UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
Or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 033-80623
Achieve Life Sciences, Inc.
(Exact name of the registrant as specified in its charter)
Delaware
95-4343413
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
22722 29th Drive SE, Suite 100, Bothell, WA 98021
1040 West Georgia Street, Suite 1030, Vancouver, B.C. V6E 4H1
(Address of principal executive offices, including zip code)
(604) 210-2217
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading
Symbol(s)
Name of Exchange on Which Registered
Common Stock, par value $0.001 per share
ACHV
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large
accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the
Sarbanes Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously
issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the
relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes ☐ No ☒
As of June 30, 2024, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was $144,081,005 computed with reference to the price at which the Common Stock
was last sold on June 28, 2024. As of March 11, 2025, 34,685,072 shares of the registrant’s Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement for its 2025 Annual Meeting of Stockholders (“Proxy Statement”), to be filed within 120 days of the Registrant’s fiscal year ended December 31, 2024, is
incorporated by reference into Part III of this Annual Report on Form 10-K.
Auditor Name: PricewaterhouseCoopers LLP
Auditor Location: Vancouver, Canada
Auditor Firm ID: 271
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Achieve Life Sciences, Inc.
Table of Contents
PART I
2
ITEM 1.
BUSINESS
5
ITEM 1A.
RISK FACTORS
20
ITEM 1B.
UNRESOLVED STAFF COMMENTS
52
ITEM 1C.
CYBERSECURITY
52
ITEM 2.
PROPERTIES
53
ITEM 3.
LEGAL PROCEEDINGS
53
ITEM 4.
MINE SAFETY DISCLOSURE
53
PART II
54
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
54
ITEM 6.
RESERVED
54
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
55
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
64
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
65
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
96
ITEM 9A.
CONTROLS AND PROCEDURES
96
ITEM 9B.
OTHER INFORMATION
96
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
96
PART III
97
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
97
ITEM 11.
EXECUTIVE COMPENSATION
97
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
97
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
97
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
97
PART IV
98
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
98
ITEM 16.
FORM 10-K SUMMARY
103
SIGNATURES
103
PART I
References in this Form 10-K to “Achieve Life Sciences,” “Achieve,” the “Company,” “we,” “us” or “our” refer to Achieve Life Sciences, Inc. and its wholly owned
subsidiaries. The information in this Annual Report on Form 10-K contains certain forward-looking statements, including statements related to clinical trials, regulatory
approvals, markets for our products, new product development, capital requirements and trends in our business that involve risks and uncertainties. Our actual results may
differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed in “Business,” “Risk
Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as those discussed elsewhere in this Annual Report on Form
10-K.
Forward-Looking Statements
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve a number of risks and uncertainties. We caution readers that any forward-looking statement is not a guarantee of future performance and that actual results
could differ materially from those contained in the forward-looking statement. These statements are based on current expectations of future events. Such statements include, but
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are not limited to, statements about future financial and operating results, plans, objectives, expectations and intentions, costs and expenses, interest rates, outcome of
contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management and other statements that are not historical facts.
You can find many of these statements by looking for words like “believes,” “expects,” “anticipates,” “estimates,” “may,” “should,” “will,” “could,” “plan,” “intend” or similar
expressions in this Annual Report on Form 10-K or in documents incorporated by reference into this Annual Report on Form 10-K. We intend that such forward-looking
statements be subject to the safe harbors created thereby. Examples of these forward-looking statements include, but are not limited to:
•
progress and preliminary and future results of any clinical trials;
•
anticipated regulatory filings and U.S. Food and Drug Administration, or FDA, responses, recommendations, requirements or additional future clinical trials;
•
our ability to raise additional capital as needed to fund our planned development and commercialization efforts and repay our existing debt;
•
the potential benefits and differentiated profile, FDA approval, commercialization and commercial market for cytisinicline;
•
the performance of, and our ability to obtain sufficient supply of cytisinicline in a timely manner from, third-party suppliers and manufacturers;
•
timing and plans for the expansion of our focus to develop cytisinicline for other forms of nicotine dependence;
•
timing and amount of future contractual payments, product revenue and operating expenses;
•
market acceptance of our products and the estimated potential size of these markets; and
•
our expectations regarding the impact of the macroeconomic and geopolitical environment, including fluctuating inflation, interest and tariff rates, increased
volatility in the debt and equity markets, instability in the global banking system, global health crises and pandemics and geopolitical conflict, and their potentially
material adverse impact on our business and the execution of our preclinical studies and clinical trials.
These forward-looking statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. If underlying
assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections. Factors that might
cause such a difference include those discussed in Item 1A “Risk Factors,” as well as those discussed elsewhere in the Annual Report on Form 10-K.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K or, in the case of
documents referred to or incorporated by reference, the date of those documents.
All subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or
circumstances after the date of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated events, except as may be required under applicable U.S. securities
law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking
statements.
Summary of Risk Factors
An investment in our common stock involves various risks, and prospective investors are urged to carefully consider the matters discussed in the section titled “Risk Factors”
prior to making an investment in our common stock. These risks include, but are not limited to, the following:
•
Substantial doubt exists as to our ability to continue as a going concern. Our ability to continue as a going concern is subject to material uncertainty and
dependent on our success at raising additional capital sufficient to meet our obligations on a timely basis. If we fail to obtain additional financing when needed,
we may be unable to complete the development, regulatory approval and commercialization of our product candidate.
•
We have incurred substantial debt, which could impair our flexibility and access to capital and adversely affect our financial position, and our business would
be materially adversely affected if we are unable to service our debt obligations.
4
•
Cytisinicline is currently our sole product candidate and there is no guarantee that we will be able to successfully develop and commercialize cytisinicline.
•
The development and commercialization of our product candidate is dependent upon securing sufficient quantities of cytisinicline from trees and other plants,
which grow outside of the United States in a limited number of locations.
•
We currently exclusively rely on Sopharma AD, or Sopharma, to manufacture cytisinicline for use in clinical trials. We plan to engage other third parties for our
manufacturing processes, including to manufacture future supply of cytisinicline on a commercial scale, if approved. Our commercialization of cytisinicline
could be stopped, delayed or made less profitable if Sopharma fails to obtain approval of government regulators, fails to provide us with sufficient quantities of
product or fails to do so at acceptable quality levels or prices.
