Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
This management’s discussion and analysis (“MD&A”) is presented in order to provide the reader with an overview of the financial results and changes to our balance sheet as at December 31, 2022, and for the three and nine month period then ended. This MD&A also explains the material variations in our results of operations, balance sheet and cash flows for the three and nine months ended December 31, 2022 and 2021.
Market data, and certain industry data and forecasts included in this MD&A were obtained from internal corporation 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-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 is 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 report on Form 10-K.
This MD&A, approved by the Board of Directors on February 14, 2023 should be read in conjunction with our unaudited condensed consolidated interim financial statements for the three and nine months ended December 31, 2022 and 2021 included elsewhere in this quarterly report. Our interim financial statements were prepared in accordance with U.S. GAAP.
All amounts appearing in this MD&A for the period-by-period discussions are in thousands of U.S. dollars, except share and per share amounts or unless otherwise indicated.
Business Overview
On August 27, 2021, we completed our acquisition of Grace via a merger following the approval of Acasti’s shareholders and Grace’s stockholders. Following completion of the merger, Grace became a wholly owned subsidiary of Acasti and was renamed Acasti Pharma U.S. Inc.
The successful completion of the merger positions Acasti as a premier, late-stage specialty pharmaceutical company with now two Phase 3 ready drug candidates, and additional products in the clinical and preclinical pipeline. We are focused on developing and commercializing products for rare and orphan diseases that have the potential to improve clinical outcomes by using the Company’s 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, and 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 safety profiles of these marketed compounds provides the opportunity for us to utilize the Section 505(b)(2) regulatory pathway under the Federal Food, Drug and Cosmetic Act (the “FFDCA”) for the development of our reformulated versions of these drugs, and therefore 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 FDA experience or sufficiently within the scientific literature can be established, it may eliminate the need to conduct some of the preclinical and clinical studies that new drug candidates might otherwise require.
In connection with the merger, we acquired Grace’s entire therapeutic pipeline, which has the potential to address critical unmet medical needs for the treatment of rare and orphan diseases. The 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 various jurisdictions worldwide. These drug candidates aim to improve clinical outcomes 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.
Rare disorders represent an attractive area for drug development, and there remains an opportunity for Acasti 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. Acasti's first three drug candidates currently in clinical development have received ODD status, provided certain conditions are met at 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 market approval and a waiver of the new drug application (NDA) fees, which can translate into savings of $1 - $2 million. 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 Acasti are well understood although these patient populations 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.
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Our three most advanced programs are:
•GTX-104, an IV formulation of nimodipine designed to treat Subarachnoid Hemorrhage (“SAH”), a rare brain disorder for which we have completed multiple pharmacokinetic (“PK”) studies, including a successful PK bridging study recently completed in May 2022. SAH is a central nervous system condition that causes acute bleeding on the surface of the brain as the result of a ruptured aneurysm and requires immediate medical attention to prevent long-term disability or death. GTX-104 could be administered to improve the management of hypotension and reduce the incidence of vasospasm in SAH patients and potentially lead to better patient outcomes.
•GTX-102, an oral-mucosal betamethasone spray for the treatment of Ataxia Telangiectasia (“A-T”), a complex orphan pediatric genetic neurodegenerative disorder usually diagnosed in young children, for which no FDA approved treatment currently exists.
•GTX-101, a topical bioadhesive film-forming bupivacaine spray for Postherpetic Neuralgia (“PHN”), which can be persistent and often causes debilitating pain following infection by the shingles virus. We believe that GTX-101 could be administered to patients with PHN to treat pain associated with the disease.
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. Prior to joining Acasti, the Acasti team has been collectively involved in the development and approval of numerous successfully marketed drugs, including TORADOL, NAPROSYN, ANDROGEL, SUBSYS, MARINOL, KEPPRA XR, CLARITIN®, EUFLEX®, EFFEXOR®, SONATA®, ATIVAN®, RD-HEPARIN®, RAPAMUNE®, ETODOLAC, ARICEPT®, CARDIZEM®, DEFLAZACORT®, AND MACIMORELIN®.
The table below summarizes planned key fiscal 2023 milestones for our three clinical drug candidates:
GTX-104 Overview
Nimodipine was granted FDA approval in 1988, and is the only approved drug that has been clinically shown to improve neurological outcomes in SAH. 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 SAH 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 SAH patients because of its high organic solvent content, namely 23.7% ethanol and 17% polyethylene glycol 400 (NIMOTOP SmPC).
•GTX-104 is a clinical stage, novel formulation of nimodipine for IV infusion in SAH patients. It uses surfactant micelles as the drug carrier to solubilize nimodipine. This unique nimodipine injectable formulation is composed of a nimodipine base, an effective amount of polysorbate 80, a non-ionic hydrophilic surfactant, and a pharmaceutically acceptable carrier for injection. GTX-104 is supplied as an aqueous concentrate that upon dilution with saline, dextrose or lactated ringer, is a ready-to-use infusion solution, which is stable and clear.
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Key Potential Benefits:
•Novel nanoparticle technology facilitates aqueous formulation of insoluble nimodipine for a safe, standard peripheral IV infusion:
•Potential for better control of blood pressure and improved management of hypotension
•Eliminates food effects that impact the absorption of the oral form of nimodipine
•Lower inter and intra-subject variability as compared to oral nimodipine
GTX-104 could provide a more convenient mode of administration as compared to generic nimodipine capsules or NYMALIZE GTX-104 is administered as an initial bolus followed by a continuous infusion as compared to oral administration via a nasogastric tube in unconscious patients every two to four hours for both nimodipine capsules and NYMALIZE solution. Therefore, GTX-104 could be considered as a major contribution to patient care by potentially reducing the dosing frequency, and the associated nursing burden. More convenient continuous, and more consistent dosing can also reduce the risk of medication errors. In addition, two PK studies have shown that GTX-104 has the potential to provide improved bioavailability and lower intra-subject variability compared to oral administration (see charts below). 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 on 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 administering GTX-104, which because of its IV administration, may obviate the complexity that results from the need for careful attention to the timing of nimodipine administration at least one hour before or two hours after a meal. Administration of GTX-104 via a peripheral vein is often much more comfortable for the patients compared to administration by central venous access (as is the case for NIMOTOPTM), which can often be a difficult, invasive and more risky procedure. 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.
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About Subarachnoid Hemorrhage (SAH)
SAH 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 (Becske, 2018).
In contrast to more common types of stroke in elderly individuals, SAH often occurs at a relatively young age, with approximately half the affected patients younger than 60 years old (Becske, 2018). Approximately 10% to 15% of aneurysmal SAH (“aSAH”) patients die before reaching the hospital (Rinkel, 2016), 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 (Becske, 2018).
