator focused on developing and commercializing products for rare and orphan diseases that have the research,potential to improve clinical outcomes by using our novel drug delivery technologies. We seek to apply new proprietary formulations to approved and marketed pharmaceutical compounds to achieve enhanced efficacy, faster onset of action, reduced side effects, more convenient drug delivery and increased patient compliance; all of which could result in improved patient outcomes. The active pharmaceutical ingredients used in the drug candidates under development by Acasti may be already approved in a target indication or could be repurposed for use in new indications.
The existing well understood efficacy and commercializationsafety profiles of prescriptionthese marketed compounds provides the opportunity for us to utilize the Section 505(b)(2) regulatory pathway under the Federal Food, Drug and Cosmetic Act for the development of our reformulated versions of these drugs, using OM3 fatty acids delivered both as free fatty acids and bound-to-phospholipid esters, derived from krill oil. OM3 fatty acids have extensive clinical evidencetherefore may provide a potentially shorter path to regulatory approval. Under Section 505(b)(2), if sufficient support of a product’s safety and efficacy either through previous U.S. Food and Drug Administration ("FDA") experience or sufficiently within the existing and accepted scientific literature, can be established, it may eliminate the need to conduct some of the pre-clinical studies and clinical trials that new drug candidates might otherwise require.
Our therapeutic pipeline consists of three unique clinical-stage and multiple pre-clinical stage assets supported by an intellectual property portfolio of more than 40 granted and pending patents in lowering TGsvarious jurisdictions worldwide. These drug candidates aim to improve clinical outcomes in the treatment of rare and orphan diseases by applying proprietary formulation and drug delivery technologies to existing pharmaceutical compounds to achieve improvements over the current standard of care, or to provide treatment for diseases with no currently approved therapies.
We believe that rare disorders represent an attractive area for drug development, and there remains an opportunity for us to utilize already approved drugs that have established safety profiles and clinical experience to potentially address significant unmet medical needs. A key advantage of pursuing therapies for rare disorders is the potential to receive orphan drug designation (“ODD”) from the FDA. Our three drug candidates have received ODD status, provided certain conditions are met at new drug application ("NDA") approval. ODD provides for seven years of marketing exclusivity in the United States post-launch, provided certain conditions are met, and the potential for faster regulatory review. ODD status can also result in tax credits of up to 50% of clinical development costs conducted in the United States upon marketing approval and a waiver of the NDA fees, which we estimate can translate into savings of approximately $3.2 million for our lead drug candidate, GTX-104. Developing drugs for rare diseases can often allow for clinical trials that are more manageably scaled and may require a smaller, more targeted commercial infrastructure.
The specific diseases targeted for drug development by us are well understood, although the patient populations suffering from such diseases may remain poorly served by available therapies or, in some cases, approved therapies do not yet exist. We aim to effectively treat debilitating symptoms that result from these underlying diseases.
19
Our lead drug candidate:
Other pipeline drug candidates:
In May 2023, we announced the strategic decision to prioritize development of GTX-104 with a goal to advance the product candidate to commercialization, while conserving resources as much as possible to complete development efficiently. We estimate that the deferral of GTX-102 and GTX-101 clinical development could be at least three years given the timeline to complete the development and potential commercial launch of GTX-104. Further development of GTX-102 and GTX-101 will occur at such time as we obtain additional funding, or enter into strategic partnerships for license or sale with third parties.
The decision to defer further development of GTX-102 and GTX-101 triggered a comprehensive impairment review of our intangible assets as of March 31, 2023. Given the extended timeline, we increased the discount rates used to value the related assets in order to recognize additional risks related to prioritizing one asset over the others, the financing for the projects given limited available resources and the need to preserve cash to advance GTX-104 as far as possible, potential competitor advances that could arise over three years, the general market depression affecting small cap development companies like us, and the prohibitively high or severe levelsdilution and expense of TGsavailable funding in the bloodstream (≥ 500 mg/dL). In accordance with a study published in 2009capital markets. Increasing the discount rates significantly reduced the discounted cash flow values for each of the programs deferred. Accordingly, in the Archivesyear ended March 31, 2023, we recorded impairment charges related to GTX-102 and GTX-101 of Internal Medicine by Ford et al.$22.7 million and $6.0 million respectively, together with further adjustments made to deferred taxes and goodwill directly related to those assets. The aggregate impairment charge was $33.5 million. We continue to believe that GTX-102 and GTX-101 may eventually provide significant value when development resumes and, if approved, commercialized successfully.
Our management team possesses significant experience in drug formulation and drug delivery research and development, clinical and pharmaceutical development and manufacturing, regulatory affairs, and business development, as well as being well-versed in late-stage drug development and commercialization. Importantly, our team is comprised of industry professionals with deep expertise and knowledge, including a world-renowned practicing neurosurgeon-scientist and respected authority in aSAH, as well as product development, chemistry, manufacturing and controls (“CMC”), itplanning, implementation, management, and execution of global Phase 2 and Phase 3 trials for a drug candidate for aSAH.
GTX-104 Overview
Nimodipine was granted FDA approval in 1988, and is estimatedthe only approved drug that threehas been clinically shown to four million peopleimprove neurological outcomes in aSAH patients. It is only available in the United States as a generic oral capsule and as a branded oral liquid solution called NYMALIZE™, which is manufactured and sold by Arbor Pharmaceuticals (acquired in September 2021 by Azurity Pharmaceuticals). Nimodipine has poor water solubility and high permeability characteristics as a result of its high lipophilicity. Additionally, orally administered nimodipine has dose-limiting side-effects such as hypotension, poor absorption and low bioavailability resulting from high first-pass metabolism, and a narrow administration window as food effects lower bioavailability significantly. Due to these issues, blood levels of orally administered nimodipine can be highly variable, making it difficult to manage blood pressure in aSAH patients. Nimodipine capsules are also difficult to administer, particularly to unconscious patients or those with impaired ability to swallow. Concomitant use with CYP3A inhibitors is contraindicated (NIMODIPINE Capsule PI).
NIMOTOP™ is an injectable form of nimodipine that is manufactured by Bayer Healthcare. It is approved in Europe and in other regulated markets (but not in the United States). It has limited utility for aSAH patients because of its high organic solvent content, namely 23.7% ethanol and 17% polyethylene glycol 400 (NIMOTOP SmPC).
20
Key Potential Benefits:
GTX-104 could provide a more convenient mode of administration as compared to generic nimodipine capsules or NYMALIZE™. GTX-104 is administered as an intravenous infusion compared to oral administration via a nasogastric tube in unconscious patients every four hours for both nimodipine capsules and NYMALIZE™. Therefore, GTX-104 could make a major contribution to patient care by potentially reducing the dosing associated nursing burden. More convenient, continuous, and consistent dosing can also reduce the risk of medication errors. In addition, as depicted in the charts below, two PK studies have sHTG. shown that GTX-104 has the potential to provide improved bioavailability and show reduced inter- and intra-subject variability compared to oral nimodipine, which is hypothesized to limit the risk of hypotension and to better achieve a desired therapeutic concentration. The variability was observed higher following the capsule administration as compared to IV infusion administration (nimodipine exposure variability at steady state observed 37.5% following oral capsule administration versus 15.5%, following GTX-104 IV infusion) Because of its IV formulation, we also expect GTX-104 to reduce certain drug-drug interactions and food effects.
Despite the positive impact it has on recovery, physicians often must discontinue their patients from oral nimodipine, primarily as a result of hypotensive episodes that cannot be controlled by titrating the oral form of drug. Such discontinuation could potentially be avoided by
21
administering GTX-104, which because of its IV administration, may reduce the complexity associated with the need for careful attention to the timing of nimodipine administration at least one hour before or two hours after a meal. Also, unconscious patients will likely receive more consistent concentrations of nimodipine when delivered via the IV route as compared to oral gavage or a nasogastric tube. More consistent dosing is expected to result in a reduction of vasospasm and a better, more consistent management of hypotension. As summarized in the table below, we also anticipate reduced use of rescue therapies, such as vasopressors, and expensive hospital resources, such as the angiography suite, are possible by more effectively managing blood pressure with GTX-104. Reduced incidences of vasospasm could result in shorter length of stay and better outcomes.
About aneurysmal Subarachnoid Hemorrhage (aSAH)
aSAH is bleeding over the surface of the brain in the subarachnoid space between the brain and the skull, which contains blood vessels that supply the brain. A primary cause of such bleeding is rupture of an aneurysm. The result is a relatively uncommon type of stroke that accounts for about 5% of all strokes and has an incidence of six per 100,000 person years.
In primary qualitativecontrast to more common types of stroke in elderly individuals, aSAH often occurs at a relatively young age, with approximately half the affected patients younger than 60 years old. Approximately 10% to 15% of aneurysmal SAH (“aSAH”) patients die before reaching the hospital, and those who survive the initial hours post hemorrhage are admitted or transferred to tertiary care centers with high risk of complications, including rebleeding and delayed cerebral ischemia (“DCI”). Systemic manifestations affecting cardiovascular, pulmonary, and renal function are common and often complicate management of DCI. Approximately 70% of aSAH patients experience death or a permanent dependence on family members, and half die within one month after the hemorrhage. Of those who survive the initial month, half remain permanently dependent on a caregiver to maintain daily living.
We estimate that approximately 50,000 individuals experience aSAH each year in the U.S. based on third-party market research, studies commissioned by Acastiand that total addressable market for aSAH is approximately $300 million in August 2016the U.S. There are an estimated 150,000 aSAH patients each year in China and November 2017 by DP Analytics, a division of Destum Partners, and in April 2019 by another well-respected third party provider, key opinion leaders, high volume prescribers and pharmacy benefit managers who were interviewed indicated a significant unmet medical need exists for an effective, safe and well-absorbing OM3 therapeutic that can also demonstrate a positive impact on the major blood lipids associated with cardiovascular disease risk. We believe that CaPre may address this unmet medical need if our TRILOGY Phase 3 clinical program is successful in reproducing what we observed in our Phase 2 clinical data.
We also believe the potential exists to expand CaPre’s initial indication to the roughly 44.4 millionapproximately 55,000 patients in the United StatesEuropean Union based on annual inpatient admissions and the average length-of-stay.
GTX-104 Development Milestones
In September 2021, we initiated our pivotal PK bridging trial to evaluate the relative bioavailability of GTX-104 compared to currently marketed oral nimodipine capsules in approximately 50 healthy subjects. The PK trial was the next required step in our proposed 505(b)(2) regulatory pathway for GTX-104.