•
We plan to submit a New Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA, for the marketing approval of cytisinicline as a drug
therapy in treating nicotine dependence for smoking cessation, based largely on data from our completed Phase 3 ORCA-2 and ORCA-3 clinical trials and the
ongoing ORCA-OL trial; however, there can be no assurance that the data from our clinical trials will ultimately support an NDA filing or that the FDA will
grant marketing approval of cytisinicline without additional clinical or nonclinical studies, or at all.
•
If we do not obtain the necessary regulatory approvals in the United States and/or other countries, we will not be able to sell cytisinicline.
•
Cytisinicline may cause undesirable side effects or have other properties that could delay or prevent regulatory approval, limit the commercial viability of an
approved label, or result in significant negative consequences following marketing approval, if any.
•
It is difficult to evaluate our current business, predict our prospects and forecast our financial performance and growth.
•
We face substantial competition, and our competitors may discover, develop or commercialize products faster or more successfully than us.
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ITEM 1. BUSINESS
OVERVIEW OF OUR BUSINESS AND RECENT DEVELOPMENTS
We are a late-stage clinical specialty pharmaceutical company with a sole mission to address the global nicotine dependence epidemic in combustible cigarette and e-cigarette
usage through the development and commercialization of cytisinicline. There are an estimated 29 million adults in the United States alone who smoke combustible cigarettes
and an estimated 11 million adults in the United States who utilize e-cigarettes. Tobacco use is currently the leading cause of preventable death and is responsible for more than
eight million deaths worldwide and nearly half a million deaths in the United States annually. More than 87% of lung cancer deaths, 61% of all pulmonary disease deaths, and
32% of all deaths from coronary heart disease are attributable to smoking and exposure to secondhand smoke.
While nicotine e-cigarettes are thought to be less harmful than combustible cigarettes, they remain highly addictive and can deliver harmful chemicals which can cause lung
injury or cardiovascular disease. In 2024, 1.6 million high school and middle school students reported using e-cigarettes. Research shows adolescents who have used e-
cigarettes are seven times more likely to become smokers one year later compared to those who have never used e-cigarettes. Recently, the U.S. Food and Drug Administration,
or FDA, granted Breakthrough Therapy Designation for cytisinicline for nicotine e-cigarette, or vaping, cessation. Breakthrough Therapy Designation is a process that
expedites the development and review of new drugs and biologics that are intended to treat serious or life-threatening conditions and have preliminary clinical evidence
indicating substantial improvement over existing therapies. Currently, there are no FDA approved drug therapies indicated specifically as an aid to nicotine e-cigarette
cessation. We believe cytisinicline represents a unique opportunity to significantly impact global health by addressing the considerable unmet need among millions of smokers
and e-cigarettes users.
We expect to file a New Drug Application, or NDA, with the FDA for treatment of nicotine dependence for smoking cessation at the end of the second quarter of 2025. If
approved, cytisinicline will become the first new prescription medicine in nearly two decades for smoking cessation. We believe cytisinicline is differentiated from existing
smoking cessation treatments given its combination of efficacy, well-tolerated safety profile, and a shorter therapy duration, as demonstrated in clinical trials. Dependent on
availability of funding, we intend to initiate Phase 3 clinical development of cytisinicline for nicotine dependence for e-cigarettes/vaping in the first half of 2026, which we
expect to complete approximately 12 months after initiation, and may explore additional indications for the treatment of nicotine dependence in the future.
Cytisinicline as our Product Candidate
Our product candidate, cytisinicline, is a naturally occurring, plant-based alkaloid. In 2018, the U.S. Adopted Names Council adopted cytisinicline as the non-proprietary, or
generic, name for the substance also known as cytisine.
Cytisinicline is structurally similar to nicotine and has a well-defined, dual-acting mechanism of action, being both a receptor agonist and antagonist. It is believed to work in
treating nicotine dependence for smoking and e-cigarette cessation by interacting with nicotine receptors in the brain by reducing the severity of withdrawal symptoms, and
reducing the reward and satisfaction associated with nicotine products. Cytisinicline is an investigational product candidate being developed for treatment of nicotine
dependence and has not been approved by the FDA for any indication in the United States.
Cytisinicline as a 25-day downward titration regimen is an established smoking cessation treatment that has been approved and marketed in Central and Eastern Europe by
Sopharma AD, or Sopharma, for over 20 years. It is estimated that over 20 million people have used Sopharma’s cytisinicline product to help treat nicotine dependence. We
have developed an improved dosage, formulation, and simpler treatment schedule. The administration of our cytisinicline has demonstrated robust efficacy with minimal levels
of adverse events in two randomized placebo-controlled Phase 3 studies. We have an exclusive license and a supply agreement with Sopharma for the development and
commercialization of cytisinicline outside of Sopharma’s territories, which are predominately located in Central and Eastern Europe.
Cytisinicline Mechanism of Action
Cytisinicline binds with high affinity to the alpha-4 beta-2, or α4β2, nicotinic acetylcholine receptors in the brain. The α4β2 nicotinic receptor is a well-understood target in
dependence. When nicotine binds to this receptor, it causes dopamine to be released in the mid-brain, reinforcing the dopamine reward system. This receptor has been
implicated in the development and maintenance of nicotine dependence. Cytisinicline is believed to act as a partial agonist/antagonist binding to α4β2 nicotinic receptors in the
brain and is thought to have two potential consequences in treating nicotine dependence. First, the partial agonism maintains some release of
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dopamine (albeit at a very reduced level than that stimulated by nicotine) and therefore reduces nicotine craving, and second, the partial antagonism prevents nicotine binding
so that nicotine no longer induces the same pleasure or reward stimulation.
Cytisinicline Opportunity
We have an exclusive license and supply agreement with Sopharma for the development and commercialization of cytisinicline outside of Sopharma’s territory, which consists
of certain countries in Central and Eastern Europe, Scandinavia, North Africa, the Middle East and Central Asia, as well as Vietnam.