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We estimate that approximately 50,000 individuals experience aSAH each year in the US based on third party market research. The total addressable market for SAH is approximately $300 million in the U.S. There are an estimated 150,000 aSAH patients each year in China and approximately 55,000 patients in the European Union based on annual inpatient admissions and the average length-of-stay.
GTX-104 Near Term Milestones: Conduct Phase 3 Safety Study
In September 2021, we initiated our pivotal PK bridging study to evaluate the relative bioavailability of GTX-104 compared to currently marketed oral nimodipine capsules in approximately 50 healthy subjects. The PK study was the next required step in our proposed 505(b)(2) regulatory pathway for GTX-104.
Final results from this pivotal PK study were reported on May 18, 2022, and showed that the bioavailability of GTX-104 compared favorably with the 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 defined time periods for both maximum exposure and total exposure. Plasma concentrations obtained following IV administration showed significantly less variability between subjects as compared to 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 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 as with the oral capsules.
No serious adverse events and no adverse events leading to withdrawal were reported during the study.
Next Steps – Initiate Phase 3 Safety Study for GTX-104
Acasti developed a population PK (popPK) model using the data from our GTX-104-001 and GTX-104-002 studies to derive the final dosing regimen for our Phase 3 safety study. We refined the model using covariates from aSAH patients from data found in the literature, including age, weight, circadian cycle and food effect. Based on this model, we are recommending a dosing regimen for GTX-104 of a 3.6mg initial bolus followed by a continuous infusion at the rate of 1.2mg/hr (see chart below).
We submitted our dosing recommendations to the FDA along with this popPK data and the final PK bridging study report, and we requested a Type C meeting to get the agency’s guidance on our proposed phase 3 study design. The FDA has now granted us this meeting, and we expect to receive their clarifying guidance in the first calendar quarter of 2023. If it is favorable, we anticipate that this FDA feedback should allow us to proceed with the initiation of the Phase 3 Safety Study, recruit the clinical sites, and enroll the first patient. The study is expected to take about 18 months to complete from the time the first patient is enrolled, and we expect this safety study to be the final clinical step required to seek approval under the 505(b)(2) regulatory pathway. Before submitting a New Drug Application, Acasti plans to hold a pre-NDA meeting with the FDA to enhance the likelihood of market approval.
GTX-102 Overview
GTX-102 is a novel, concentrated oral-mucosal spray of betamethasone intended to improve neurological symptoms of Ataxia Telangiectasia (“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 together with other excipients can be sprayed conveniently over the tongue of the A-T patient and is rapidly absorbed.
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About Ataxia Telangiectasia
A-T is a rare genetic progressive autosomal recessive neurodegenerative disorder that affects children, with the hallmark symptoms of cerebellar ataxia and other motor dysfunction, and dilated blood vessels (telangiectasia) that occur in the sclera of the eyes. A-T is caused by mutations in the ataxia telangiectasia gene, which is responsible for modulating cellular response to stress, including breaks in the double strands of DNA.
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 experience 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) (U.S. National Cancer Institute A-T, 2015).
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 slow disease progression, and treatments that are used are strictly aimed at controlling the symptoms (e.g., physical, occupational or speech therapy for neurologic issues), or conditions secondary to the disease (e.g., antibiotics for lung infections, chemotherapy for cancer, etc.) (U.S. National Cancer Institute A-T, 2015). There are no FDA-approved therapeutic options currently available. Patients typically die by age 25 from complications of lung disease or cancer. According to a third-party report commissioned by Acasti Pharma US, A-T affects approximately 4,300 patients per 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 Studies to Date
In a multicenter, double-blind, randomized, placebo-controlled crossover trial conducted in Italy, 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 the 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 (“ITT”) population and 16 points in the per-protocol (“PP”) 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 study 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 more convenient metered dose delivery system, as these A-T patients typically have difficulty swallowing (lefton-greif 2000).
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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 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.
GTX-102 Near-Term Milestones: Conduct PK Bridging and Confirmatory Phase 3 Clinical Trials
Acasti Pharma US has 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. Note that 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 Acasti Pharma US the right to reference the study’s data in its NDA filing. On November 12, 2015, Acasti Pharma US submitted the data from the Zannolli study 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.
We initiated a PK bridging study of our proprietary concentrated oral spray as compared to the oral liquid solution of betamethasone used in the Zannolli study 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 study were to evaluate the bioavailability, pharmacokinetics and safety of GTX-102. On December 28, 2022, we reported that the topline results of this study 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 occuring between 0 hour to 72 hours after study 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 GTX-102 in the context of the proposed 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 an objective of this study, nor was it expected. Finally, of the 48 healthy adult subjects, no serious adverse events (AE) were reported, and the most frequent drug-related AE was mild headache (4 cases).
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Based on this data, Acasti 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 study design. Based on previous discussions with the FDA, we plan to conduct a confirmatory Phase 3 safety and efficacy trial in A-T patients, and plan to seek guidance from the FDA on the study design at a Type B meeting. The Phase 3 study is expected to be initiated in the second half of 2023. If both studies meet their primary endpoints, a Pre-NDA meeting and an NDA filing under Section 505(b)(2) would follow.
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 study.
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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 affected 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 blood. 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 (Katz, 2004). The pain can disrupt sleep, mood, work, and activities of daily living, adversely impacting the 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 (Hess, 1990).
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 commissioned by Acasti 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 on 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 commissioned by Acasti, 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.
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GTX-101 R&D History and Clinical Studies Completed to Date
To date, Acasti Pharma US has conducted four Phase I studies 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 studies 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 three studies, 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 studies of GTX-101 and the Lidoderm patch superimposed on each other.
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GTX-101 Near-Term Milestones: Conduct Dose Ranging Phase 1 Clinical Trials of GTX-101
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 clinical 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 preclinical 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 initiated a single dose PK study in healthy human volunteers in July 2022. Topline results from this single dose PK study were reported 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 occuring 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 a 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%).
Acasti plans to follow this successful PK study with a multiple ascending dose study in 2023. Results from these non-clinical and clinical studies are required before the initiation of our Phase 2 program in PHN patients.
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Overall Commercialization Strategy
We plan to retain our worldwide commercialization rights for some of our key drug candidates, while for other drug candidates we may consider collaboration opportunities to maximize market penetration and returns. If we receive regulatory approval, we expect to build a small and focused commercial organization in the United States to market and sell GTX-104 and GTX-102. We believe the patient populations and medical specialists for these indications are sufficiently concentrated to allow us to cost-effectively promote these drug products following approval for commercial sale. Given that GTX-101 will be targeted to a larger primary care and pain specialist market, if GTX-101 receives regulatory approval, we will likely seek commercial partnerships to fully exploit the market potential of this drug product.