Final results from this pivotal PK trial were reported on May 18, 2022, and showed that the bioavailability of GTX-104 compared favorably with elevated TGsthe oral formulation of nimodipine in all subjects, and no serious adverse events were observed for GTX-104.
All three endpoints indicated that statistically there was no difference in exposures between GTX-104 and oral nimodipine over the milddefined time periods for both maximum exposure and total exposure. Plasma concentrations obtained following IV administration showed significantly less variability between subjects as compared to moderate range (e.g.,oral administration of capsules, since IV administration is not as sensitive to some of the physiological processes that affect oral administration, such as taking the drug with and without meals, variable gastrointestinal transit time, variable drug uptake from the gastrointestinal tract into the systemic circulation, and variable hepatic blood flow and hepatic
22
first pass metabolism. Previous studies have shown these processes significantly affect the oral bioavailability of nimodipine, and therefore cause oral administration to be prone to larger inter- and intra-subject variability.
The bioavailability of oral nimodipine capsules observed was only 8% compared to 100% for GTX-104. Consequently, about one-twelfth the amount of nimodipine is delivered with GTX-104 to achieve the same blood levels between 200 - 499 mg/dL), although at least oneas with the oral capsules.
No serious adverse events and no adverse events leading to withdrawal were reported during the trial.
Phase 3 STRIVE-ON Randomized Safety Trial for GTX-104
In April 2023, we received a Type C written meeting response and clarifying feedback from the FDA on our proposed Phase 3 safety trial for GTX-104. The FDA provided additional comments on our development plan that, pending submission of the final clinical trial would likely be required to supportprotocol and FDA approval of same, would allow us to proceed with the initiation of a supplemental NDA to expand CaPre’s indication to this segment. Data fromPhase 3 safety clinical trial in aSAH patients. On July 5, 2023, we announced the alignment with the U.S. Food and Drug Administration on our GTX-104 pivotal Phase 3 safety trial protocol.
The FDA concurred with the suitability of the 505(b)(2) regulatory pathway with the selected Reference Listed Drug NIMOTOP oral capsules (NDA 018869), and that our GTX-104-002 PK trial may have met the criteria for a scientific bridge.
Based on the design of our Phase 2 studies indicated3 trial, which we have titled STRIVE-ON (Safety, Tolerability, Randomized, IV and Oral Nimodipine), the clinical trial is a prospective, open-label, randomized (1:1 ratio), parallel group trial of GTX-104 compared with oral nimodipine, in patients hospitalized for aSAH. Key trial design features include:
On October 23, 2023, we enrolled our first patient in our STRIVE-ON clinical trial. The trial is expected to take approximately 18 months to complete from the time the first patient is enrolled, and we expect this safety trial to be the final clinical step required to seek FDA approval under the 505(b)(2) regulatory pathway. Before submitting an NDA, we plan to hold a pre-NDA meeting with the FDA.
GTX-102 Overview
GTX-102 is a novel, concentrated oral-mucosal spray of betamethasone intended to improve neurological symptoms of A-T for which there are currently no FDA-approved therapies. GTX-102 is a stable, concentrated oral spray formulation comprised of the gluco-corticosteroid betamethasone that, CaPre may havetogether with other excipients can be sprayed conveniently over the tongue of the A-T patient and is rapidly absorbed.
About Ataxia Telangiectasia
A-T is a positive effect in diabetesrare genetic progressive autosomal recessive neurodegenerative disorder that affects children, with the hallmark symptoms of cerebellar ataxia and other inflammatorymotor dysfunction, and cardiometabolic diseases; consequently, we may also seek to identify new potential indications for CaPredilated blood vessels (telangiectasia) that may be appropriate for future studies and pipeline expansion. In addition, we may also seek to in-license other cardiometabolic or other synergistic primary care-focused drug candidates for drug development and commercialization.
In four clinical trials conducted to date, we saw the following consistent results with CaPre, and we are seeking to demonstrate similar safety and efficacy in our TRILOGY Phase 3 program:
23
Children with A-T begin to experience balance and coordination problems when they begin to walk (toddler age), and ultimately become wheelchair-bound in their second decade of life. In pre-adolescence (between ages 5 and 8), patients with mildexperience oculomotor apraxia, dysarthria, and dysphagia. They also often develop compromised immune systems and are at increased risk of developing respiratory tract infections and cancer (typically lymphomas and leukemia).
A-T is diagnosed through a combination of clinical assessment (especially neurologic and oculomotor deficits), laboratory analysis, and genetic testing. There is no known treatment to sHTG;
We believe that if we are able to reproduce these results in our TRILOGY Phase 3 program, that this could potentially set CaPre apart from current FDA-approved fish oil-derived OM3 treatment options, and it could give us a significant clinical and marketing advantage.
TRILOGY 1 Topline Results
Our first Phase 3 clinical trial, designated as TRILOGY 1, was conducted exclusivelyper year in the United States and has a potential total addressable market of $150 million, based on the number of treatable patients in the United States.
GTX-102 - R&D and Clinical Trials to Date
We have licensed the data from the multicenter, double-blinded, randomized, placebo-controlled crossover trial from Azienda Ospedaliera Universitaria Senese, Siena, Italy, where Dr. Zannolli et. al. studied the effect of oral liquid solution of betamethasone to reduce ataxia symptoms in patients with A-T. This oral liquid solution is not marketed in the United States, and therefore is not available for clinical use; currently, betamethasone is only available in the United States as an injectable or as a topical cream. This license gives us the right to reference the trial’s data in our NDA filing. On November 12, 2015, we submitted the data from the Zannolli trial to the FDA’s Division of Neurology at a pre-Investigational New Drug (“IND”) meeting and received guidance from the agency on the regulatory requirements to seek approval.
In a multicenter, double-blind, randomized, placebo-controlled crossover trial conducted in Italy, Dr. Zannolli et al. studied the effect of an oral liquid solution of betamethasone on the reduction of ataxia symptoms in 13 children (between ages 2 to 8 years) with A-T. The primary outcome measure was fully randomizedthe reduction in ataxia symptoms as assessed by the International Cooperative Ataxia Rating Scale (“ICARS”).
In the trial, oral liquid betamethasone reduced the ICARS total score by a median of 13 points in the intent-to-treat population and 16 points in the per-protocol population (the median percent decreases of ataxia symptoms of 28% and 31%, respectively). Adverse events in the trial were minimal, with no compulsory withdrawals and only minor side effects that did not require medical intervention. Clinical trial results in A-T patients administered oral betamethasone indicated that betamethasone significantly reduced ICARS total score relative to placebo (P = 0.01). The median ICARS change score (change in score with betamethasone minus change in score with placebo) was -13 points (95% confidence interval for the difference in medians was -19 to -5.5 points).
Based on the Zannolli data, we believe that our GTX-102 concentrated oral spray has the potential to provide clinical benefits in decreasing A-T symptoms, including assessments of posture and gait disturbance and kinetic, speech and oculomotor functions. In addition, GTX-102 may ease drug administration for patients experiencing A-T given its application of 1-3x/day of 140µL of concentrated betamethasone liquid sprayed onto the tongue using a final totalmore convenient metered dose delivery system, as these A-T patients typically have difficulty swallowing.
24
GTX-102 PK Data to Date:
GTX-102 administered as a concentrated oral spray achieves similar blood levels at only 1/70th the volume of 242 patients.an oral solution of betamethasone. This more convenient mode of administration will be important for A-T patients who have difficulties swallowing large volumes of liquids.
We initiated a PK bridging trial of GTX-102 as compared to the oral liquid solution of betamethasone used in the Zannolli trial and against the injectable form of betamethasone that is approved in the U.S. in the third calendar quarter of 2022. The primary objectives of the PK bridging trial were to evaluate the bioavailability, pharmacokinetics and safety of GTX-102. On January 13, 2020,December 28, 2022, we releasedreported that the topline results of this trial met all primary outcome measures.
Results showed that GTX-102 betamethasone blood concentrations were highly predictable and consistent based on AUC (the area under the concentration time curve up to 72 hours post-dose, extrapolated to infinity) and Cmax (the maximum concentration occurring between 0 hour to 72 hours after trial drug administration), indicating good linearity and dose-proportionality. GTX-102 betamethasone blood concentrations were within the same range of exposure as IM betamethasone, based on AUC. This IM formulation will serve as a bridge for TRILOGY 1, which, despite meaningful TG-loweringGTX-102 in the CaPre armcontext of the study, didproposed 505(b)(2) regulatory pathway. GTX-102 betamethasone blood concentrations were also within the same range of exposure as Oral Solution (OS), based on AUC. This OS formulation was used by Zannolli and may serve as a clinical comparator for further clinical development. Furthermore, statistically there was no significant difference (p>0.05) between GTX-102 administered at a fast rate (each spray immediately following the preceding one) vs. a slow rate (1 spray/minute), as indicated by Cmax and AUC. We believe this result is important because being able to use the fast or the slow rate of administration may provide greater flexibility for patients and caregivers. The Cmax of GTX-102 was within the same range of exposure as the OS, but the Cmax for the IM formulation was lower than both GTX-102 and the OS, as well as what has been reported previously for the IM in industry publications. It is important to note that achieving bioequivalence with the IM was not reach statistical significancean objective of this trial, nor was it expected. Finally, of the 48 healthy adult subjects, no serious adverse events (AE) were reported, and the most frequent drug-related adverse effect was mild headache (4 cases).
The further development of GTX-102 has been deprioritized in favor of our focus on development of GTX-104. Pending additional funding for GTX-102 or the signing of a strategic partnership, we will work with our clinical experts and the FDA to determine the best final dosing regimen for GTX-102 to incorporate into our Phase 3 trial design. Based on previous discussions with the FDA, we plan to conduct a
25
confirmatory Phase 3 safety and efficacy trial in A-T patients, and plan to seek guidance from the FDA on the trial design at a Type B meeting if and when development of GTX-102 resumes. It is also possible that we may out-license or sell our GTX-102 drug candidate.
GTX-101 Overview
GTX-101 is a non-narcotic, topical bio-adhesive film-forming bupivacaine spray designed to ease the symptoms of patients suffering with postherpetic neuralgia (“PHN”). GTX-101 is administered via a metered-dose of bupivacaine spray and forms a thin bio-adhesive topical film on the surface of the patient’s skin, which enables a touch-free, non-greasy application. It also comes in convenient, portable 30 ml plastic bottles. Unlike oral gabapentin and lidocaine patches, we believe that the biphasic delivery mechanism of GTX-101 has the potential for rapid onset of action and continuous pain relief for up to eight hours. No skin sensitivity was reported in a Phase 1 trial.