We are developing cytisinicline as a drug therapy in treating nicotine dependence for smoking cessation and e-cigarette cessation which would address the limitations of both
prescription drugs and of Over-the-Counter, or OTC, products.
We believe that a substantial market exists in the United States, European Union, or EU, and the rest of the world for a new, safe and effective smoking cessation treatment. We
believe cytisinicline is differentiated from existing smoking cessation treatments given its combination of robust efficacy, minimal frequency of side effects and optional
shorter course of therapy, as shown in two randomized placebo-controlled Phase 3 studies. Our goal is to obtain approval from the FDA and from other regulatory agencies for
the sale and distribution of cytisinicline in the United States and subsequently to other countries outside of Sopharma’s territory.
OVERVIEW OF OUR REGULATORY PROGRESS AND CLINICAL PHASE 3 PROGRAM
Overview of Regulatory Progress
Smoking Cessation Indication
In June 2017, we filed an Investigational New Drug Application, or IND, with the FDA, for evaluation of cytisinicline as a treatment for smoking cessation. This IND included
required non-clinical toxicology studies that were sponsored by the National Center for Complementary and Integrative Health, or NCCIH, a division of the NIH and by the
National Cancer Institute, or NCI, to assist in our IND for investigating cytisinicline as a smoking cessation treatment.
In May 2018, we held an end of Phase 2 meeting with the FDA to review and receive guidance on our Phase 3 clinical program and overall development plans to support an
NDA for the 25-day downward titration cytisinicline regimen. The FDA recommended to consider evaluating higher dosing, a more simplified daily regimen, and possible
longer dosing in our development program. This FDA review also included our plans and their recommendations for non-clinical studies, standard drug-to-drug interaction and
reproductive/teratogenicity studies. Detailed plans for chronic toxicology, carcinogenicity studies, and additional clinical studies regarding a maximum tolerated dose, renal
impairment, QT interval prolongation, longer term exposure and adequate demonstration of safety and efficacy from planned randomized, placebo-controlled, Phase 3 clinical
trials were also discussed.
In December 2018, we announced that the FDA agreed with our Initial Pediatric Study Plan, specifically, providing a full waiver for evaluating cytisinicline in a pediatric
population. The reasons for the full waiver were based on the low numbers of children smoking under the age of 12 and the logistical difficulties of recruiting treatment-seeking
smokers in the adolescent age group. The agreed upon Initial Pediatric Study Plan is expected to be included as part of our future application for marketing approval of
cytisinicline.
In November 2019, we held a type C meeting with the FDA to review results from our Phase 2 ORCA-1 study and our revisions to the Phase 3 clinical program using a
simplified 3 mg tablet administered three times a day, or TID, dosing schedule. The FDA agreed that the 3 mg TID dosing schedule was acceptable for our Phase 3 clinical
program. In March 2019, we had also initiated our Phase 1 clinical study to assess for dose limiting adverse effects, or AEs, that would define the maximum tolerated dose, or
MTD, for a single administered oral dose of cytisinicline. Because dose limiting AEs for the MTD could not be reached per protocol definitions in the study, the results were
reviewed with the FDA at this November 2019 Type C meeting, with an agreement that further escalation beyond the single 30 mg dose was not required in the study.
Additional NCCIH and NCI sponsored non-clinical toxicology studies that evaluated reproductive toxicology and company sponsored non-clinical toxicology studies that
evaluated longer cytisinicline exposure beyond one month to at least three months for support in initiating our Phase 3 clinical program were submitted in 2020. This allowed
the initiation of our two Phase 3 clinical trials in the fourth quarter of 2020 and first quarter of 2022.
Additional plans for our Phase 1 studies regarding pharmacokinetics, or PK, assessments for subjects with renal impairment and evaluations for possible QT interval
prolongation, which were first discussed with the FDA as part of the end of Phase 2 meeting in 2018, were followed by more detailed review and agreement with the FDA
during 2022 and 2023. These studies have now been completed.
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During 2022 and 2023, we had several Type C and Type D meetings with the FDA regarding the adequacy of our completed nonclinical studies, overall clinical pharmacology
information, manufacturing product information, and our Integrated Safety Summary, or ISS, analysis plans for a future NDA submission.
In the fourth quarter of 2023, we initiated our pre-NDA discussions with the FDA regarding the adequacy of our efficacy and safety information for proceeding with an NDA
submission. The FDA expressed support for an NDA submission based on adequate data to assess for efficacy from our two completed randomized and controlled Phase 3
trials. In addition, the FDA advised that long-term exposure data to assess for safety beyond 12 weeks would be needed to adequately assess safety risks given that the FDA
views smoking cessation drugs as products for chronic, repeated, and intermittent use as patients may relapse and require subsequent courses of treatment over a lifetime. In the
first quarter of 2024, we reached agreement with the FDA that a single, open-label study evaluating the long-term safety effects of cytisinicline will be sufficient to complete
the requirement and enable an NDA submission anticipated at the end of the second quarter of 2025.
E-cigarette (vaping) Cessation Indication
In July 2021, we announced that we were awarded a grant from the National Institute on Drug Abuse, or NIDA, of the National Institutes of Health, or NIH, to evaluate the use
of cytisinicline as a treatment for cessation of nicotine e-cigarette use. This initial grant award was utilized to complete critical regulatory activities for the submission of a
second IND to the FDA for evaluation of cytisinicline as a treatment for nicotine e-cigarette cessation, or vaping cessation. In November 2021, we announced that the FDA had
completed their review and accepted this IND to investigate cytisinicline in this population.
In the third quarter of 2024, we received Breakthrough Therapy Designation from the FDA for cytisinicline for nicotine e-cigarette, or vaping, cessation. Breakthrough Therapy
Designation is designed to expedite the development and review of drugs that are intended to treat serious conditions when preliminary clinical evidence indicates that the drug
may demonstrate substantial improvement over available therapies. It provides product sponsors the ability to receive an FDA cross-disciplinary project management team for
interactive communications with senior managers and expert reviewers from FDA to expedite the development of a product.