As our product candidates advance through the pipeline, our commercial plans may change. Clinical data, the size of the development programs, the size of the target market, the size of a commercial infrastructure and manufacturing needs may all influence our U.S., European Union, and rest-of-world strategies.
Recent Developments
Announcement of Preliminary Topline PK Bridging Study Results, GTX-102
On December 28, 2022, we announced that preliminary topline results met all outcomes measures in the PK bridging study for GTX-102, our drug candidate for the treatment of A-T. The objectives of the study were to evaluate the bioavailability, pharmacokinetics, and safety of GTX-102, a novel, concentrated oral-mucosal metered spray of betamethasone in healthy volunteers. This PK study was the next step in the proposed 505(b)(2) regulatory pathway for GTX-102.
Announcement of Preliminary Topline Single Dose PK Results, GTX-101
On December 22, 2022, we announced that preliminary topline results met all outcomes measures in the single dose PK study for GTX-101, our drug candidate for the treatment of PHN. The PK bridging study to evaluate the relative bioavailability of GTX-101 compared to the reference listed drug in the U.S., bupivacaine subcutaneous injectable, met all primary outcome measures for the study. The final clinical study report is anticipated to be received by the Company in the first half of 2023. This PK study was the next step in our proposed 505(b)(2) regulatory pathway for GTX-101 and provides important information on the dose and dosing frequency in humans for future planned clinical studies.
Nasdaq letter
On July 27, 2022, we received written notification from the Nasdaq Listing Qualifications Department (“Nasdaq”) for failing to maintain a minimum bid price of $1.00 per common share for the last 30 consecutive business days, as required by Nasdaq Listing Rule 5550(a)(2) - bid price (the “Minimum Bid Price Rule”). The Nasdaq notification had no immediate effect on the listing of our common shares, and we had 180 calendar days, or until January 23, 2023, to regain compliance.
On January 24, 2023, we received notification from NASDAQ that we are eligible for an additional 180 calendar days, or until July 24, 2023, to regain compliance with the Minimum Bid Price Rule. We were granted the second extension because we meet the continued listing requirements for the market value of publicly held shares and all other initial listing standards for NASDAQ Capital Market, except for the bid price requirement. If at any time over this additional 180 calendar day period the bid price of our common shares closes at $1.00 per share or more for at least a minimum of ten consecutive business days, Nasdaq will provide written confirmation of compliance and the matter will be closed.
We intend to monitor the closing bid price of our common shares and, if necessary, evaluate all available options to resolve the deficiency and regain compliance with the Minimum Bid Price Rule.
COVID-19 Update
To date, the ongoing COVID-19 pandemic has not caused significant disruptions to our business operations and research and development activities.
The extent to which the COVID-19 pandemic impacts our business and prospects and the timing and completion of future clinical trials for our new drug candidates will depend on future developments, which remain highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 variants and the actions to contain the COVID-19 pandemic or treat its impact, among others.
Basis of Presentation of the Financial Statements
Our condensed consolidated interim financial statements, which include the accounts of our wholly owned 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 SEC related to quarterly reports filed on Form 10-Q. All intercompany transactions and balances are eliminated on consolidation.
Our assets as at December 31, 2022, include cash and cash equivalents and short-term investments totaling $31.3 million and intangible assets and goodwill totaling $82.8 million. Our current liabilities total $3.4 million as at December 31, 2022 and are comprised primarily of amounts due to or accrued for creditors.
31
Comparative Financial Information for the Three and Nine months ended December 31, 2022 and 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
Increase (Decrease) |
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
Increase (Decrease) |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Net income (loss) |
|
|
(3,889 |
) |
|
|
(3,778 |
) |
|
|
111 |
|
|
|
(13,342 |
) |
|
|
(5,915 |
) |
|
|
7,427 |
|
Basic and diluted gain (loss) per share |
|
|
(0.09 |
) |
|
|
(0.09 |
) |
|
|
— |
|
|
|
(0.30 |
) |
|
|
(0.23 |
) |
|
|
0.07 |
|
Total assets |
|
|
116,801 |
|
|
|
114,227 |
|
|
|
2,574 |
|
|
|
116,801 |
|
|
|
114,227 |
|
|
|
2,574 |
|
Working capital1 |
|
|
29,995 |
|
|
|
46,100 |
|
|
|
(16,105 |
) |
|
|
29,995 |
|
|
|
46,100 |
|
|
|
(16,105 |
) |
Total non-current financial liabilities |
|
|
430 |
|
|
|
268 |
|
|
|
162 |
|
|
|
430 |
|
|
|
268 |
|
|
|
162 |
|
Total shareholders’ equity |
|
|
96,720 |
|
|
|
111,062 |
|
|
|
(14,342 |
) |
|
|
96,720 |
|
|
|
111,062 |
|
|
|
(14,342 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Working capital is calculated by subtracting current liabilities from current assets. 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.
Results of Operations for the Three and Nine months ended December 31, 2022 and 2021
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
Increase (Decrease) |
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
Increase (Decrease) |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses, net of government assistance |
|
|
2,450 |
|
|
|
2,179 |
|
|
|
271 |
|
|
|
8,332 |
|
|
|
3,233 |
|
|
|
5,099 |
|
General and administrative expenses |
|
|
1,589 |
|
|
|
1,808 |
|
|
|
(219 |
) |
|
|
5,187 |
|
|
|
7,441 |
|
|
|
(2,254 |
) |
Sales and marketing expenses |
|
|
206 |
|
|
|
238 |
|
|
|
(32 |
) |
|
|
563 |
|
|
|
263 |
|
|
|
300 |
|
Impairment of Other asset and prepaid |
|
|
— |
|
|
|
249 |
|
|
|
(249 |
) |
|
|
— |
|
|
|
249 |
|
|
|
(249 |
) |
Loss from operating activities |
|
|
(4,245 |
) |
|
|
(4,474 |
) |
|
|
(229 |
) |
|
|
(14,082 |
) |
|
|
(11,186 |
) |
|
|
2,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Income (expense) |
|
|
82 |
|
|
|
696 |
|
|
|
(614 |
) |
|
|
69 |
|
|
|
5,271 |
|
|
|
(5,202 |
) |
Income tax recovery |
|
|
274 |
|
|
|
— |
|
|
|
274 |
|
|
|
671 |
|
|
|
— |
|
|
|
671 |
|
Net income (loss) |
|
|
(3,889 |
) |
|
|
(3,778 |
) |
|
|
111 |
|
|
|
(13,342 |
) |
|
|
(5,915 |
) |
|
|
7,427 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
The net loss of $3,889 or $0.09 per share for the three months ended December 31, 2022 increased by $111 from the net loss of $3,778 or $0.09 per share for the three months ended December 31, 2021.