About Postherpetic Neuralgia (PHN)
PHN is neuropathic pain due to damage caused by the varicella zoster virus (“VZV”). Infection with VZV causes two distinct clinical conditions. Primary VZV infection causes varicella (i.e., chickenpox), a contagious rash illness that typically occurs among young children. Secondary VZV can reactivate clinically, decades after initial infection, to cause herpes zoster (“HZ”), otherwise known as shingles. Acute HZ arises when dormant virus particles, persisting within an unusually large placebo effect. The observed reductions in TG levelsaffected sensory ganglion from the earlier, primary infection with VZV become reactivated when cellular immunity to varicella decreases. Viral particles replicate and may spread to the dorsal root, into the dorsal horn of the spinal cord, and through peripheral sensory nerve fibers down to the level of the skin. Viral particles also may circulate in the TRILOGYblood. This reactivation is accompanied by inflammation of the skin, immune response, hemorrhage, and destruction of peripheral and central neurons and their fibers. Following such neural degeneration, distinct types of pathophysiological mechanisms involving both the central and peripheral nervous systems may give rise to the severe nerve pain associated with PHN.
While the rash associated with HZ typically heals within two to four weeks, the pain may persist for months or even years, and this PHN manifestation is the most common and debilitating complication of HZ. There is currently no consensus definition for PHN, but it has been suggested by the Centers for Disease Control and Prevention (“CDC”) that PHN is best defined as pain lasting at least three months after resolution of the rash.
PHN is associated with significant loss of function and reduced quality of life, particularly in the elderly. It has a detrimental effect on all aspects of a patient's quality of life. The nature of PHN pain varies from mild to severe, constant, intermittent, or triggered by trivial stimuli. Approximately half of patients with PHN describe their pain as “horrible” or “excruciating,” ranging in duration from a few minutes to constant on a daily or almost daily basis. The pain can disrupt sleep, mood, work, and activities of daily living, adversely impacting the
26
quality of life and leading to social withdrawal and depression. PHN is the number-one cause of intractable, debilitating pain in the elderly, and has been cited as the leading cause of suicide in chronic pain patients over the age of 70.
Current treatment of PHN most often consists of oral gabapentin (first line) and prescription lidocaine patches or antidepressants (second line), and refractory cases may be prescribed opioids to address persistent pain. Gabapentin and opioid abuse have continued to proliferate, and lidocaine patches are suboptimal for many reasons. An independent third-party market research firm we commissioned interviewed more than 250 physicians who regularly treat PHN patients and found that approximately 40% of patients using lidocaine patches experience insufficient pain relief. Lidocaine patches are difficult to use, fall off, and look unsightly with possible skin sensitivity and irritation. Additionally, lidocaine patches can only be used for 12 hours and then need to be removed for 12 hours before being reapplied. Prescription lidocaine patches are only approved for PHN, and the market is currently made up of both branded and generic offerings. It is estimated that PHN affects approximately 120,000 patients per year in the United States. According to a third-party report we commissioned, the total addressable market for GTX-101 could be as large as $2.5 billion, consisting of approximately $200 million for PHN pain and $2.3 billion for non-PHN pain indications.
GTX-101 R&D History and Clinical Trials Completed to Date
To date, we have conducted four Phase I trials in healthy volunteers to assess the PK, safety and tolerability of GTX-101 and to determine the plasma levels of bupivacaine HCl administered as a single dose in various concentrations between 30 mg (three sprays) and 2100 mg (twenty sprays).
These trials confirmed that bupivacaine delivered as a topical spray (GTX-101) is well absorbed through the skin, as demonstrated in the graph below, while very little is absorbed systemically.
In all four trials, the administration of GTX-101 to healthy volunteers was safe and well tolerated. In addition, no evidence of skin irritation was observed at the application site following the spray administrations. The data below is from two separate trials of GTX-101 and the Lidoderm patch superimposed on each other.
GTX-101 recent activities:
We believe that the PHN pain market will continue to grow, and non-opioid products like GTX-101 that can relieve PHN pain more quickly and in a sustained manner by means of a more efficient delivery system, will be an attractive therapy option for patients and physicians. GTX-101 is administered by spraying our proprietary bupivacaine formulation over the affected area, which we believe has the potential to provide several advantages over currently marketed products such as the lidocaine patch, including faster onset of action, sustained pain relief, possibly lower dosing requirements and improved dosing convenience, all which could lead to increased patient satisfaction and compliance.
The data from the single dose Phase 1 placebo groupclinical trial for GTX-101 was submitted to the FDA’s Division of Anesthesiology and feedback was received at a pre-IND meeting on April 18, 2018, that informed the design of pre-clinical toxicology studies and a clinical and regulatory pathway to approval under section 505(b)(2). We completed a minipig skin sensitivity study in the second calendar quarter of 2022, and we
27
initiated a single dose PK trial in healthy human volunteers in July 2022. Topline results from this single dose PK trial were far greaterreported on December 23, 2022 and the results met all primary outcome measures.
The median Tmax (the time of maximum concentration between 0 hour and 240 hours after study drug administration) of bupivacaine in plasma following GTX-101 single-dose topical applications ranged between 18 to 24 hours depending on dose, while the median Tmax following the subcutaneous injection of 10 mg of bupivacaine was only 23 minutes. This result suggests that bupivacaine delivered by GTX-101 remains in the skin for a long period of time, potentially inducing prolonged analgesic effect in the sprayed area. The exposure to bupivacaine based on Cmax (the maximum concentration occurring at Tmax between 0 hour and 240 hours after study drug administration) and AUC (the area under the concentration time curve, extrapolated to infinity) following GTX-101 topical application as a single-dose increased with increasing dose.
The systemic exposure to bupivacaine following a 200mg dose of GTX-101 was approximately 29-fold less than that seena single subcutaneous dose of 10mg of bupivacaine based on Cmax and approximately 6-fold less than a single subcutaneous dose of 10mg of bupivacaine based on AUC. We predict these lower blood levels will correspond to an increased safety margin for GTX-101 with regards to toxicity risk. Mean half-life (T half) following GTX-101 single-dose topical applications ranged between 24 to 37 hours depending on dose, suggesting a slow elimination and potentially long duration of effect, while mean Tmax following the subcutaneous injection of 10 mg of bupivacaine was only 8 hours.
There were only two adverse events judged as related to the study drug by the investigator for each of GTX-101 and the bupivacaine subcutaneous injection. Following GTX-101 topical application: headache (1 event = 3%) and numbness (1 event = 3%) at the sprayed area following bupivacaine subcutaneous injection: dizziness (1 event = 8%) and nausea (1 event = 8%).
The further development of GTX-101 has been deprioritized in any previous TG-loweringfavor of our focus on development of GTX-104. Pending additional funding for GTX-101 or the signing of a strategic partnership, we plan to follow this successful PK trial with a prescription OM3. As previously disclosed,multiple ascending dose trial in 2023. Results from these non-clinical studies and clinical trials are required before the initiation of our Phase 2 program in PHN patients. It is also possible that we alongmay out-license or sell our GTX-101 drug candidate.
28
Overall Commercialization Strategy
We have worldwide commercialization rights for all our pipeline drug candidates and plan to maximize the value of each asset. Currently, we have prioritized the development of GTX-104 and de-emphasized the development of GTX-102 and GTX-101. If we receive regulatory approval for GTX-104 in the US, we may look to out-license commercialization or consider self-commercialization including outsourcing sales to ensure efficient commercial management and maximize market penetration and financial returns. We may seek commercial partnerships to fully exploit the market potential of GTX-104 in territories outside the US. It is possible that we may out-license or sell GTX-102 and/or GTX-101 for the US and/or global markets.
Recent Developments
Change in Certifying Accountant
On December 11, 2023, the Audit Committee of the Corporation's Board of Directors (the "Board") recommended to the Board and the Board approved the dismissal of Ernst & Young LLP (Canada) ("E&Y") as the Corporation’s independent registered public accounting firm. The report of E&Y on the consolidated financial statements of the Corporation as of and for the fiscal year ended March 31, 2023 did not contain any adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. On December 11, 2023, in connection with the academic principal investigatorCorporation’s dismissal of E&Y, the Audit Committee recommended to the Board and the Board approved the engagement of KPMG LLP (U.S.) ("KPMG") as its new independent registered public accounting firm to audit the Corporation’s consolidated financial statements for the fiscal year ending March 31, 2024. The decision to engage KPMG was recommended by the Audit Committee, and approved by the Board, after taking into account KPMG’s location in the United States, the results of a competitive review process and other business factors.
Dosing of First Patient
On October 23, 2023, we enrolled our first patient in our STRIVE-ON Phase 3 clinical trial. The trial is expected to take approximately 18 months to complete from the time the first patient is enrolled, and we expect this safety trial to be the final clinical step required to seek FDA approval under the 505(b)(2) regulatory pathway.
September 2023 Private Placement Offering
On September 24, 2023, we entered into a securities purchase agreement (the “Purchase Agreement”) with certain institutional and accredited investors in connection with a private placement offering of our securities (the “Offering”). Pursuant to the Purchase Agreement, we agreed to offer and sell 1,951,371 Class A common shares, no par value per share (the “Common Shares”), at a purchase price of $1.848 per Common Share and pre-funded warrants (the “Pre-funded Warrants”) to purchase up to 2,106,853 Common Shares at a purchase price equal to the purchase price per Common Share less $0.0001. Pursuant to the Purchase Agreement, we also issued to such institutional and accredited investors common warrants (the “Common Warrants” and, together with the Pre-funded Warrants, the “Warrants”) to purchase Common Shares, exercisable for an aggregate of 2,536,391 Common Shares. Under the terms of the trial, Dariush Mozaffarian, M.D., Dr.P.H.,Purchase Agreement, for each Common Share and external clinicaleach Pre-funded Warrant issued in the Offering, an accompanying five-eighths (0.625) of a Common Warrant was issued to the purchaser thereof.
The Offering closed on September 25, 2023. Shore Pharma LLC, an entity controlled by Vimal Kavuru, the Chair of our Board of Directors, and statistical experts, conducted rigorous post-hoc analysisSS Pharma LLC, the beneficial owner of TRILOGY 1 data. This analysis revealed5.5% of our Common Shares outstanding prior to the Offering, each a rapid, significantrelated party of ours, participated in the Offering. The net proceeds to us from the Offering were approximately $7.3 million, after deducting fees and sustained reductionexpenses.