In December 2024, we announced completing our end-of-Phase 2 meeting with the FDA to review and receive guidance on our proposed Phase 3 clinical program for a future
supplemental NDA submission, or sNDA. We obtained FDA agreement on a proposed single Phase 3 study design for cytisinicline treatment in vaping cessation and on the
additional requirements for submitting an sNDA, to expand cytisinicline for the treatment for vaping cessation. The FDA was in alignment on the proposed Phase 3 study
design, including the inclusion/exclusion criteria, primary and secondary efficacy objectives, definition of vaping abstinence with biochemical verification, and other overall
study assessments. The FDA agreed that one well-controlled Phase 3 trial, in addition to our completed Phase 2 ORCA-V1 trial and the safety exposure data from our ongoing
ORCA-OL trial, would be sufficient for a vaping cessation indication as an sNDA.
Non-Clinical Program Supportive of IND and Phase 3 Clinical Development
Non-clinical toxicology studies were sponsored by the NCCIH and by the NCI, to assist in our IND for investigating cytisinicline as a smoking cessation treatment. We filed
this IND for cytisinicline with the FDA in 2017, which included the NCCIH sponsored non-clinical studies. Additional NCCIH and NCI sponsored non-clinical toxicology
studies that evaluated reproductive toxicology were later submitted in support of our Phase 3 program.
In December 2017, we initiated a series of drug metabolism, drug-to-drug interaction, and transporter studies of cytisinicline and results from these studies were announced in
June 2018. These studies demonstrated that cytisinicline has no clinically significant interaction with any of the hepatic enzymes commonly responsible for drug metabolism
nor clinically significant interaction with drug transporters. This suggests that cytisinicline may be administered with other medications without the need to modify the dose of
any co-administered medications.
In addition, company sponsored non-clinical toxicology studies that evaluated longer cytisinicline exposure beyond one month to at least three months were submitted in 2020
prior to initiating our Phase 3 studies.
Non-clinical toxicology studies that are required for an NDA, including two longer-term chronic toxicology studies and two carcinogenicity studies, have been completed and
submitted to the FDA.
Ongoing Company-Sponsored Clinical Trial
Ongoing Open Label ORCA-OL Trial
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In May 2024 we initiated the ORCA-OL open label exposure trial. The trial is designed to provide long-term cytisinicline safety exposure data from subjects who currently
smoke or use nicotine e-cigarettes and will receive cytisinicline treatment for up to one year. Cumulative 6-month exposure data from this study is required for submission of
our cytisinicline NDA.
ORCA-OL is designed to evaluate the long-term exposure of 3 mg cytisinicline treatment dosed three times daily in U.S. adults who want to quit smoking or vaping. In October
2024, we announced that the trial completed enrollment of 479 subjects at 29 clinical trial sites across the United States. We enrolled subjects who had previously participated
in the ORCA-program studies. Participants were contacted to enroll in the ORCA-OL study if they were currently using either, or both, combustible cigarettes or nicotine
containing e-cigarettes (vaping). Subjects receive cytisinicline treatment and are monitored for safety events for up to one year. The primary endpoint is frequency of serious
adverse events, or SAEs. Other safety and efficacy outcomes will be collected.
Based on agreement with the FDA to follow ICH E1 guidance for longer-term safety exposure for pharmaceuticals, results of the ORCA-OL trial are expected to meet the FDA
requirement to provide safety data on a minimum of 300 subjects treated with cytisinicline for a cumulative period of six months as part of the anticipated NDA submission.
Subsequently, data on at least 100 subjects treated for a total cumulative period of one year will be provided prior to potential product approval. ORCA-OL is being conducted
at 29 clinical trial sites across the United States, all of which participated in previous ORCA-program clinical trials.
In January 2025, we announced that the ORCA-OL trial had reached the goal of at least 300 subjects completing six months of cumulative cytisinicline treatment. The safety
data from the 300 subjects treated with cytisinicline for a cumulative period of six months will be in included in our planned NDA submission at the end of the second quarter
of 2025.
CLINICAL DEVELOPMENT PROGRAM
Company-Sponsored Completed Phase 1 Trials
Food Effect Phase 1 Trials
In August 2017, we initiated our IND with a Phase 1 clinical study evaluating the effect of food on the bioavailability of cytisinicline in normal healthy volunteers. We
completed the food effect study and announced the results in November of 2017 demonstrating similar bioavailability of cytisinicline in fed and fasted subjects.
In 2018, Sopharma commercially launched a newly formulated cytisinicline tablet with improved shelf life in their territories. In May 2018, we initiated a study to evaluate the
effect of food on the bioavailability of cytisinicline in volunteer smokers using this new formulation and data results were announced in September 2018. The study
demonstrated similar bioavailability of cytisinicline in fed and fasted subjects. Cytisinicline was extensively absorbed after oral administration with maximum cytisinicline
concentration levels observed in the blood within less than two hours with or without food. Total excretion levels of cytisinicline also remained equivalent in both the fed and
fasted states.
In 2023, we evaluated our planned commercial 3 mg formulated cytisinicline tablet in a 2-part Phase 1 clinical study with the first part evaluating the effect of food on the
bioavailability of the 3 mg tablet in volunteer smokers. The study demonstrated similar bioavailability of cytisinicline in fed and fasted subjects and total excretion levels of
cytisinicline also remained equivalent in both the fed and fasted states.
In all Phase 1 Food Effect studies, cytisinicline was well tolerated.
Other Phase 1 Safety Trials
In October 2017, we initiated a clinical study assessing the repeat-dose PK and pharmacodynamics, or PD, effects of 1.5 mg and 3 mg cytisinicline in 26 healthy volunteer
smokers when administered over the 25-day downward titration regimen as marketed by Sopharma in their territories. Final results were presented at the Annual Meeting of the
Society for Research on Nicotine and Tobacco, or SRNT, in February 2019. All 26 subjects completed the study. Predictable increases in plasma cytisinicline concentrations
were observed with increasing unit dosing from 1.5 mg to 3 mg. Smokers in the study were not required to have a designated or predetermined quit date. Overall, subjects had
an 80% reduction in cigarettes smoked, 82% reduction in expired CO, and 46% of the subjects achieved biochemically verified smoking abstinence by day 26. Subjects who
received 3 mg cytisinicline over the 25 days had a trend for higher smoking abstinence compared to subjects who received 1.5 mg cytisinicline. The AEs observed were mostly
mild with transient headaches as the most commonly reported event. No serious adverse effects, or SAEs, were observed in the study.