The net loss of $13,342 or $0.30 per share for the nine months ended December 31, 2022, increased by $7,427 from the net loss of $5,915 or $0.23 per share for the nine months ended December 31, 2021.
Research and development expenses
Research and development expenses consist primarily of:
•fees paid to external service providers such as clinical research organizations and contract manufacturing organizations related to clinical trials, including contractual obligations for clinical development, clinical sites, manufacturing and scale-up, and formulation of clinical drug supplies;
•fees paid to contract service providers related to drug discovery efforts, including chemistry and biology services;
•patent-related services; and
•salaries and related expenses for personnel, including expense related to stock options.
We record research and development expenses as incurred.
Our research and development during the three and nine months ended December 31, 2022, was focused primarily on our clinical development programs for our GTX-104, GTX-102, and GTX-101 drug candidates. Research and development expenses during the three and nine months ended December 31, 2021 related to the completion of our TRILOGY Phase 3 clinical program for our former drug candidate, CaPre, as well as the initiation and progression of development work related to GTX 104, GTX 102 and GTX 101.
32
The following table summarizes our research and development expenses for the periods presented:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months |
|
|
Nine months ended |
|
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
Increase (Decrease) |
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
Increase (Decrease) |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Third-party contract research expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical development programs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GTX-104 |
|
|
136 |
|
|
|
780 |
|
|
|
(644 |
) |
|
|
575 |
|
|
|
957 |
|
|
|
(382 |
) |
GTX-102 |
|
|
696 |
|
|
|
— |
|
|
|
696 |
|
|
|
1,280 |
|
|
|
— |
|
|
|
1,280 |
|
GTX-101 |
|
|
88 |
|
|
|
148 |
|
|
|
(60 |
) |
|
|
2,331 |
|
|
|
148 |
|
|
|
2,183 |
|
Other third-party contract research expenses |
|
|
241 |
|
|
|
272 |
|
|
|
(31 |
) |
|
|
851 |
|
|
|
458 |
|
|
|
393 |
|
Professional fees |
|
|
677 |
|
|
|
51 |
|
|
|
626 |
|
|
|
1,210 |
|
|
|
94 |
|
|
|
1,116 |
|
Other research and development costs |
|
|
60 |
|
|
|
81 |
|
|
|
(21 |
) |
|
|
224 |
|
|
|
144 |
|
|
|
80 |
|
Government grants & tax credits |
|
|
(115 |
) |
|
|
(55 |
) |
|
|
(60 |
) |
|
|
(196 |
) |
|
|
(184 |
) |
|
|
(12 |
) |
Total third-party research and development expenses1 |
|
|
1,783 |
|
|
|
1,277 |
|
|
|
506 |
|
|
|
6,275 |
|
|
|
1,617 |
|
|
|
4,658 |
|
Salaries and benefits |
|
|
522 |
|
|
|
748 |
|
|
|
(226 |
) |
|
|
1,483 |
|
|
|
1,374 |
|
|
|
109 |
|
Stock-based compensation |
|
|
139 |
|
|
|
154 |
|
|
|
(15 |
) |
|
|
481 |
|
|
|
242 |
|
|
|
239 |
|
Depreciation and write off of equipment |
|
|
6 |
|
|
|
— |
|
|
|
6 |
|
|
|
93 |
|
|
|
— |
|
|
|
93 |
|
Total |
|
|
2,450 |
|
|
|
2,179 |
|
|
|
271 |
|
|
|
8,332 |
|
|
|
3,233 |
|
|
|
5,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Total third-party research and development expenses is calculated before salaries and benefits, depreciation, write-off of equipment and stock-based compensation. Because there is no standard method endorsed by GAAP, the results may not be comparable to similar measurements presented by other public companies.
Total third-party research and development expenses before salaries and benefits, depreciation, write off of equipment and stock-based compensation expenses for the three and nine months ended December 31, 2022, totaled $1,783 and $6,275, respectively compared to $1,277 and $1,617 for the three and nine months ended December 31, 2021. This increase of $506 and $4,658, respectively related mostly to the initiation of clinical development programs for GTX 104, GTX 102 and GTX 101 following the acquisition of Grace.
Third-party contract research expenses related to GTX-104 amounted to $136 and $575, for the three and nine months ended December 31, 2022, as our PK bridging study wound down. Third party contract research expenses related to GTX-102 amounted to $696 and $1,280 for the three and nine months ended December 31, 2022, and are mostly related to the initiation of the PK bridging study and for clinical trial materials. Third party contract research expenses related to GTX-101 amounted to $88 and $2,331, for the three and nine months ended December 31, 2022 were mostly related to the planning and initiation of the Phase 1 single dose study. Other third-party contract research expenses of $851 for the nine months ended December 31, 2022 increased by $393, from $851, for the nine months ended December 31, 2021, due to increased IP legal costs to support and maintain our patents that support GTX-104, GTX-102 and GTX-101. Professional fees of $677 and $1,210 for the three and nine months ended December 31, 2022, increased by $626 and $1,116, respectively, from $51 and $94 related to increased specialized clinical and regulatory consultants supporting our clinical programs for GTX-104, GTX-102 and GTX-101.
For the three and nine months ended December 31, 2022, total third-party research and development expenses were reduced by $115 and $196 respectively, related to government credit eligible research activities related to our clinical programs for GTX-104, GTX-102 and GTX-101.
Salaries and benefits of $522 for the three months ended December 31, 2022, decreased by $226 compared to $748 for the three months ended December 31, 2021. The decrease relates to a reduced accrual of our employee incentive bonus program. The salaries and benefits of $1,483 for the nine months ended December 31, 2022 increased by $109 from $1,374 for the nine months ended December 31, 2021. The increase for the nine month period related to additional R&D headcount required to support three clinical stage programs.