Pursuant to the terms of the Purchase Agreement, we agreed to register for resale the Common Shares sold in TG levels between screening (during qualification)the Offering and the time of patient randomization (prior to patients starting on either drug or placebo), which we refer to as “Pre-randomization Triglyceride Normalization.” This artefactual phenomenon affected both treatment groups, but was much greater in the placebo group, resulting in the large placebo effect and significant underestimation of the post-randomization treatment effect of the active drug, CaPre. The post-hoc analyses of the primary endpoint using a revised, single point baseline value from Week 0 (Visit 4) corrected for a significant amount of the pre-randomization TG reduction in subjects that were most affected by the normalization phenomenon, and a meaningful efficacy trend for CaPre was observed.
Recent Developments
As we have previously disclosed,Warrant Shares. On October 6, 2023, we filed a Type C meeting request at the end of March 2020resale Registration Statement on Form S-3 with the FDA. We subsequently submittedSEC, registering the Common Shares sold in the Offering and the Warrant Shares for resale. The resale Registration Statement on Form S-3 was declared effective on October 16, 2023.
Announcement of compliance with the Nasdaq minimum bid price requirement
On July 24, 2023, we received written notice (the “Notification Letter”) from The Nasdaq Stock Market LLC notifying us that we had regained compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on the Nasdaq Capital Market. The Notification Letter was sent following the implementation of a 1-for-6 reverse split of our briefing packageCommon Shares (the “Reverse Stock Split”), which became effective on AprilJuly 10, 2023.
Reverse stock split
On June 29, 20202023, our Board of Directors approved an amendment to our Articles of Incorporation to implement the Reverse Stock Split. On July 4, 2023, we filed Articles of Amendment to our Articles of Incorporation with the Registraire des entreprises du Québec, to implement the Reverse Stock Split. All applicable references in this MD&A to number of Common Shares, warrants and options, price per share and weighted-average number of shares outstanding prior to the FDA. The briefing package intendedReverse Stock Split have been adjusted to providereflect the Reverse Stock Split, which was made effective on July 10, 2023.
29
Announcement of successful submission of pivotal GTX-104 Phase 3 safety study protocol with FDA with a reviewand implementation of the relevant TRILOGY 1 clinical data and audit findings, with the objective of gaining alignment on the interpretation of the TRILOGY 1 results and implications for TRILOGY 2. We also sought the FDA’s input on our proposed revisions to the pre-specified TRILOGY 2 Statistical Analysis Plan, or SAP, and their input on astrategic realignment plan for pooling the data from TRILOGY 1 and TRILOGY 2 to support an NDA filing.
On June 19, 2020,May 8, 2023, we announced that the FDA had provided us with a written response to our meeting request and briefing package. The FDA confirmed that it will require pivotal efficacy analyses to be performed on the full Intent to Treat population as contemplated in the original SAP, and they supported the conduct of post-hoc analyses in TRILOGY 1 for exploratory purposes. Consistent with our prior disclosures and depending on the outcome of TRILOGY 2, an additional clinical study may still be needed prior to an NDA submission.
Based on the written feedback received from the FDA, and working with the academic principal investigator of our TRILOGY Phase 3 clinical program, Dariush Mozaffarian, M.D., Dr.P.H., and other key advisors, we finalized the SAP for TRILOGY 2 and submitted itsuccessful submission to the FDA as planned on July 31, 2020. We continue to remain blinded to the TRILOGY 2 clinical dataof GTX-104's full protocol of our pivotal Phase 3 safety trial and we continue to expect to report topline data from TRILOGY 2 on or about August 31, 2020. We expect to provide an update on the timing to report the key secondary and exploratory endpoints from both TRILOGY 1 and TRILOGY 2 trials and pooled results from both studies sometime after TRILOGY 2 results are reported.
On April 30, 2020, we also announced that we had received notice of issuanceimplementation of a compositionstrategic realignment plan to maximize shareholder value.
Key strategies implemented were:
COVID-19 Update
To date, the ongoing COVID-19 pandemic has not caused significant disruptions to our business operations and research and development activities. In January 2020, before the COVID-19 pandemic started to have a widespread impact in North America, the last patient completed their final visit to our TRILOGY 2GTX-104 pivotal Phase 3 trial. However, in light of our plan to raise additional capital (dilutive or non-dilutive) to fully execute our business plan, a continuation of the COVID-19 pandemic and any resulting volatility generally in the capital markets could adversely impact our ability to access capital on terms acceptable to us or at all. In addition, a continuation of the COVID-19 pandemic in North America could negatively affect our ability to conduct any additional clinical work, if it is required.
The extent to which the COVID-19 pandemic impacts our business and prospects will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic and the actions to contain the COVID-19 pandemic or treat its impact, among others.
Caution Regarding Non-GAAP Financial Measures
We use multiple financial measures for the reviewsafety trial protocol.
In connection with the transformation of our operating performance. This non-GAAP financial measuremodel, we appointed the following industry experts to our senior management team:
Following the realignment, the Corporation is a smaller, more focused organization, based in the United States, and concentrated on its development of its lead product GTX-104.
Earnings and other measures adjusted to a basis other than GAAP do not have standardized meanings and are unlikely to be comparable to similar measures used by other companies. Accordingly, they should not be considered in isolation. We use non-GAAP operating loss to measure our performance from one period to the next without the variation caused by certain adjustments that could potentially distort the analysis of trends in our operating performance, and because we believe it provides meaningful information on our financial condition and operating results. Our method for calculating non-GAAP operating loss may differ from that used by other companies.
We calculate our non-GAAP operating loss by adding to net loss our finance expenses (which includes change in fair value of derivative warrant liabilities, foreign exchange gain (loss), interest expense and accretion on convertible debentures, and transaction costs related to derivative warrant liabilities, net of interest income) depreciation and amortization, impairment loss, litigation settlement that was settled via the issuance of common shares, and stock-based compensation, and by subtracting deferred tax recovery. Items that do not impact our core operating performance are excluded from the calculation as they may vary significantly from one period to another. We also exclude the effects of certain non-monetary transactions recorded, such as stock-based compensation and litigation settlement that was settled via the issuance common shares, from our non-GAAP operating loss calculation. Excluding these items does not imply they are necessarily non-recurring.
A reconciliation of net loss to non-GAAP operating loss is presented later in this MD&A.
Basis of Presentation of the Financial Statements
Our condensed consolidated interim financial statements, which include the accounts of our wholly owned subsidiary,subsidiaries, Acasti Pharma U.S., and Acasti Innovations AG, have been prepared in accordance with U.S. GAAP and the rules and regulations of the U.S. Securities and Exchange Commission, or the SEC related to interimquarterly reports filed on Form 10-Q. All intercompany transactions and balances are eliminated on consolidation.
Going Concern Uncertainty
The following summarizes the principal conditions or events relevant to our going concern assessment, which primarily considers the periodOur assets as of one year from the issuance date of our consolidated financial statements. We have incurred operating losses and negative cash flows from operations since our inception. Our current assets of $14.0 million as at June 30, 2020December 31, 2023, include cash, and cash equivalents, and short-term investments totaling $12.1$25.1 million and intangible assets and goodwill totaling $49.3 million. Our current liabilities total $6.0$1.8 million at June 30, 2020as of December 31, 2023 and are comprised primarily of amounts due to or accrued for creditors. Management projects that assuming positive results from our TRILOGY Phase 3 program, additional fundsThe Corporation believes its cash runway will be needed insufficient to fund the future for us to file an NDA, to obtain FDA approval for CaPre inCorporation’s operations into the United States, to further scale-up our manufacturing capabilities, and to complete market development and other pre-commercialization activities. Our plans include raising additional capital through additional securities offerings, as well as non-dilutive sourcessecond calendar quarter of capital such as grants or loans and strategic alliances, but there can be no assurance as to when or whether we will complete any financings or strategic alliances. In particular, raising additional equity capital is subject to market conditions not within our control. If we do not raise additional funds or find one or more strategic partners, we may not be able to realize our assets and discharge our liabilities in the normal course of business. We have no arranged sources of financing currently other than our “At-the-Market” sales agreement which provides for only conditional selling of our common shares.2026.
As a result, there is a substantial doubt about our ability to continue as a going concern. Our consolidated financial statements have been prepared on a going concern basis, which assumes we will continue our operations in the foreseeable future and will be able to realize our assets and discharge our liabilities and commitments in the ordinary course of business. These consolidated financial statements do not include any adjustments to the carrying values and classification of assets and liabilities and reported expenses that might result from the outcome of this uncertainty and that may be necessary if the going concern basis was not appropriate for these consolidated financial statements. If we were unable to continue as a going concern, material impairment of the carrying values of our assets, including the intangible asset, could be required.
30
24
Comparative Financial Information for the Three-Month Periods Ended June 30, 2020 and 2019
| Three-month periods ended | ||||||||
June 30, 2020 | June 30, 2019 | |||||||
| $ | $ | |||||||
| Net loss | (4,666 | ) | (8,846 | ) | ||||
| Basic and diluted gain (loss) per share | (0.05 | ) | (0.11 | ) | ||||
| Non-GAAP operating (loss)1 | (2,941 | ) | (7,186 | ) | ||||
| Total assets | 20,142 | 29,985 | ||||||
| Working capital2 | 7,985 | 9,529 | ||||||
| Total non-current financial liabilities | 3,127 | 14,777 | ||||||
| Total shareholders’ equity | 11,036 | 3,275 | ||||||
Reconciliation of Net Loss to Non-GAAP Operating Loss
| Three-month periods ended | ||||||||
June 30, 2020 | June 30, 2019 | |||||||
| $ | $ | |||||||
| Net income (loss) | (4,666 | ) | (8,846 | ) | ||||
| Add (deduct): | ||||||||
| Stock-based compensation | 632 | 250 | ||||||
| Depreciation and amortization | 548 | 570 | ||||||
| Financial expenses | 545 | 840 | ||||||
| Non-GAAP operating gain (loss) | (2,941 | ) | (7,186 | ) | ||||
Results of Operations for the Three-Month Periods Ended June 30, 2020Three and 2019Nine months ended December 31, 2023 and 2022
| Three months ended |
|
| Nine months ended |
| |||||||||||||||||||
| December 31, |
|
| December 31, |
|
| Increase (Decrease) |
|
| December 31, |
|
| December 31, |
|
| Increase (Decrease) |
| |||||||
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Research and development expenses, net of government assistance |
|
| 1,443 |
|
|
| 2,450 |
|
|
| (1,007 | ) |
|
| 2,998 |
|
|
| 8,332 |
|
|
| (5,334 | ) |
General and administrative expenses |
|
| 1,570 |
|
|
| 1,589 |
|
|
| (19 | ) |
|
| 4,922 |
|
|
| 5,187 |
|
|
| (265 | ) |
Sales and marketing expenses |
|
| 30 |
|
|
| 206 |
|
|
| (176 | ) |
|
| 184 |
|
|
| 563 |
|
|
| (379 | ) |
Restructuring costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,485 |
|
|
| — |
|
|
| 1,485 |
|
Loss from operating activities |
|
| (3,043 | ) |
|
| (4,245 | ) |
|
| (1,202 | ) |
|
| (9,589 | ) |
|
| (14,082 | ) |
|
| (4,493 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Foreign exchange gain (loss) |
|
| 3 |
|
|
| 15 |
|
|
| (12 | ) |
|
| (2 | ) |
|
| (75 | ) |
|
| 73 |
|
Change in fair value of warrant liabilities |
|
| 125 |
|
|
| — |
|
|
| 125 |
|
|
| (1,701 | ) |
|
| 10 |
|
|
| (1,711 | ) |
Interest income and other expense |
|
| 316 |
|
|
| 67 |
|
|
| 249 |
|
|
| 662 |
|
|
| 134 |
|
|
| 528 |
|
Income tax recovery |
|
| 208 |
|
|
| 274 |
|
|
| (66 | ) |
|
| 943 |
|
|
| 671 |
|
|
| 272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net loss |
|
| (2,391 | ) |
|
| (3,889 | ) |
|
| (1,498 | ) |
|
| (9,687 | ) |
|
| (13,342 | ) |
|
| (3,655 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net loss
The net loss of $4,666$2,391, or $0.05$0.21 per share, for the three months ended June 30, 2020December 31, 2023 decreased by $4,180$1,498 from the net loss $8,846of $3,889, or $0.11$0.52 per share, for the three months ended June 30, 2019.December 31, 2022.