In March 2019, we initiated a clinical trial to evaluate the dose limiting AEs that would define the maximum tolerated dose, or MTD, for a single administered oral dose of
cytisinicline. This study evaluated smokers who received one single dose of cytisinicline. The
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starting dosage of cytisinicline was 6 mg and was to be increased in separate groups of subjects for each escalated dose level until defined stopping criteria (based on the
occurrence of dose-limiting AEs) were reached. A safety review after each dose level was performed by an independent Data Safety Monitor Committee, or DSMC, before
escalation to the next dose level. Six dose levels were pre-planned with 21 mg cytisinicline as the highest dose level. When the MTD was not reached at 21 mg, the study was
amended to evaluate doses up to 30 mg, as recommended by the DSMC. At this 30 mg dose, the stopping criteria of dose-limiting AEs were still not met, but the DSMC
recommended stopping the study since the frequency of gastrointestinal symptoms were approaching an MTD level. The results were reviewed with the FDA, with an
agreement that further escalation beyond the single 30 mg dose was not required. This Phase-1 study fulfills an FDA requirement to evaluate potential safety issues in the event
patients exceed a recommended single dose outside of a clinical trial setting.
Three additional Phase 1 clinical studies were conducted in 2022 and 2023 for the NDA: one pharmacokinetics, or PK, study to evaluate for any increased cytisinicline blood
levels in subjects who have various levels of renal impairment; another PK study to determine various remaining PK parameters for the 3 mg TID cytisinicline regimen,
including the timing of steady state dosing; and a cardiac safety study to evaluate for any effects of cytisinicline on QT interval prolongation. All 3 studies have been
completed.
The renal impairment study demonstrated that cytisinicline is excreted unchanged in urine and the pharmacokinetics of cytisinicline are dependent on renal function.
Cytisinicline was generally observed to be well tolerated in subjects with varying degrees of renal impairment compared to subjects with normal renal function.
The PK study demonstrated that the 3mg cytisinicline TID dosing regimen reached steady state cytisinicline pharmacokinetics by the second day of TID administration.
The cardiac safety QT/QTc study evaluating therapeutic and supratherapeutic high doses of cytisinicline demonstrated that cytisinicline has no clinically relevant effect on QT
interval prolongation or cardiac repolarization.
Company-Sponsored Completed Phase 2 Trials
Phase 2b ORCA-1 Trial for Smoking Cessation
We conducted the Phase 2b ORCA-1 dose selection trial, which was initiated in October 2018 and evaluated 254 smokers in the United States. The trial evaluated both 1.5 mg
and 3 mg doses of cytisinicline on the standard declining titration schedule as well as a more simplified TID dosing schedule, both over 25 days. The trial was randomized and
blinded to compare the effectiveness of the cytisinicline doses and schedules to respective placebo groups. All subjects were treated for 25 days, provided behavioral support,
and followed up for an additional four weeks to assess smoking abstinence.
The primary endpoint in the study was the reduction in daily smoking, a self-reported measure. Three of the four cytisinicline treatment arms demonstrated a statistically
significant improvement, p<0.05, compared to placebo. The fourth arm trended to significance (p= 0.052). Across all treatment arms, over the 25-day treatment period, subjects
on cytisinicline experienced a 74-80% median reduction in the number of cigarettes smoked, compared to a 62% reduction in the placebo arms.
The secondary endpoint of the trial was a 4-week continuous abstinence rate, which is the more relevant endpoint for regulatory approval. All cytisinicline treatment arms
showed significant improvements in abstinence rates compared to the placebo arms. Notably, the 3 mg TID cytisinicline arm demonstrated a 50% abstinence rate at week 4,
compared to 10% for placebo (p<0.0001) and a continuous abstinence rate, weeks 5 through 8, of 30% for cytisinicline compared to 8% for placebo (p= 0.005). Smokers in the
3 mg TID arm had an Odds Ratio, or OR, of 5.04 (95% CI: 1.42, 22.32) for continuous abstinence from week 5 to week 8, compared with placebo, meaning, smokers receiving
3 mg cytisinicline TID were five times more likely to stop smoking compared to smokers receiving placebo.
At week 4, all four cytisinicline arms also demonstrated statistically significant (p<0.05) reductions in expired carbon monoxide, or CO, a biochemical measure of smoking
activity. Expired CO levels had declined by a median of 71-80% in the cytisinicline treatment arms, compared to only 38% in the placebo arms.
Cytisinicline was well-tolerated with no SAEs reported. The most commonly reported (>5%) adverse events, or AEs, across all cytisinicline treatment arms versus placebo
arms were abnormal dreams, insomnia, upper respiratory tract infections, and nausea. In the 3 mg TID treatment arm versus placebo arms, the most common AEs were
abnormal dreams, insomnia, and constipation (each 6% vs 2%), upper respiratory tract infections (6% vs 14%), and nausea (6% vs 10%), respectively. Compliance with study
treatment was greater than 94% across all arms.
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A summary of AEs reported in subjects in the ORCA-1 trial is included in the table below.
TID
Declining Titration
Pooled
1.5 mg
(n=52)
3.0 mg
(n=50)
1.5 mg
(n=51)
3.0 mg
(n=50)
Cytisinicline
(n=203)
Placebo
(n=51)
At least 1 AE
20 (39%)
21 (42%)
29 (57%)
23 (46%)
93 (46%)
24 (47%)
URTI
5 (10%)
3 (6%)
3 (6%)
2 (4%)
13 (6%)
7 (14%)
Abnormal dreams
4 (8%)
3 (6%)
4 (8%)
7 (14%)
18 (9%)
1 (2%)
Nausea
1 (2%)
3 (6%)
5 (10%)
3 (6%)
12 (6%)
5 (10%)
Insomnia
4 (8%)
3 (6%)
3 (6%)
4 (8%)
14 (7%)
1 (2%)
Headache
6 (12%)
2 (4%)
1 (2%)
1 (2%)
10 (5%)
2 (4%)
Fatigue
3 (6%)
1 (2%)
1 (2%)
2 (4%)
7 (3%)
2 (4%)
Constipation
1 (2%)
3 (6%)
0 (0%)
0 (0%)
4 (2%)
1 (2%)
The outcome of the ORCA-1 trial was the selection of 3 mg TID for Phase 3 development. Overall, the 3 mg dose administered TID demonstrated the best overall safety and
efficacy when compared to other doses and administrations studies in ORCA-1. The results from ORCA-1 study were published in the journal Nicotine and Tobacco Research
in 2021.