33
General and administrative expenses
General and administrative expenses consist primarily of salaries and related benefits, including share-based compensation, related to our executive, finance, legal, and support functions include professional fees for auditing, tax, consulting, rent and utilities and insurance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
Increase (Decrease) |
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
Increase (Decrease) |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Salaries and benefits |
|
|
490 |
|
|
|
612 |
|
|
|
(122 |
) |
|
|
1,494 |
|
|
|
1,215 |
|
|
|
279 |
|
Professional fees |
|
|
406 |
|
|
|
512 |
|
|
|
(106 |
) |
|
|
1,443 |
|
|
|
4,656 |
|
|
|
(3,213 |
) |
Other |
|
|
393 |
|
|
|
403 |
|
|
|
(10 |
) |
|
|
1,266 |
|
|
|
1,110 |
|
|
|
156 |
|
General and administrative expense before stock-based compensation and depreciation 1 |
|
|
1,289 |
|
|
|
1,527 |
|
|
|
(238 |
) |
|
|
4,203 |
|
|
|
6,981 |
|
|
|
(2,778 |
) |
Stock-based compensation |
|
|
280 |
|
|
|
281 |
|
|
|
(1 |
) |
|
|
930 |
|
|
|
460 |
|
|
|
470 |
|
Depreciation |
|
|
20 |
|
|
|
— |
|
|
|
20 |
|
|
|
54 |
|
|
|
— |
|
|
|
54 |
|
Total |
|
|
1,589 |
|
|
|
1,808 |
|
|
|
(219 |
) |
|
|
5,187 |
|
|
|
7,441 |
|
|
|
(2,254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 General and administrative sub-total expenses is calculated before stock-based compensation and depreciation. Because there is no standard method endorsed by GAAP, the results may not be comparable to similar measurements presented by other public companies.
General and administrative expenses totaled $1,289 and $4,203 before stock-based compensation and depreciation expense for the three and nine months ended December 31, 2022, a decrease of $238 and $2,778, respectively, from $1,527 and $6,981 for the three and nine months ended December 31, 2021. The decrease in both the three and nine months periods was primarily a result of decreased legal, tax, accounting and other professional fees related to the Grace merger. The decrease in professional fees was partially offset by an increase in salaries and benefits due to the renewed accrual for our employee incentive bonus program for the nine months ended December 31, 2022.
Sales and marketing
Sales and marketing expenses consist primarily of salaries and benefits, including share-based compensation, related to our commercial functions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
Increase (Decrease) |
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
Increase (Decrease) |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Salaries and benefits |
|
|
109 |
|
|
|
123 |
|
|
|
(14 |
) |
|
|
390 |
|
|
|
148 |
|
|
|
242 |
|
Professional fees |
|
|
1 |
|
|
|
18 |
|
|
|
(17 |
) |
|
|
10 |
|
|
|
18 |
|
|
|
(8 |
) |
Other |
|
|
72 |
|
|
|
78 |
|
|
|
(6 |
) |
|
|
85 |
|
|
|
78 |
|
|
|
7 |
|
Sub-total |
|
|
182 |
|
|
|
219 |
|
|
|
(37 |
) |
|
|
485 |
|
|
|
244 |
|
|
|
241 |
|
Stock-based compensation |
|
|
24 |
|
|
|
19 |
|
|
|
5 |
|
|
|
78 |
|
|
|
19 |
|
|
|
59 |
|
Total |
|
|
206 |
|
|
|
238 |
|
|
|
(32 |
) |
|
|
563 |
|
|
|
263 |
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Sales and marketing sub-total expenses is calculated before stock-based compensation. Because there is no standard method endorsed by GAAP, the results may not be comparable to similar measurements presented by other public companies.
Sales and marketing expenses before stock-based compensation expense totaled $485 for the nine months ended December 31, 2022 compared to $244 for the nine months ended December 31, 2021. The increase of $241, was mostly due to an increase in salaries associated with added personnel.
Aggregate stock-based compensation expense increased by $769 to $1,489 for the nine months ended December 31, 2022 as compared to $721 for the nine months ended December 31, 2021. This increase was due to the timing of the stock options granted during the year ended March 31, 2022, and year ended March 31, 2021, as well as the new grants in the current fiscal period.
Aggregate depreciation expense increased by $116 for the nine months ended December 31, 2022, from nil for the nine months ended December 31, 2021. This increase is due to the impact of certain equipment being reclassified from held for sale to held for use during the nine months ended December 31, 2022, resulting in additional depreciation being recognized.
34
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, and warrants, were as follows for the periods indicated (after giving effect to our 8:1 share consolidation, which became effective on August 31, 2021):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
March 31, 2022 |
|
|
|
Number outstanding |
|
|
Number outstanding |
|
Class A shares, voting, participating and without par value |
|
|
44,612,831 |
|
|
|
44,288,183 |
|
Stock options granted and outstanding |
|
|
4,445,844 |
|
|
|
2,989,381 |
|
May 2018 Canadian public offering of warrants exercisable at CAD$10.48 until May 9, 2023 |
|
|
824,218 |
|
|
|
824,218 |
|
December 2017 U.S. public offering of warrants exercisable at US$10.08 expired December 19, 2022 |
|
|
— |
|
|
|
884,120 |
|
December 2017 U.S. public offering broker warrants exercisable at US$10.10 expired December 27, 2022 |
|
|
— |
|
|
|
32,390 |
|
|
|
|
|
|
|
|
Total fully diluted shares |
|
|
49,882,893 |
|
|
|
49,018,292 |
|
Cash flows and financial condition for the nine months ended December 31, 2022 and 2021
Summary
As at December 31, 2022, cash and cash equivalents totaled $26,241, a decrease of $4,098 compared to cash and cash equivalents totaling $30,339 at March 31, 2022.
Net cash used in operation activities
Net cash used in operating activities for the nine months ended December 31, 2022 was $12,587, compared to $14,089 for the same period in 2021, a decrease of $1,502. Cash used in operating activities during 2022 primarily related to our net loss of $13,342, adjusted for non-cash items such as stock-based compensation of $1,489, income tax recovery of $671 and changes in our operating assets and liabilities of $172. Cash used in operating activities during 2021 primarily related to our net loss of $5,915, adjusted for non-cash items such as change in fair value of warrant liabilities of $4,908, unrealized foreign exchange gain of $418 and changes in our operating assets and liabilities of $3,818.
Net cash used in investing activities
For the nine months ended December 31, 2022, our investing activities generated cash of $8,161 compared to cash used of $3,533 for the nine months ended December 31, 2021. The increase in cash generated was a function of an increase in proceeds from maturity of short-term investments.
Net cash used in financing activities
Net cash provided by financing activities for the nine months ended December 31, 2022, totaled $304 compared to cash generated of nil during the nine months ended December 31, 2021 due to proceeds from the sale of common shares under our ATM program.