The reduction in net loss resulted primarilyof $9,687, or $1.09 per share, for the nine months ended December 31, 2023 decreased by $3,655 from the decrease innet loss of $13,342, or $1.80 per share, for the nine months ended December 31, 2022.
Research and development expenses, net of government assistance
Research and development expenses consist primarily of:
We record research and development expenses of $4,434 as incurred.
Our research and development during the TRILOGY Phase 3three and nine months ended December 31, 2023, was focused primarily on our clinical programdevelopment programs for CaPre moved closer to completion. In addition, net financialour GTX-104 drug candidate. Research and development expenses decreased to $545during the three and nine months ended December 31, 2022 were focused primarily on our clinical development programs GTX-104, GTX-102, and GTX-101 drug candidates.
The following table summarizes our research and development expenses for the three months ended June 30, 2020, as compared to net financialperiods presented:
31
Research and development expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Three months ended |
|
| Nine months ended |
| |||||||||||||||||||
| December 31, |
|
| December 31, |
|
| Increase (Decrease) |
|
| December 31, |
|
| December 31, |
|
| Increase (Decrease) |
| |||||||
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
Total third-party research and development expenses 1 |
|
| 1,219 |
|
|
| 1,898 |
|
|
| (679 | ) |
|
| 2,196 |
|
|
| 6,471 |
|
|
| (4,275 | ) |
Government grants & tax credits |
|
| — |
|
|
| (115 | ) |
|
| 115 |
|
|
| 55 |
|
|
| (196 | ) |
|
| 251 |
|
Salaries and benefits |
|
| 163 |
|
|
| 522 |
|
|
| (359 | ) |
|
| 597 |
|
|
| 1,483 |
|
|
| (886 | ) |
Research and development expense before stock-based compensation and depreciation |
|
| 1,382 |
|
|
| 2,305 |
|
|
| (923 | ) |
|
| 2,848 |
|
|
| 7,758 |
|
|
| (4,910 | ) |
Stock-based compensation |
|
| 61 |
|
|
| 139 |
|
|
| (78 | ) |
|
| 145 |
|
|
| 481 |
|
|
| (336 | ) |
Depreciation and write-off of equipment |
|
| — |
|
|
| 6 |
|
|
| (6 | ) |
|
| 5 |
|
|
| 93 |
|
|
| (88 | ) |
Total |
|
| 1,443 |
|
|
| 2,450 |
|
|
| (1,007 | ) |
|
| 2,998 |
|
|
| 8,332 |
|
|
| (5,334 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
1 Total third-party research and development expenses are calculated before salaries and benefits, depreciation, write-off of $840 for the three months ended March 31, 2019, due mostly to a lower change in fair value of the derivative warrant liability in the first fiscal quarter in 2020 as compared to the comparative fiscal quarter in 2019 caused by a proportionately higher increase in the quarter over quarter closing share price partly offset by a reduction in the number of warrants outstanding due to exercises during the prior year. Salesequipment and marketing expenses also decreased as a as a result of a planned delay in pre-launch marketing activities until the results of the TRILOGY 2 Phase 3 clinical trial are obtained.
In contrast, general and administrative expenses increased due to higher consulting, accounting and legal fees incurred in connection with the conversion of the financial statements from IFRS to GAAP.
Stock-based compensation expense increased to $632 for the three-month period ended June 30, 2020, as compared to $250 for the three-month period ended June 30, 2019. The increased expense of $382 is the result of 6.1 million stock options granted to existing and new employees and directors during the fiscal year ended March 31, 2020, partially offset by stock options exercised, forfeited and expired. Moreover, the weighted average fair value of the options granted to employees and directors during the fiscal year ended March 31, 2020 was CAD$0.85 compared to CAD$0.51 for the fiscal year ended March 31, 2019 grants.
_____________________
1 The Non-GAAP operating loss is not a standard measure endorsed by GAAP requirements. A reconciliation to our net loss is presented in this MD&A.
2 Working capital is calculated by subtracting current liabilities from current assets.stock-based compensation. Because there is no standard method endorsed by U.S. GAAP, requirements, the results may not be comparable to similar measurements presented by other public companies.
25
The depreciationTotal third-party research and amortization expense remained relatively constant.
Two separate derivative warrant liabilities are includeddevelopment expenses for the three and nine months ended December 31, 2023, were $1,219 and $2,196, respectively, compared to $1,898 and $6,471 for the three and nine months ended December 31, 2022, respectively. This decrease of $679 and $4,275 was primarily due to the restructuring to align our organizational and management cost structure to prioritize resources to GTX-104, thereby reducing losses to improve cash flow and extend available cash resources. Our clinical development programs for GTX-102, and GTX-101 were de-prioritized in the statementcurrent year period compared to the prior year period.
Government grants and tax credits of financial position as at June 30, 2020,$0 and June 30, 2019. These derivative warrant liabilities stem$55 for the three and nine months ended December 31, 2023, respectively, increased by $115 and $251 compared to $(115) and $(196) for the three and nine months ended December 31, 2022, respectively. The changes within government grants and tax credits were due to adjustments of provisions regarding the estimated realizability of credits receivable after assessments and correspondence from tax authorities.
Salaries and benefits of $163 and $597 for the financing transactions that took placethree and nine months ended December 31, 2023, respectively, decreased by $359 and $886 compared to $522 and $1,483 for the three and nine months ended December 31, 2022, respectively. The decrease was primarily due to a reduction in May 2018research and development headcount due to the restructuring.
32
General and administrative expenses
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, legal, and support functions, including professional fees for auditing, tax, consulting, rent and utilities and insurance.
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Three months ended |
|
| Nine months ended |
| |||||||||||||||||||
| December 31, |
|
| December 31, |
|
| Increase (Decrease) |
|
| December 31, |
|
| December 31, |
|
| Increase (Decrease) |
| |||||||
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
Salaries and benefits |
|
| 237 |
|
|
| 490 |
|
|
| (253 | ) |
|
| 808 |
|
|
| 1,494 |
|
|
| (686 | ) |
Professional fees |
|
| 764 |
|
|
| 406 |
|
|
| 358 |
|
|
| 2,573 |
|
|
| 1,443 |
|
|
| 1,130 |
|
Other |
|
| 304 |
|
|
| 393 |
|
|
| (89 | ) |
|
| 1,013 |
|
|
| 1,266 |
|
|
| (253 | ) |
General and administrative expense before stock-based compensation and depreciation 1 |
|
| 1,305 |
|
|
| 1,289 |
|
|
| 16 |
|
|
| 4,394 |
|
|
| 4,203 |
|
|
| 191 |
|
Stock-based compensation |
|
| 265 |
|
|
| 280 |
|
|
| (15 | ) |
|
| 523 |
|
|
| 930 |
|
|
| (407 | ) |
Depreciation |
|
| — |
|
|
| 20 |
|
|
| (20 | ) |
|
| 5 |
|
|
| 54 |
|
|
| (49 | ) |
Total |
|
| 1,570 |
|
|
| 1,589 |
|
|
| (19 | ) |
|
| 4,922 |
|
|
| 5,187 |
|
|
| (265 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
1 General and administrative sub-total expenses are calculated before stock-based compensation and depreciation. Because there is no standard method endorsed by U.S. GAAP, the results may not be comparable to similar measurements presented by other public companies.
General and administrative expenses were $1,305 and $4,394 before stock-based compensation and depreciation expense for the three and nine months ended December 2017.31, 2023, respectively, an increase of $16 and $191 from $1,289 and $4,203 for the three and nine months ended December 31, 2022, respectively. The derivative warrant liabilities are re-measured to fair value at each reporting date using the Black-Scholes option pricing model. The valuations are mainly driven by the fluctuation in our share price resulting in anincrease was primarily a result of increased or decreased loss or gainlegal, tax, accounting and other professional fees related to the restructuring offset by decreased salaries and benefits due to a reduction in general and administrative headcount due to our restructuring and reorganization of our management structure. Stock-based compensation of $265 and $523 for the three and nine months ended December 31, 2023, respectively, decreased by $15 and $407 compared to $280 and $930 for the three and nine months ended December 31, 2022, respectively. The decrease was primarily due to a reduction in general and administrative headcount as a result of our restructuring.
Sales and marketing expenses
Sales and marketing expenses consist primarily of salaries and benefits, including stock-based compensation, related to our commercial functions.