Phase 2 ORCA-V1 Trial for E-cigarette (Vaping) Cessation
In June 2022, following NIDA/NIH review of completed regulatory and clinical operational milestones plus acceptance of the IND by the FDA, we announced that we were
awarded the next grant funding from NIDA in the amount of approximately $2.5 million. The full grant award of $2.8 million covered approximately half of the total ORCA-
V1 clinical study costs. The Primary Investigators for the grant were Dr. Cindy Jacobs, our President and Chief Medical Officer, and Dr. Nancy Rigotti, Professor of Medicine
at Harvard Medical School and Director, Tobacco Research and Treatment Center, Massachusetts General Hospital.
In June 2022, we announced the initiation of the Phase 2 ORCA-V1 clinical trial. In April 2023, we reported positive topline results showing a statistically significant vaping
cessation benefit for cytisinicline-treated participants in the ORCA-V1 trial.
ORCA-V1 evaluated 160 adults who used e-cigarettes on a daily basis at five clinical trial locations in the United States. ORCA-V1 participants were randomized to receive 3
mg cytisinicline three times daily or placebo for 12 weeks in combination with standard cessation behavioral support.
The primary endpoint for ORCA-V1 was biochemically verified continuous abstinence from nicotine e-cigarette use, measured during the last 4 weeks of treatment. Subjects
who received 12 weeks of cytisinicline treatment had 2.64 times higher odds, or likelihood, to have quit vaping during the last four weeks of treatment compared to subjects
who received placebo (p=0.04). The vaping cessation rate during weeks 9 through 12 was 31.8% for cytisinicline compared to 15.1% for placebo. A benefit in favor of
cytisinicline was consistently observed across the secondary endpoints. Additionally, a cessation benefit was observed for cytisinicline across clinical trial sites and participant
demographics such as age, gender, race, or whether they had smoked cigarettes in the past.
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Cytisinicline was well tolerated and no SAEs were reported. Similar rates of AEs were observed between treatment arms (54.7% in the placebo arm vs. 50.9% in the
cytisinicline arm). The most commonly reported (>5%) AEs in the placebo arm, in order of frequency, were nausea, COVID-19 infection, headache, anxiety, and upper
respiratory tract infection. In the cytisinicline arm, >5% AEs reported, in order of frequency, were sleep disturbances, anxiety, headache, fatigue, and upper respiratory tract
infection.
ORCA-V1 trial results were presented at the Society for Research on Nicotine and Tobacco, or SRNT, European Annual Meeting in September 2023, the SRNT U.S. Annual
Meeting in March 2024, the Society of General Internal Medicine U.S. Annual Meeting in May 2024 and final study results were published in the Journal of the American
Medical Association, or JAMA, Internal Medicine in May 2024.
Company-Sponsored Phase 3 Clinical Trials for Smoking Cessation Indication
Completed Phase 3 ORCA-2 Trial
In April 2022, we announced positive topline results for the Phase 3 ORCA-2 clinical trial. ORCA-2 was initiated in October 2020 and evaluated the efficacy and safety of 3
mg cytisinicline dosed three times daily compared to placebo in 810 adult smokers at 17 clinical sites in the United States. ORCA-2 participants were randomized to one of
three study arms to determine the smoking cessation efficacy and safety profile of cytisinicline when administered for either 6 or 12 weeks, compared to placebo. All subjects
received standard behavioral support and were assigned to one of the following groups:
•
Arm A: 12 weeks of placebo
•
Arm B: 6 weeks of cytisinicline, followed by 6 weeks of placebo
•
Arm C: 12 weeks of cytisinicline
The ORCA-2 study had two independent primary endpoints that evaluated for successful smoking cessation for both 6-week and 12-week durations of cytisinicline treatment,
compared to placebo. The primary endpoints for ORCA-2 were biochemically verified continuous smoking cessation measured during the last 4 weeks of each treatment
duration. Both the 6- and 12-week cytisinicline treatments demonstrated significantly better quit rates than placebo with ORs of 8.0 and 6.3, respectively.
•
Subjects who received 12 weeks of cytisinicline treatment had 6.3 times higher odds, or likelihood, to have quit smoking during the last 4 weeks of treatment
compared to subjects who received placebo (p<0.0001). The abstinence rate during weeks 9-12 was 32.6% for cytisinicline compared to 7.0% for placebo.
•
Subjects who received 6 weeks of cytisinicline treatment had 8.0 times higher odds, or likelihood, to have quit smoking during the last 4 weeks of treatment
compared to subjects who received placebo (p<0.0001). The abstinence rate during weeks 3-6 was 25.3% for cytisinicline compared to 4.4% for placebo.
The secondary endpoints measured continuous smoking abstinence after treatment out to 24 weeks. Both the 6- and 12-week secondary endpoints for continuous abstinence
demonstrated significantly better quit rates for cytisinicline treated subjects than placebo. The continuous abstinence rate from week 9 to 24 was 21.1% for the 12-week
cytisinicline arm compared to 4.8% for placebo, with an OR of 5.3 (p<0.0001). The continuous abstinence rate from week 3 to 24 was 8.9% for the 6-week cytisinicline arm
compared to 2.6% for placebo, with an OR of 3.7 (p=0.0016).
A third secondary endpoint compared the two cytisinicline treatment arms and evaluated for an increased risk in relapse from week 6 to week 24 when subjects were switched
to placebo during week 6 to week 12 (Arm B) instead of receiving cytisinicline for another 6 weeks during week 6 to week 12 (Arm C). The analysis showed that there was no
increased risk of smoking relapse in subjects who had successfully quit smoking by week 3 through week 6 if they received placebo instead of continuing cytisinicline from
week 6 to week 12.