ATM program
On June 29, 2020, we 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”). Under the terms of the Sales Agreement, which has a three-year term, we may issue and sell from time-to-time common shares having an aggregate offering price of up to $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 common shares from time to time, based upon our instructions. We have no obligation to sell any of the common shares and may at any time suspend sales under the Sales Agreement. We and the Agents may terminate the Sales Agreement in accordance with its terms. Under the terms of the Sales Agreement, we have 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 common shares.
On November 10, 2021, we filed a prospectus supplement relating to our ATM program to restore available capacity to $75,000,000, with B. Riley, Oppenheimer & Co. Inc. and H.C. Wainwright & Co., LLC continuing to act as Agents. Under the terms of the Sales Agreement and the prospectus supplement, we may issue and sell from time-to-time common shares having an aggregate offering price of up to $75,000,000 through the Agents. The common shares will be distributed 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 volume and timing of sales under the ATM program, if any, will be determined at the sole discretion of our board of directors and management.
During the nine months ended December 31, 2022, 324,648 common shares were sold under the ATM Program for total gross proceeds of approximately $314. The common shares were sold at the prevailing market prices, which resulted in an average price of approximately $0.95 per share.
35
Financial position
The following table details the significant changes to the statements of financial position as at December 31, 2022, compared to the prior fiscal year end at March 31, 2022:
|
|
|
|
|
|
|
Accounts |
|
Increase (Decrease) $ |
|
|
Comments |
Cash and cash equivalents |
|
|
(4,098 |
) |
|
See cash flow statement |
Investments |
|
|
(8,307 |
) |
|
Maturity of investments |
Receivables |
|
|
230 |
|
|
Timing of reimbursement of sales taxes |
Prepaid expenses |
|
|
322 |
|
|
Renewal of insurance contract and other prepaid expenses (advances to US vendors) |
Right of use asset |
|
|
172 |
|
|
Adjustment to the net present value of lease contract for Sherbrooke |
Equipment |
|
|
(138 |
) |
|
Depreciation of equipment put back in use |
Trade and other payables |
|
|
204 |
|
|
Timing of payments net of accruals |
Lease liability |
|
|
208 |
|
|
Future obligations offset by payment of lease liability |
Derivative warrant liabilities |
|
|
(10 |
) |
|
Change in fair value of derivative warrants |
Deferred tax liability |
|
|
(671 |
) |
|
Related to acquisition of Grace |
See the statement of changes in equity in our financial statements for details of changes to the equity accounts during the three and nine months ended December 31, 2022 and 2021.
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 securities 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 CAD 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 appropriate to fulfill operational requirements and funding.
Intangible Assets
On August 27, 2021, we completed the Grace merger.
In connection with the share-for-share noncash transaction, Grace was merged with a new wholly owned subsidiary of Acasti and became a subsidiary of Acasti. As a result, we acquired Grace’s entire therapeutic pipeline consisting of three unique clinical stage and multiple pre-clinical stage assets supported by an intellectual property portfolio consisting of various granted and pending patents in various jurisdictions worldwide. Under the terms of the acquisition, each issued and outstanding share of Grace common stock was automatically converted into the right to receive Acasti common shares equal to the equity exchange ratio set forth in the merger agreement.
Intangible assets of $69,810 relate to the value of IPR&D, related to Grace’s therapeutic pipeline, consisting of three unique clinical stage programs/assets supported by intellectual property, the value of which has been attributed as follows:
|
|
|
|
|
|
|
$ |
|
Intangible assets – in-process research and development |
|
|
|
GTX-104 |
|
|
27,595 |
|
GTX-102 |
|
|
31,908 |
|
GTX-101 |
|
|
10,307 |
|
Total |
|
|
69,810 |
|
Assets Held for Sale
We determined to actively market for sale Other assets and Production equipment and have met the criteria for classification of assets held for sale:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
March 31, 2022 |
|
|
|
|
|
|
Reclassed as explained below |
|
|
|
$ |
|
|
$ |
|
Other assets (a) |
|
|
195 |
|
|
|
195 |
|
Production equipment (b) |
|
|
157 |
|
|
|
157 |
|
|
|
|
352 |
|
|
|
352 |
|
Other assets
Other assets represent krill oil (“RKO”) held by us that was expected to be used in commercial inventory scale up related to the development and commercialization of our CaPre former drug candidate. Given that the development of CaPre will no longer be pursued by us, we expect to sell this reserve. The Other assets is being recorded at the fair value less cost to sell. Management’s estimate of the fair value of the RKO less cost to sell was based primarily on estimated market prices obtained from an appraiser specializing in the krill oil market. These projections are based on Level 3 inputs of the fair value hierarchy and reflect management’s best estimate of market participants’ pricing of the assets as well as the general condition of the asset.
36
Production equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
Cost, net of impairment |
|
|
Accumulated depreciation |
|
|
Net book value |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
Production equipment |
|
|
1,179 |
|
|
|
(1,022 |
) |
|
|
157 |
|
|
|
|
1,179 |
|
|
|
(1,022 |
) |
|
|
157 |
|
The announcement of the discontinuation of the CaPre program resulted in an impairment trigger for the related laboratory and production equipment. The impairment loss is based on management’s estimate of the fair value of the equipment less cost to sell, which is based primarily on estimated market prices obtained from brokers specialized in selling used equipment. These projections are based on Level 3 inputs of the fair value hierarchy and reflect our best estimate of market participants’ pricing of the assets as well as the general condition of the assets.
During the nine months ended December 31, 2022, we reclassed the following assets from assets held for sale as they no longer met the criteria of such classification.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost, net of impairment |
|
|
Accumulated depreciation |
|
|
Net book value reclassed from held for sale |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
Furniture and office equipment |
|
|
17 |
|
|
|
(5 |
) |
|
|
12 |
|
Computer equipment |
|
|
94 |
|
|
|
(6 |
) |
|
|
88 |
|
Laboratory equipment |
|
|
585 |
|
|
|
(435 |
) |
|
|
150 |
|
|
|
|
696 |
|
|
|
(446 |
) |
|
|
250 |
|
In addition depreciation expense of $116 was recognized related to the period from the date that the assets were classified as held for sale until the end of the current period. The reclassification from held for sale to equipment was reflected on the comparative balance sheet.
Contractual Obligations and Commitments
Our contractual obligations and commitments include trade payables, operating lease obligations, CMO and CRO agreements, and the RKO supply agreement.
Research and development contracts and contract research organizations agreements:
We utilize contract manufacturing organizations, for the development and production of clinical materials and contract research organizations to perform services related to our clinical trials. Pursuant to the agreements with these contract manufacturing organizations and contract research organizations, we have either the right to terminate the agreements without penalties or under certain penalty conditions.