Sales and marketing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Three months ended |
|
| Nine months ended |
| |||||||||||||||||||
| December 31, |
|
| December 31, |
|
| Increase (Decrease) |
|
| December 31, |
|
| December 31, |
|
| Increase (Decrease) |
| |||||||
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||||
Salaries and benefits |
|
| — |
|
|
| 109 |
|
|
| (109 | ) |
|
| 15 |
|
|
| 390 |
|
|
| (375 | ) |
Professional fees |
|
| — |
|
|
| 1 |
|
|
| (1 | ) |
|
| 20 |
|
|
| 10 |
|
|
| 10 |
|
Other |
|
| 30 |
|
|
| 72 |
|
|
| (42 | ) |
|
| 133 |
|
|
| 85 |
|
|
| 48 |
|
Sales and Marketing expenses before stock-based compensation 1 |
|
| 30 |
|
|
| 182 |
|
|
| (152 | ) |
|
| 168 |
|
|
| 485 |
|
|
| (317 | ) |
Stock-based compensation |
|
| — |
|
|
| 24 |
|
|
| (24 | ) |
|
| 16 |
|
|
| 78 |
|
|
| (62 | ) |
Total |
|
| 30 |
|
|
| 206 |
|
|
| (176 | ) |
|
| 184 |
|
|
| 563 |
|
|
| (379 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
1 Sales and marketing sub-total expenses are calculated before stock-based compensation. Because there is no standard method endorsed by U.S. GAAP, the results may not be comparable to similar measurements presented by other public companies.
Sales and marketing expenses before stock-based compensation expense were $30 and $168 for the three and nine months ended December 31, 2023, respectively, compared to $182 and $485 for the three and nine months ended December 31, 2022, respectively. The decrease of $152 and $317, was primarily due to the reduction of headcount due to our restructuring and reorganization of our management structure.
33
Stock-based compensation of nil and $16 for the three and nine months ended December 31, 2023, decreased by $24 and $62, respectively, compared to $24 and $78 for the three and nine months ended December 31, 2022, respectively. The decrease is primarily due to a reduction in sales and marketing headcount due to our restructuring.
Restructuring Costs
On May 8, 2023, we announced our decision to terminate a substantial amount of our workforce as part of a plan intended to align our organizational and management cost structure to prioritize resources to GTX-104, thereby reducing losses to improve cash flow and extend available cash resources. We incurred $1,485 of related costs primarily consisting of employee severance costs.
Change in fair value of warrant liabilities
The fair value of warrant liabilities for the three and nine months ended December 31, 2023 decreased by $125 and increased by $1,701, respectively, mainly attributable to changes in our stock price.
Interest income and other expense
Interest income was $316 and $662 for the three and nine months ended December 31, 2023, respectively, compared to $67 and $134 for the three and nine months ended December 31, 2022, respectively. The increase in our interest income was due to higher interest rates earned on average balances of cash, cash equivalents, and short-term investments.
Liquidity and Capital Resources
Cash flows and financial condition for the nine months ended December 31, 2023 and 2022
Summary
We do not expect to generate revenue from product sales unless and until we successfully complete drug development and obtain regulatory approval, which we expect will take several years and is subject to significant uncertainty. To date, we have financed our operations primarily through public offerings and private placements of our Common Shares, warrants and convertible debt and with the proceeds from research tax credits. Until such time that we can generate significant revenue from drug product sales, if ever, we will require additional financing, which we expect to be sourced from a combination of public or private equity offerings or debt financings or other non-dilutive sources, which may include fees, milestone payments and royalties from collaborations with third parties.
As of December 31, 2023, cash, cash equivalents, and short-term investments were $25,114, a decrease of $2,776 for the nine months ended, compared to cash, cash equivalents, and short-term investments of $27,890 at March 31, 2023 primarily due to operating activities, and funding the restructuring expenses, offset in part by the proceeds of our September 2023 Offering.
Net cash used in operating activities
Net cash used in operating activities for the nine months ended December 31, 2023 was $10,245, compared to $12,587 for the nine months ended December 31, 2022, a decrease of $2,342. Cash used in operating activities during the nine months ended December 31, 2023 primarily related to our net loss of $9,687, adjusted for non-cash items such as stock-based compensation of $684, change in fair value of the warrant liabilities of $1,701, income tax recovery of $(943) and increasing or decreasingchanges in our operating assets and liabilities of $(1,984). Net cash used in operating activities for the corresponding liability in the balance sheet.
Breakdown of Major Components of the Statement of Loss and Comprehensive Loss
| Research and development expenses | ||||||||
| Three Months Ended | ||||||||
June 30, 2020 | June 30, 2019 | |||||||
| $ | $ | |||||||
| Salaries and benefits | 434 | 412 | ||||||
| Research contracts | 499 | 4,978 | ||||||
| Professional fees | 154 | 164 | ||||||
| Other | 59 | 63 | ||||||
| Government grants & tax credits | (76 | ) | (75 | ) | ||||
| Sub-total | 1,070 | 5,542 | ||||||
| Stock-based compensation | 141 | 79 | ||||||
| Depreciation and amortization | 545 | 569 | ||||||
| Total | 1,756 | 6,190 | ||||||
| General and administrative expenses | ||||||||
| Three Months Ended | ||||||||
June 30, 2020 | June 30, 2019 | |||||||
| $ | $ | |||||||
| Salaries and benefits | 358 | 355 | ||||||
| Professional fees | 702 | 371 | ||||||
| Other | 241 | 242 | ||||||
| Sub-total | 1,301 | 968 | ||||||
| Stock-based compensation | 348 | 148 | ||||||
| Total | 1,649 | 1,116 | ||||||
| Sales and Marketing Expenses | ||||||||
| Three Months Ended | ||||||||
June 30, 2020 | June 30, 2019 | |||||||
| $ | $ | |||||||
| Salaries and benefits | 390 | 189 | ||||||
| Professional fees | 98 | 386 | ||||||
| Other | 85 | 102 | ||||||
| Sub-total | 573 | 677 | ||||||
| Stock-based compensation | 143 | 23 | ||||||
| Total | 716 | 700 | ||||||
26
Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019
During the threenine months ended June 30, 2020, we continuedDecember 31, 2022, was $12,587. Cash used in operating activities during 2022 primarily related to advance the TRILOGY Phase 3 clinical programour net loss of $13,342, adjusted for CaPre in partnership with one of the world’s largest providers of biopharmaceutical development and clinical outsourcing services. Research and development expenses before depreciation, amortization andnon-cash items such as stock-based compensation expenseof $1,489, income tax recovery of $671 and changes in our operating assets and liabilities of $(172).
Net cash used in investing activities
Net cash used in investing activities for the threenine months ended June 30, 2020 totaled $1,070 comparedDecember 31, 2023, was from our purchase of short-term investments of $6,554 offset by proceeds of $110 related to $5,542 forour sale of equipment. For the threenine months ended June 30, 2019. The net decrease was mainly attributable to a reduction in research contracts expense due to the advancement of the Phase 3 clinical program, as it moved closer to completion.
General and administrative expenses totaled $1,301 before stock-based compensation expense for the three months ended June 30, 2020 and increased by $333 from $968 for the three months ended June 30, 2019. The increase was mainly attributable to consulting, accounting and legal fees in connection with the conversion from IFRS to U.S. GAAP.
Sales and marketing expenses were $573 before stock-based compensation expense for the three months ended June 30, 2020 compared to $677 for the three months ended June 30, 2019. The decrease was mostly due to a reduction in professional fees as a result of a planned delay in pre-launch marketingDecember 31, 2022, our investing activities until the results of the TRILOGY 2 Phase 3 clinical trial are obtained. The decrease was partially offset by an increase in salaries and benefits as a result of headcount added in 2019 to the commercial team to support expanded business and market development activities.
Liquidity and Capital Resources
Share Capital Structure
Our authorized share capital consists of an unlimited number of Class A, Class B, Class C, Class D and Class E shares, without par value. Issued and outstanding fully paid shares, stock options, restricted shares units and warrants, were as follows for the periods ended:
June 30, 2020 | March 31, 2020 | |||||||
| Number outstanding | Number outstanding | |||||||
| Class A shares, voting, participating and without par value | 92,488,385 | 90,209,449 | ||||||
| Stock options granted and outstanding | 9,936,486 | 9,936,486 | ||||||
| May 2018 public offering of warrants exercisable at CAD$1.31, until May 9, 2023 | 6,593,750 | 6,593,750 | ||||||
| Public offering broker warrants May 2018 exercisable at CAD$1.05 until May 9, 2023 | 222,976 | 222,976 | ||||||
| December 2017 U.S. public offering of warrants exercisable at US$1.26, until December 19, 2022 | 7,072,962 | 7,072,962 | ||||||
| December 2017 U.S. broker warrants exercisable at US$1.2625, until December 27, 2022 | 259,121 | 259,121 | ||||||
| February 2017 public offering of warrants exercisable at CAD$2.15, until February 21, 2022 | 1,723,934 | 1,723,934 | ||||||
| Total fully diluted shares | 118,297,614 | 116,018,678 |
Cash Flows and Financial Condition Between the Three Months Ended June 30, 2020 and 2019
Summary
As at June 30, 2020, cash and cash equivalents totaled $12,122, a net decrease of $3,855 compared to cash and cash equivalents totaling $15,977 at June 30, 2019.
Operating activities
During the three months ended June 30, 2020 and June 30, 2019, our operating activities used cash of $4,309 and $6,824, respectively. The decrease of $2,515 during the three months ended June 30, 2020, was due to the reduction of spending as the TRILOGY Phase 3 clinical trials were nearing completion, partly offset by the timing of payment of invoices.
We expect that additional time and capital will be required by us to file an NDA to obtain FDA approval for CaPre in the United States, to further scale-up our manufacturing capabilities, and to complete marketing and other pre-commercialization activities, if our TRILOGY Phase 3 program is successful and we can proceed to file an NDA. Consequently, we expect to require additional capital to fund our daily operating needs beyond the next fiscal year-end. Based on a conservative estimate, we believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through the first calendar quarter of 2021. To fully execute our business plan, we plan to raise the necessary capital primarily through additional securities offerings and multiple sources of non-dilutive capital such as grants or loans and strategic alliances. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay the commercial launch of CaPre. Negative or inconclusive results in our TRILOGY Phase 3 clinical program for CaPre may adversely affect our ability to raise additional capital and/or to complete strategic commercialization partnerships to support the commercial launch of CaPre. Additional funding from third parties may not be available on acceptable terms or at all to enable us to continue with the commercialization of CaPre.
Investing activities
During the three months ended June 30, 2020, we used cash of $36 to acquire equipment to reinforce our IT infrastructure. During the three months ended June 30, 2019, we generated cash of $5,518 due primarily to the$8,161, which was $13,185 of proceeds from maturity of marketable securities.short-term investments offset by our purchase of short-term investments of $5,015.
FinancingNet cash provided by financing activities
DuringNet cash provided by financing activities for the three-month periodnine months ended June 30, 2020, we generated cash of $1,775December 31, 2023, was $7,359 due to the net proceeds from our September 2023 Offering compared to cash provided of $304 during the sale of shares under the “at-the-market”, ornine months ended December 31, 2022 from our ATM program.