Cytisinicline was well tolerated with no treatment-related SAEs reported. The most commonly reported AEs (occurring greater than 5% overall in the study) for placebo, 6-
week cytisinicline, and 12-week cytisinicline are shown in the following table:
Placebo
6-Weeks Cytisinicline
12-Weeks Cytisinicline
Insomnia
4.8%
8.6%
9.6%
12
Abnormal Dreams
3.0%
8.2%
7.8%
Headaches
8.1%
6.7%
7.8%
Nausea
7.4%
5.9%
5.6%
Additional analyses from the ORCA-2 trial were presented at the SRNT annual meeting in March 2023 and final study results were published in JAMA in July 2023.
Completed Phase 3 ORCA-3 Trial
In May 2023, we announced positive topline results for our Phase 3 ORCA-3 clinical trial. ORCA-3 was initiated in January 2022 and was a confirmatory Phase 3 trial required
for registrational approval of cytisinicline in the United States and had the same design as the Phase 3 ORCA-2 trial. This Phase 3 trial evaluated the efficacy and safety of 3 mg
cytisinicline dosed three times daily compared to placebo in 792 adult smokers at 20 clinical sites. ORCA-3 participants were randomized to one of three study arms to evaluate
cytisinicline administered for either 6 or 12 weeks, compared to placebo. All subjects received standard behavioral support and were assigned to one of the following groups:
•
Arm A: 12 weeks of placebo
•
Arm B: 6 weeks of cytisinicline, followed by 6 weeks of placebo
•
Arm C: 12 weeks of cytisinicline
The primary outcome measure of success in the ORCA-3 trial was biochemically verified continuous smoking cessation during the last four weeks of treatment in the 6 and 12-
week cytisinicline treatment arms compared with placebo. Each treatment arm was compared independently to the placebo arm. Secondary outcome measures were conducted
to assess continued smoking abstinence rates through six months from the start of study treatment.
Primary endpoint:
•
Subjects who received 12 weeks of cytisinicline treatment had 4.4 times higher odds, or likelihood, to have quit smoking during the last 4 weeks of treatment
compared to subjects who received placebo (p<0.0001). The smoking cessation rate during weeks 9 through 12 was 30.3% for cytisinicline compared to 9.4%
for placebo.
•
Subjects who received 6 weeks of cytisinicline treatment had 2.85 times higher odds, or likelihood, to have quit smoking during the last 4 weeks of treatment
compared to subjects who received placebo (p=0.0008). The smoking cessation rate during weeks 3 through 6 was 14.8% for cytisinicline compared to 6% for
placebo.
Secondary endpoint:
•
The continuous smoking cessation rate from week 9 to week 24 was 20.5% for the 12-week cytisinicline arm compared to 4.2% for placebo, with an odds ratio
of 5.79 (p<0.0001).
•
The continuous smoking cessation rate from week 3 to week 24 was 6.8% for the 6-week cytisinicline arm compared to 1.1% for placebo, with an odds ratio of
6.25 (p=0.0006).
The third secondary endpoint compared the two cytisinicline treatment arms for an increased risk in relapse from week 6 to week 24 when subjects were switched to placebo
during week 6 to week 12 (Arm B) instead of receiving cytisinicline for another 6 weeks during week 6 to week 12 (Arm C). The analysis showed that there was no increased
risk of smoking relapse in subjects who had successfully quit smoking by week 3 through week 6 and switched to placebo.
ORCA-3 subjects had an average age of 53 years, smoked a median of 20 cigarettes per day at baseline, and had a median smoking history of 36 years with 4 prior quit
attempts.
Similar to ORCA-2 findings, cytisinicline was well-tolerated with no treatment-related SAEs reported. The most commonly reported (>5% overall) AEs for placebo, 6-week
cytisinicline, and 12-week cytisinicline are shown in the following table:
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Placebo
6-Weeks Cytisinicline
12-Weeks Cytisinicline
Insomnia
7.6%
11.0%
11.9%
Abnormal Dreams
5.7%
9.1%
7.7%
Nausea
7.3%
9.5%
6.9%
Headaches
6.1%
7.6%
8.5%
OVERVIEW OF SMOKING CESSATION MARKET AND TREATMENT OPTIONS
Overview of the Tobacco Epidemic
Smoking remains the leading cause of preventable death worldwide and in the United States. The World Health Organization, or WHO, estimates that there are approximately
1.3 billion tobacco users globally and that tobacco kills more than 8 million people each year. More than 7 million of those deaths are the result of direct tobacco use, while
around 1.3 million are the result of non-smokers being exposed to second-hand smoke. In the United States alone, cigarette smoking is responsible for more than 480,000
deaths every year, or about one in five deaths.
The Centers for Disease Control and Prevention, or CDC, estimates that the annual cost of smoking related illnesses in the United States is more than $600 billion in direct
medical care and lost productivity. Over 16 million people in the United States are living with a disease caused by smoking. Among these diseases are cancer, heart disease,
stroke, lung diseases, diabetes and chronic obstructive pulmonary disease which includes emphysema and chronic bronchitis. Smoking also increases risk for tuberculosis,
certain eye diseases and problems of the immune system, including rheumatoid arthritis. More than 87% of lung cancer deaths, 61% of all pulmonary disease deaths, and 32%
of all deaths from coronary heart disease are attributable to smoking and exposure to secondhand smoke according to the CDC. Tobacco smoking is highly addictive, and
research suggests that nicotine may be as addictive as heroin, cocaine and alcohol. The CDC estimates that more people in the United States are addicted to nicotine than any
other drug and reports that, historically, nearly 70% of smokers desired to quit and 55% made an attempt to do so in the prior year. Despite the high number of attempts, fewer
than one in ten people are successful in their attempt to quit each year. Additionally, up to 60% of people who quit smoking relapse in the first year.
One increasingly popular alternative to smoking is the use of e-cigarettes, or vaping, which deliver liquid nicotine into a mist or vapor which is inhaled. This method of
consumption avoids the chemicals that are associated with cigarette smoke but may have other associated health and safety issues. The emerging use of e-cigarettes is
contributing to the growing population of people who are addicted to nicotine.