RKO supply agreement
On October 25, 2019, we signed a supply agreement with Aker Biomarine Antarctic. (“Aker”) to purchase raw krill oil product for a committed volume of commercial starting material for CaPre for a total fixed value of $3.1 million. As at December 31, 2022, the remaining balance of the commitment with Aker amounts to $2.8 million. During the second calendar quarter of 2022, Aker informed the Company that Aker believed it had satisfied the terms of the supply agreement as to their ability to deliver the remaining balance of krill oil product, and that the Company was therefore required to accept the remaining product commitment and to pay Aker the $2.8 million balance. We disagree with Aker’s position and believe that Aker is not entitled to further payment under the supply agreement. Accordingly, no liability has been recorded. The dispute was unresolved as of December 31, 2022 and remains unresolved. There is uncertainty as to whether the Company will be required to make further payment to Aker in connection with the dispute. Additionally, in the event the Company is required to accept delivery from Aker of the remaining balance of krill oil product under the supply agreement, there is uncertainty as to whether the Company can recover value from the product, which may result in the Company incurring a loss on the supply agreement in the near term.
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.
Use of Estimates and Measurement of Uncertainty
The preparation of our 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.
37
Estimates and assumptions include the measurement of derivative warrant liabilities, stock-based compensation, assets held for sale, valuation of intangibles acquired from Grace, goodwill and RKO supply agreement. Estimates and assumptions are also involved in measuring the accrual of services rendered with respect to research and development expenditures at each reporting date and determining which research and development expenses qualify for research and development tax credits and in what amounts. We recognize the tax credits once we have 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. Estimates and assumptions are also utilized in the assessment of impairment of deferred financing costs, equipment, and intangibles.
Critical Accounting Policies
Valuation of Intangible Assets and Goodwill
In a business combination, the fair value of IPR&D acquired is capitalized and accounted for as indefinite-lived intangible assets, and not amortized until the underlying project receives regulatory approval, at which point the intangible assets will be accounted for as definite-lived intangible assets or discontinued. If discontinued, the intangible assets will be written off. R&D costs incurred after the acquisition are expensed as incurred.
Our IPR&D and Goodwill was $82.8 million as of December 31, 2022, which represents 71% of total assets. Goodwill and indefinite-lived assets are not amortized but are subject to an impairment review annually and more frequently when indicators of impairment exist. An impairment of goodwill could occur if the carrying amount of a reporting unit exceeds the fair value of that reporting unit. An impairment of indefinite-lived intangible assets would occur if the fair value of the intangible asset is less than the carrying value.
The nature of the assumptions in the intangible asset's impairment tests are considered critical due to a high level of subjectivity and judgment necessary to account for highly uncertain matters, and the impact of the assumptions on our financial condition and our operating performance could be material.
We test goodwill for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount. If we conclude it is more likely than not that fair value of the reporting unit is less than its carrying amount, a quantitative impairment test is performed. We test indefinite lived intangible assets for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount. Events that could result in an impairment, or trigger an interim impairment assessment, include the decision to discontinue the development of a drug, the receipt of additional clinical or nonclinical data regarding our drug candidates or a potentially competitive drug candidates, changes in the clinical development program for a drug candidate, or new information regarding potential sales for the drug candidates and increases in our weighted average cost of capital.
If we conclude it is more likely than not that the fair value is less than its carrying amount, a quantitative impairment test is performed. We reviewed Goodwill and our IPR&D assets for impairment on the anniversary of acquisition of August 27, 2022. Our annual test date of intangibles and Goodwill is the fourth quarter. We performed a quantitative assessment of our three individual projects. The estimated fair values of identifiable intangible assets were determined using the multi-period excess earnings method, which is a valuation methodology that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. The projected discounted cash flow models used to estimate the fair value of assets of our IPR&D reflect significant assumptions and are Level 3 unobservable data regarding the estimates a market participant would make in order to evaluate a drug development asset, including the following:
•Probability of clinical success of research and development and obtaining regulatory approval. This estimate was based on various publicly available studies conducted by third parties;
•Forecasted net sales from up-front and milestone payments, royalties and product sales. Comparable market transactions were used to estimate milestone and royalty revenues. The addressable market and patient acquisition rates were estimated based on studies we commissioned a third party to conduct. The estimated sales prices of our technologies are based on competitors with similar drug products. We have made estimates related to deductions expected to be provided based on conventional commercial models to access the market; and
•A discount rate reflecting our weighted average cost of capital and specific risk inherent in the underlying assets.
The projected discounted cash flow model used to estimate the fair value of our reporting unit and intangible assets as of August 27, 2022 includes a significant assumption related to each project's probability of clinical success, which is reflected in the cash flows. Based on our fair value assessment, an impairment loss of the intangibles would result if the probability of success assumptions decreased more than approximately 4.3%, 1.4% and 8.5%, respectively for GTX-101, GTX-102 and GTX-104, for each year, all other assumptions remaining constant.
The projected discounted cash flow model used to estimate the fair value of our reporting unit and the intangibles as of August 27, 2022 includes a significant assumption related to each project's projected net sales levels, which is reflected in the cash flows. Based on our fair value assessment, an impairment loss would result if the net sales assumptions decreased more than approximately 15%, 2% and 10%, respectively for GTX-101, GTX, 102 and GTX-104 for each year, all other assumptions remaining constant. We believe that the net sales assumptions developed were applied with a conservative framework such as the exclusion of addressable markets outside the United States, which markets we expect to provide revenue upside if and when GTX-101, GTX-102 and GTX-104 are approved by the FDA.
The following table depicts as at the impairment assessment date of August 27, 2022, the discount rate used in the fair value model and the discount rate in which an impairment loss would occur.
|
|
|
|
|
Discount assumption |
|
GTX 101 |
GTX 104 |
GTX 102 |
|
|
|
|
|
Discount rate used in fair value model |
|
22.8% |
24.8% |
21.5% |
Discount rate that results in an impairment |
|
> 24% |
> 26.6% |
> 21.7% |
38
The valuation of our IPR&D has significant measurement uncertainty given the risks and uncertainties associated with the timely and successful completion of the development and commercialization of drug candidates. We engaged a third party valuation firm to assist us with the valuation of the IPR&D and goodwill. Assumptions are difficult to make accurately and were mainly derived from life science studies, industry data, and peer company information that our management believes represent appropriate comparable data. Estimates of value are required to be discounted to account for risks related to the inherent uncertainties of the overall development and commercialization processes.