During the three months ended June 30, 2019, our financing activities generated $34 due to the exercise of warrants.Private Placement
34
On June 29, 2020, we filed a registration statement on Form S-3 with the SEC to register up to US$200 million of common shares, warrants and units that may be offered and sold by us from time to time. The Registration Statement was declared effective by the SEC on July 7, 2020.
ATM program
On February 14, 2019,September 24, 2023, we entered into an ATM sales agreementthe Purchase Agreement with B. Riley FBR, Inc. (“B. Riley”) pursuantcertain institutional and accredited investors in connection with the Offering. Pursuant to which our common shares may be sold from timethe Purchase Agreement, we agreed to time for aggregate gross proceedsoffer and sell 1,951,371 Common Shares, at a purchase price of $1.848 per Common Share and Pre-funded Warrants to purchase up to $30 million, with sales only being made2,106,853 Common Shares at a purchase price equal to the purchase price per Common Share less $0.0001. Each Pre-funded Warrant is exercisable for one Common Share at an exercise price of $0.0001 per Common Share, is immediately exercisable, and will expire once exercised in full. Pursuant to the Purchase Agreement, we also issued to such institutional and accredited investors Common Warrants to purchase Common Shares, exercisable for an aggregate of 2,536,391 Common Shares. Under the terms of the Purchase Agreement, for each Common Share and each Pre-funded Warrant issued in the Offering, an accompanying five-eighths (0.625) of a Common Warrant was issued to the purchaser thereof. Each whole Common Warrant is exercisable for one Common Share at an exercise price of $3.003 per Common Share, is immediately exercisable, and will expire on the NASDAQ Stock Market. The common shares would be issued at market prices prevailing atearlier of (i) the time60th day after the date of the saleacceptance by the U.S. Food and asDrug Administration of a result, prices may vary between purchasers and duringNew Drug Application for the periodCorporation’s product candidate GTX-104 or (ii) five years from the date of distribution. issuance.
The ATM program has a 3-year term and requires us to pay between 3% and 4% commission to B. Riley basedOffering closed on volume of sales made.
During the three-month period ended June 30, 2020, a total of 2.3 million common shares were sold for totalSeptember 25, 2023. The net proceeds ofto us from the Offering were approximately $1.8$7.3 million, under the ATM program. The shares were sold at the prevailing market prices, which resulted in an average price of approximately $0.81 per share. Accordingly, proportional costs of $10 related to the common shares sold have been reclassified from deferred financings costs to equity.after deducting fees and expenses.
At-the-Market (“ATM”) program
On June 29, 2020, we entered into an amended and restated sales agreement or the Sales Agreement,(the “Sales Agreement”) with B. Riley, Oppenheimer & Co. Inc. and H.C. Wainwright & Co., LLC or collectively(collectively, the Agents, to amend the existing ATM program.“Agents”). Under the terms of the Sales Agreement, which had a three-year term, we maycould issue and sell from time to time, common shares, ,Common Shares having an aggregate offering price of up to $75 million through the Agents.
Subject to the terms and conditions of the Sales Agreement, the Agents willwould use their commercially reasonable efforts to sell the common sharesCommon Shares from time to time, based upon our instructions. We havehad no obligation to sell any of the common sharesCommon Shares and maycould, at any time, suspend sales under the Sales Agreement orAgreement. We and the Agents could terminate the Sales Agreement in accordance with its terms. Under the terms of the Sales Agreement, we provided the Agents with customary indemnification rights and the Agents will bewere entitled to compensation at a commission rate equal to 3.0% of the gross proceeds from each sale of common shares.the Common Shares. The Sales Agreement expired pursuant to its terms on June 29, 2023. We intend to examine our financing strategies on a go-forward basis and may consider entering into a new ATM program in the future.
There are several conditions that must be met in order for us to useDuring the nine months ended December 31, 2023, no Common Shares were sold under the ATM andprogram. During the program only commits the Agents to use commercially reasonable efforts, and thus is not a guaranteed source of financing. Further, the ATM may be cancelled by the Agents at their sole discretion at any time with 5 days’ notice. In the event that we are unable to use our ATM, we would have to rely on other financing approaches and sources to obtain additional new funding.
Costs incurred to register the Sales Agreement amounted to $130 andnine months ended December 31, 2022, 54,108 Common Shares were recorded as deferred financing costs in the Consolidated Balance Sheet. Accordingly, the remaining balance of the costs incurred during February 2019sold for an amount of $115 were written off to financing expenses.
Transactions Subsequent to June 30, 2020
ATM Program
Subsequent to June 30, 2020, we sold a total of 4,404,152 common shares through the ATM program, for net proceeds of approximately $3.4 million (net of$304 with commissions, paid for approximately $0.1 million).legal expenses and costs related to the share sale amounting to $10. The sharesCommon Shares were sold at the prevailing market prices, which resulted in an average price of approximately $0.80$5.70 per share.
Financial Position
35
The following table details the significant changes to the statements of financial position as at June 30, 2020 compared to the prior fiscal year end at March 31, 2020:
See the statement of changes in equity in our financial statements for details of changes to the equity accounts during the three-month periods ended June 30, 2020 and 2019.
Treasury Operations
Our treasury policy is to invest cash that is not required immediately into instruments with an investment strategy based on capital preservation. Cash equivalents and marketable securitiesshort-term investments are primarily made in guaranteed investment certificates, term deposits and high-interest savings accounts, which are issued and held with Canadian chartered banks, highly rated promissory notes issued by government bodies and commercial paper. We hold cash denominated in both U.S. and CADCanadian dollars. Funds received in U.S. dollars from equity financings are invested as per our treasury policy in U.S. dollar investments and converted to CAD dollars as needed to fulfill operational requirements and funding.
Derivative Warrant Liabilities
A total of 10,188,100 warrants were issued as part of our May 2018 public offering in Canada and recognized as derivative warrant liabilities with a fair value at inception of $3,323. During the year ended March 31, 2020, a total of 3,594,350 warrants were exercised. As of June 30, 2020, the derivative warrant liability for the remaining 6,593,750 warrants totaled $1,604, which represents the fair value of these warrants as at June 30, 2020. The weighted average fair value of the warrants issued in the May 2018 public offering in Canada was determined to be CAD$0.39 per warrant at inception and approximately CAD$0.33 (US $0.23) per warrant as at June 30, 2020.
On December 27, 2017, 9,801,861 warrants were issued as part of our U.S. public offering and recognized as derivative warrant liabilities with a fair value at inception of $4,548. The December 2017 warrants are derivative warrant liabilities for accounting purposes due to the currency of the exercise price (US$) being different from our Canadian dollar functional currency. During the year ended March 31, 2020, 2,728,899 warrants were exercised (including 52,288 warrants exercised on a cashless basis). As of June 30, 2020, the derivative warrant liability for the remaining 7,072,962 warrants totaled $1,467, which represents the fair value of these warrants as at June 30, 2020. The weighted average fair value of the 2017 warrants issued was determined to be CAD$0.60 per warrant at inception and approximately CAD$0.28 (US $0.21) per warrant as at June 30, 2020.
The variance in the fair value of both existing derivative warrant liabilities as at June 30, 2020 is mostly due to the fluctuations in our share price and the dilution factor.
Contractual Obligations and Commitments
As at June 30, 2020, our liabilities totaled $9,106, of which $5,979 was due within 1 year, and $3,071 related to derivative warrant liabilities that are expected to be settled in common shares.
A summary of theOur contractual obligations at June 30, 2020, is as follows:
| Contractual Obligations | Total | Less than 1 year | 1 to 3 years | More than 3 years | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Trade and other payables | 5,900 | 5,900 | – | – | ||||||||||||
| Operating lease obligations | 140 | 80 | 60 | – | ||||||||||||
| RKO supply agreement | 2,808 | 2,496 | 312 | – | ||||||||||||
| Total | 8,848 | 8,476 | 372 | – |
Lease
On March 5, 2020, we renewedand commitments include trade payables, operating lease obligations, CMO and CRO agreements, and the lease agreement for our research and development and quality control laboratory facility located in Sherbrooke, Québec, resulting in an obligation of $160 over 24 months of the lease term. As at June 30, 2020, the remaining balance of the commitment amounted to $140.
30
RKO supply agreement
On October 25, 2019, we signed araw krill oil supply agreement, with Aker, to purchase RKO for a committed volume of commercial starting material for CaPre at a fixed price for a total value of $3.1 million (take or pay). The delivery of the RKO has been established following a calendar year basis and it is expected to be completed in the 4th calendar quarter of 2021. As at June 30, 2020, the remaining balance of the commitment with Aker amounts to $2.8 million.as described below.
Research and development contracts and contract research organizations agreementsagreements:
We utilize contract manufacturing organizations,CMOs, for the development and production of clinical materials and contract research organizationsCROs to perform services related to our clinical trials. Pursuant to the agreements with these contract manufacturing organizationsCMOs and contract research organizations,CROs, we have either the right to terminate the agreements without penalties or under certain penalty conditions. As of December 31, 2023, we have no commitments from CMOs and $7,670 of commitments for the next twelve months to CROs.
ContingenciesRaw krill oil supply contract
On October 25, 2019, we signed a supply agreement with Aker BioMarine Antarctic AS. (“AKBM”) to purchase raw krill oil product for a committed volume of commercial starting material for CaPre, one of our former drug candidates, for a total fixed value of $3.1 million based on the value of krill oil at that time. As of March 31, 2022, the remaining balance of commitment amounted to $2.8 million. During the second calendar quarter of 2022, AKBM informed us that AKBM believed it had satisfied the terms of the supply agreement as to their obligation to deliver the remaining balance of raw krill oil product, and that we were therefore required to accept the remaining product commitment. We disagreed with AKBM’s position and believed that AKBM was not entitled to further payment under the supply agreement. Accordingly, no liability was recorded by us. The dispute remained unresolved as of both March 31, 2023 and 2022. On October 18, 2023, we entered into an agreement with AKBM to settle any and all potential claims regarding amounts due under the supply agreement (“Settlement Agreement”). Pursuant to the terms of the Settlement Agreement, in exchange for a release and waiver of claims arising out of the supply agreement by AKBM and any of AKBM’s affiliates, we agreed to the following: (a) AKBM retained ownership of all raw krill oil product, including amounts previously delivered to us, (b) AKBM acquired and took ownership of all production equipment related to the production of CaPre, (c) AKBM acquired and took ownership of all data from research, clinical trials and pre-clinical studies with respect to CaPre, and (d) AKBM acquired and took ownership over all rights, title and interest in and to all intellectual property rights, including all patents and trademarks, related to CaPre owned by us. Pursuant to the terms of the Settlement Agreement, AKBM acknowledged that the CaPre assets were transferred on an “as is” basis, and in connection therewith we disclaimed all representations and warranties in connection with the CaPre assets, including any representations with respect to performance or sufficiency. The value of the raw krill oil previously delivered to us, the production equipment, and the intellectual property rights related to CaPre were fully impaired in prior reporting periods and had a carrying value of nil as of March 31, 2023. As of December 31, 2023, no liability was recorded.
Contingencies
We evaluate contingencies on an ongoing basis and establish loss provisions for matters in which losses are probable and the amount of the loss can be reasonably estimated.
On May 10, 2019, we announced the settlement regarding legal claims made by our former chief executive officer with respect to the termination of his employment. Pursuant to the settlement agreement, we agreed to issue 900,000 common shares valued at CAD$1.10 per share to our former CEO. In addition, we agreed to reimburse the former CEO for legal fees of $48. Pursuant to the settlement agreement, we received a full and final release from the former CEO on all procedures in connection with the termination of his employment. This settlement was accrued as a short-term liability as at March 31, 2019 and the expense of $790 was included as part of general and administrative expenses. The case is closed, and no further costs are expected.36
Off-Balance Sheet Arrangements
As of the date of this quarterly report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Use of estimatesEstimates and measurementMeasurement of uncertaintyUncertainty
The preparation of thethese consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income, and expenses. Actual results may differ from these estimates.
Estimates are based on management’s best knowledge of current events and actions that management may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Estimates and assumptions include the measurement of stock-based compensation, derivative warrant liabilities, accruals for research and stock-based compensation.development contracts and contract organization agreements, and valuation of intangibles and goodwill. Estimates and assumptions are also involved in measuring the accrual of services rendered with respect to research and developments expenditures at each reporting date, are determining which research and development expenses qualify for research and development tax credits and in what amounts. We recognizeThe Corporation recognizes the tax credits once it has reasonable assurance that they will be realized. Recorded tax credits are subject to review and approval by tax authorities and, therefore, could be different from the amounts recorded.
Critical Accounting Policies
Derivative warrant liabilitiesDuring the nine months ended December 31, 2023, there were no material changes to our critical accounting policies from those described in our Annual Report for the year ended March 31, 2023.
The warrants forming part of the units issued in the May 2018 Canadian public offeringRecent Accounting Pronouncements
We have considered recent accounting pronouncements and concluded that they are derivative liabilities for accounting purposes given the facteither not applicable to our business or that the warrant indenture contains certain contingent provisions that allow for cash settlement. The warrants forming part of the units issued from the December 2017 U.S. public offering are derivative liabilities for accounting purposes due to the currency of the exercise price being different from our functional currency. The derivative warrant liabilities are requiredeffect is not expected to be measured at fair value at each reporting date with changes in fair value recognized in earnings. We use the Black-Scholes pricing modelmaterial to determine the fair value. The model requires the assumption of future stock price volatility, which is estimated based on weighted average historic volatility. Changes to the expected volatility could cause significant variations in the estimated fair value of the derivative warrant liabilities.
Stock-based compensation
We have a stock-based compensation plan, which is described in note 15 of the annualour consolidated financial statements and note 8 to the interim financial statements. We account for stock options granted to employees based on the fair value method, with fair value determined using the Black-Scholes model. The Black Scholes model requires certain assumptions such as future stock price volatility and expected life of the instrument. Expected volatility is estimated based on weighted average historic volatility. The expected life of the instrument is estimated based on the average of the vesting and contractual periods for employee awards as there is minimal prior exercises of options in which to establish historical exercise experience; and contractual life is used for broker warrants. Under the fair value method, compensation cost is measured at fair value at date of grant and is expensed over the award’s vesting period with a corresponding increase in additional paid-in capital. For stock options granted to non-employees, we measure the grant-date fair value based on the equity instruments issued. Compensation cost is measured when we obtain the goods, or the counterparty renders the service.
Financial Instruments
Credit risk
Credit risk is the risk of a loss if a customer or counterparty to a financial asset fails to meet its contractual obligations. We have credit risk relating to cash, cash equivalents and marketable securities, which we manage by dealing only with highly rated Canadian financial institutions. The carrying amount of financial assets, as disclosed in the statements of financial position, represents our credit exposure at the reporting date.
Currency risk
We are exposed to the financial risk related to the fluctuation of foreign exchange rates and the degrees of volatility of those rates. Foreign currency risk is limited to the portion of our business transactions denominated in currencies other than the Canadian dollar. Fluctuations related to foreign exchange rates could cause unforeseen fluctuations in our operating results.
A portion of the expenses, mainly related to research contracts and purchase of production equipment, is incurred in U.S. dollars and in Euros, for which no financial hedging is required. There is a financial risk related to the fluctuation in the value of the U.S. dollar and the Euro in relation to the Canadian dollar. In order to minimize the financial risk related to the fluctuation in the value of the U.S. dollar in relation to the Canadian dollar, funds which were part of U.S. dollar financings continue to be invested as short-term investments in the U.S. dollar.
Furthermore, a portion of our cash and cash equivalents and marketable securities are denominated in U.S. dollars, further exposing us to fluctuations in the value of the U.S. dollar in relation to the Canadian dollar.
The following table provides an indication of our significant foreign exchange currency exposures as stated in Canadian dollars at the following dates:
| June 30, 2020 | June 30, 2019 | |||||||||||||||
| Denominated in | US $ | Euro | US $ | Euro | ||||||||||||
| Cash and cash equivalents | 4,695 | – | 1,712 | – | ||||||||||||
| Marketable securities | – | – | 26 | – | ||||||||||||
| Trade and other payables | (5,142 | ) | (161 | ) | (13,313 | ) | (33 | ) | ||||||||
| (204 | ) | (161 | ) | (11,575 | ) | (33 | ) | |||||||||
The following exchange rates are those applicable to the following periods and dates:
| June 30, 2020 | June 30, 2019 | |||||||||||||||
| Average | Reporting | Average | Reporting | |||||||||||||
| CAD$ per US$ | 1.3855 | 1.3576 | 1.3377 | 1.3095 | ||||||||||||
| CAD$ per Euro | 1.5255 | 1.525 | 1.5032 | 1.4887 | ||||||||||||
Based on our foreign currency exposures noted above, varying the above foreign exchange rates to reflect a 5% strengthening of the U.S. dollar and Euro would have an increase (decrease) in net loss as follows, assuming that all other variables remain constant:
| June 30, 2020 | June 30, 2019 | |||||||
| $ | $ | |||||||
| Increase (decrease) in net loss | 9 | 338 |
An assumed 5% weakening of the foreign currencies would have an equal but opposite effect on the basis that all other variables remained constant.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market rates.
Our exposure to interest rate risk as at June 30, 2020 and June 30, 2019 was as follows:
Our capacity to reinvest the short-term amounts with equivalent return will be impacted by variations in short-term fixed interest rates available on the market. Management believes the risk we will realize a loss as a result of the decline in the fair value of our short-term investments is limited because these investments have short-term maturities and are held to maturity.future adoption.
Liquidity risk
Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. We manage liquidity risk through the management of our capital structure and financial leverage. We also manage liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews and approves our operating budgets and reviews material transactions outside the normal course of business.
Our contractual obligations related to financial instruments and other obligations and liquidity resources are presented in the liquidity and capital resources of this MD&A. See also “Note 2 - Going Concern Uncertainty” to the consolidated financial statements.
Future Accounting Changes
The following new standards, and amendments to standards and interpretations, are not yet effective for the period ended June 30, 2020, and have not been applied in preparing our consolidated financial statements.
In June 2016, the Financial Accounting Standards Board, or FASB, issued ASU 2016-13-Financial Instruments-Credit Losses (Topic 326), which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost, the new guidance eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. ASU 2016-13 will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2022. Management has not yet evaluated the impact of this ASU on the consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15-Intangibles-Goodwill and Other-Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs in such cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and early adoption is permitted. Entities can choose to adopt the new guidance prospectively or retrospectively. Management has adopted the accounting standard update. However, the adoption of this update did not have any impact on the reported amounts as at June 30, 2020.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information relatingA smaller reporting company is not required to quantitative and qualitative disclosures about market risks is detailed in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.”provide the information required by this Item.
34
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, our management, with the participation of our Chief Executive Officer or the CEO, and Vice President Finance,Principal Financial Officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures within the meaning of Rules 13a-15 (e)13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon this evaluation, our management has concluded that, as of June 30, 2020,December 31, 2023, our existing disclosure controls and procedures were effective. It should be noted that while the CEOour Chief Executive Officer and Vice President FinancePrincipal Financial Officer believe that our disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect the disclosure controls and procedures to be capable of preventing all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, but not absolute, assurance that the objectives of the control system are met.
Changes in Internal Control over Financial Reporting
No changes were made to our internal controls over financial reporting that occurred during the quarter ended June 30, 2020December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
35
PART II. OTHER INFORMATIONINFORMATION
From time to time, we may become involved in legal proceedings or be subject to claims arising inIn the ordinary course of our business. As of June 30, 2020,business, we are at times subject to various legal proceedings and disputes. We assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of loss is not estimable, we do not accrue legal reserves. While the outcome of legal proceedings is inherently uncertain, based on information currently available and available insurance coverage, our management believes that it has established appropriate legal reserves. Any incremental liabilities arising from pending legal proceedings are not expected to have a material adverse effect on our financial position, results of operations, or cash flows. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to our financial position, results of operations, or cash flows. We are not currently a party to any legal proceedings that, in the opinion of our management, would reasonably be expectedare likely to have a material adverse effect on our business, financial condition, operating results or cash flows if determined adversely to us. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.business.
37
There have been no material changes from the risk factors disclosed in our most recently filed annual report on Form 10-K.Annual Report.
Item 2. Unregistered Sales of EquityEquity Securities and Use of Proceeds
None.
Item 3. Defaults uponupon Senior Securities
None.
Item 4. Mine SafetySafety Disclosures
Not applicable.
None.During the three months ended December 31, 2023, no director or officer of the Corporation adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
+ Management contract, compensatory plan or arrangement.
* Filed or furnished herewith
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 13, 2020February 12, 2024
ACASTI PHARMA INC. | |||
By: | /s/ | ||
Name: | |||
Title: (Principal Executive Officer) | |||
By: | /s/ | ||
Name: | |||
Title: (Principal Financial Officer and Principal Accounting Officer) | |||
3839