The summation of our Goodwill and IPR&D fair values, as indicated by our discounted cash flow calculations, were compared to our consolidated fair value, as indicated by our market capitalization, to evaluate the reasonableness of our calculations. Our determination of a reasonable control premium that an investor would pay, over and above market capitalization for a control position, included a number of factors:
•Market control premium; The identification of recent public market information of comparable peer acquisition transactions. The selection of comparable peer acquisition transactions is subject to judgment and uncertainty.
•Impact of low public float and limited trading activity on market capitalization: A significant portion of our common shares are owned by a concentrated number of investors. The public float of our common shares, calculated as the percentage of common shares freely traded by public investors divided by our total shares outstanding, is significantly lower than that of our publicly traded peers. Based on our evaluation of third-party market data, we believe there is an inherent discount impacting our share price due to the low public float and limited trading volume, thus impacting our market capitalization.
Given the limited amount by which the IPR&D fair value exceeds the carrying value, the impairment assessment is sensitive to changes in forecasted cash flows, our selected discount rates as well as the implied control premiums. Management has identified that a reasonably possible change in these assumptions could cause the carrying value to exceed fair value. Changes to our assumptions, in particular changes in technological feasibility or changes in the regulatory approval process could materially affect the estimation of the fair value and could result in impairment charges in future quarters.
The result of our quantitative assessment as of August 27, 2022 indicated that there is no impairment. We determined there was no triggering event in the third quarter that would have required us to perform a quantitative impairment test.
Measurement of Assets Held for Sale and RKO Supply Agreement
Assets that are classified as held for sale are measured at the lower of their carrying amount or fair value less expected selling costs (“estimated selling price”) with a loss recognized to the extent that the carrying amount exceeds the estimated selling price. The classification is applicable at the date upon which the sale of assets is probable, and the assets are available for immediate sale in their present condition. Assets, once classified as held for sale, are not subject to depreciation or amortization and both the assets and any liabilities directly associated with the assets held for sale are classified as current in our consolidated balance sheets. Subsequent changes to the estimated selling price of assets held for sale are recorded as gains or losses to the consolidated statements of income wherein the recognition of subsequent gains is limited to the cumulative loss previously recognized.
In addition, there is judgement and potential for loss regarding the recognition and measurement of our RKO supply agreement with Aker to purchase raw krill oil product for a committed volume of commercial starting material for CaPre for a total fixed value of $3.1 million, which is described in more detail in note 12 of our financial statements found elsewhere in this quarterly report.
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 short term investments, which we manage by dealing only with highly rated 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 our functional currency. On April 1, 2022, our functional currency was changed from the Canadian dollar to the US dollar. This change is reflected prospectively in our financial statements.
Fluctuations related to foreign exchange rates could cause unforeseen fluctuations in our operating results.
Since April 1, 2022, a portion of our expenses, mainly related to research contracts is incurred in Canadian dollars and in Euros, for which no financial hedging is in place.
There is a financial risk related to the fluctuation in the value of the Canadian dollar and the Euro in relation to the U.S. dollar. In order to minimize the financial risk related to the fluctuation in the value of the Canadian dollar in relation to the U.S. dollar, certain funds continue to be invested as cash and cash equivalents and short-term investments in the Canadian dollar.
The following table provides an indication of our significant foreign exchange currency exposures from functional currency at the following dates:
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
December 31, 2021 |
|
|
|
US $ |
|
Euro |
|
|
CAD $ |
|
Euro |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
1,372 |
|
|
— |
|
|
|
37,341 |
|
|
— |
|
Investments |
|
|
15 |
|
|
— |
|
|
|
15,055 |
|
|
— |
|
Trade and other payables |
|
|
(679 |
) |
|
(48 |
) |
|
|
(2,015 |
) |
|
— |
|
|
|
|
708 |
|
|
(48 |
) |
|
|
50,381 |
|
|
— |
|
The following exchange rates are those applicable to the following periods and dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
December 31, 2021 |
|
|
|
Average |
|
|
Reporting |
|
|
Average |
|
|
Reporting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ per CAD (2021 - CAD per US $) |
|
|
0.7368 |
|
|
|
0.7378 |
|
|
|
1.2493 |
|
|
|
1.2637 |
|
USD$ per Euro |
|
|
1.0310 |
|
|
|
1.0705 |
|
|
|
|
|
|
|
Based on our foreign currency exposures noted above, varying the above foreign exchange rates to reflect a 5% strengthening of the Canadian dollar and Euro would have an increase (decrease) in net loss as follows, assuming that all other variables remain constant:
|
|
|
|
|
|
|
December 31, 2022 |
|
|
|
$ |
|
|
|
|
|
Increase (decrease) in net loss |
|
|
24 |
|
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:
|
|
|
|
|
|
|
December 31, 2021 |
|
|
|
$ |
|
|
|
|
|
Increase (decrease) in net loss |
|
|
3,183 |
|
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 December 31, 2022 and 2021 was as follows:
|
|
|
Cash and cash equivalents |
|
Short-term fixed interest rate |
Investments |
|
Short-term fixed interest rate |
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.
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 and note 1, of our financial statements found elsewhere in this quarterly report.
We have incurred operating losses and negative cash flows from operations in each year since our inception. We expect to incur significant expenses and continued operating losses for the foreseeable future. We expect our expenses will increase substantially in connection with our ongoing activities, particularly as we advance clinical development for our first three drug candidates in our pipeline; continue to engage contract manufacturing organizations (“CMO's”) to manufacture our clinical study materials and to ultimately develop large-scale manufacturing capabilities in preparation for commercial launch; seek regulatory approval for our drug candidates; and add personnel to support our drug product development and future drug product launch and commercialization.
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, it will require additional financing, which we expect to be sourced from a combination of public or private equity or debt financing's or other non-dilutive sources, which may include fees, milestone payments and royalties from collaborations
40
with third parties. Arrangements with collaborators or others may require us to relinquish certain rights related to our technologies or drug product candidates. Adequate additional financing may not be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategy.
We expect to have sufficient cash resources to satisfy our objectives into the second quarter of calendar 2024, which is 13 to 16 months from the issuance date of the financial statements included elsewhere in this quarterly report. We require additional capital to fund our daily operating needs beyond that time. We plan to raise additional capital prior to that time in order to maintain adequate liquidity. Negative results from studies, if any, and depressed prices of our stock could impact our ability to raise additional financing. Raising additional equity capital is subject to market conditions not within our control. If we do not raise additional funds in this time period, we may not be able to realize our assets and discharge our liabilities in the normal course of business.
Future Accounting Changes
We have considered recent accounting pronouncements and concluded that they are either not applicable to our business or that the effect is not expected to be material to our consolidated financial statements as a result of future adoption.