According to data from the National Health Interview Survey, published by the CDC in May 2023, it is estimated that more than 11 million adults in the United States used e-
cigarettes in 2021.
A study that we conducted and that was presented at the 2021 SRNT Annual Meeting, showed results from surveying approximately 500 users of nicotine vaping devices or e-
cigarettes with approximately 73% of participants responding that they intend to quit vaping within the next three to 12 months. Of those who intended to quit even sooner,
within the next 3 months, more than half stated they would be extremely likely to try a new prescription product to help them do so. Further, survey data published in JAMA
Network Open in 2021, found that 61% of adult vape users overall endorsed future plans to quit. Intentions to quit were highest, reported at 66%, in those survey participants
who were former cigarette smokers and currently using vape devices.
We believe that cytisinicline, if approved, could be the first prescription drug indicated for vape and e-cigarette users who are ready to quit their nicotine dependence.
Overview of Smoking Cessation Marketplace & Treatments
According to DelveInsight’s 2020 report “Smoking Cessation Market Insights, Epidemiology and Market Forecast”, global revenues for prescription smoking cessation
therapies are estimated to reach $5.6 billion by 2030. In 2023, approximately 8 million prescriptions were written for smoking cessation in the United States alone.
Only two non-nicotine, prescription treatments for smoking cessation are currently available in the United States: “varenicline” (formerly marketed by Pfizer as Chantix) and
“bupropion” (formerly marketed by GlaxoSmithKline as Zyban). Both are currently available as generic formulations. Varenicline requires a minimum three-month treatment
period and bupropion is recommended for a period between seven and 12 weeks. While both have been proven effective in aiding smoking cessation, they are also associated
with significant side effects and early discontinuations from treatment. Varenicline’s labeling indicates elevated instances of nausea,
14
abnormal dreams, constipation, flatulence, and vomiting may be experienced by varenicline-treated patients compared to placebo-treated patients, and buproprion’s product
label discloses potential adverse reactions including insomnia, rhinitis, dry mouth, dizziness, nervous disturbance, anxiety, nausea, constipation, arthralgia and seizures. High
uptake into the brain combined with activity at “off target” receptors could be responsible for varenicline’s adverse event profile.
In June 2021, Pfizer Inc. halted the distribution of Chantix (varenicline) after heightened levels of a nitrosamine impurity, called N-nitroso-varenicline, which were above the
FDA’s acceptable daily intake limit, were found in some lots of Chantix pills. Long-term use of products with N-nitroso-varenicline may be associated with a potential
increased cancer risk in humans. In September 2021, Pfizer announced a nationwide recall in the United States of all lots of Chantix and have also withdrawn the product in
other countries around the globe. Prior to market withdrawal and launch of generic Chantix (varenicline), global sales of branded Chantix peaked at $1.1 billion. Of those sales,
approximately 75% were attributable to the U.S. market.
The vast majority of OTC smoking cessation aids are NRTs. NRTs come in many forms, including gums, lozenges and patches, and have been shown to be less effective than
prescription drugs. For example, a Cochrane Group independent database review of nicotine receptor partial agonists published in 2016 compared varenicline with a number of
NRTs and varenicline has been proven to be more effective than the NRTs, as demonstrated in head-to-head studies.
We believe that cytisinicline represents a unique opportunity to significantly impact global health by addressing the considerable unmet need among millions of smokers and e-
cigarettes users. If approved by the FDA, it stands to become the first new prescription medicine in nearly two decades aimed at aiding individuals in overcoming nicotine
dependence. With its product profile, cytisinicline is positioned to offer a novel solution characterized by robust efficacy in our clinical trials, without the burdensome side
effects which have hindered compliance and adoption with current treatments. Additionally, its dosing flexibility with a 6 or 12-week regimen, along with its natural derivation,
is perceived favorably by certain potential patients.
LICENSE & SUPPLY AGREEMENTS
Sopharma
In 2009 and 2010, we entered into a license agreement, or the Sopharma License Agreement, and a supply agreement, or the Sopharma Supply Agreement, with Sopharma.
Pursuant to the Sopharma License Agreement, we were granted access to all available manufacturing, efficacy and safety data related to cytisinicline, as well as a granted
patent in several European countries including Germany, France and Italy related to oral dosage forms of cytisinicline. Additional rights granted under the Sopharma License
Agreement include the exclusive use of, and the right to sublicense, the trademark Tabex in all territories—other than certain countries in Central and Eastern Europe,
Scandinavia, North Africa, the Middle East and Central Asia, as well as Vietnam, where Sopharma or its affiliates and agents already market Tabex—in connection with the
marketing, distribution and sale of products. Under the Sopharma License Agreement, we agreed to pay a nonrefundable license fee. In addition, we agreed to make certain
royalty payments equal to a mid-teens percentage of all net sales of Tabex branded products in our territory during the term of the Sopharma License Agreement, including
those sold by a third party pursuant to any sublicense which may be granted by us. We have agreed to cooperate with Sopharma in the defense against any actual or threatened
infringement claims with respect to Tabex. Sopharma has the right to terminate the Sopharma License Agreement upon the termination or expiration of the Sopharma Supply
Agreement. The Sopharma License Agreement will also terminate under customary termination provisions including bankruptcy or insolvency and material breach. To date,
any amounts paid to Sopharma pursuant to the Sopharma License Agreement have been immaterial.
A cross-license exists between us and Sopharma whereby we grant to Sopharma rights to any patents or patent applications or other intellectual property rights filed by us in
Sopharma territories.
On May 14, 2015, we and Sopharma entered into an amendment to the Sopharma License Agreement. Among other things, the amendment to the Sopharma License
Agreement reduced the royalty payments payable by us to Sopharma from a percentage in the mid-teens to a percentage in the mid-single digits and extended the term of the
Sopharma License Agreement until May 26, 2029.
On July 28, 2017, we and Sopharma entered into the amended and restated Sopharma Supply Agreement. Pursuant to the amended and restated Sopharma Supply Agreement,
for territories as detailed in the licensing agreement, we will exclusively purchase all of our cytisinicline from Sopharma, and Sopharma agrees to exclusively supply all such
cytisinicline requested by us, and we extended the term to 2037. In addition, we will have full access to the cytisinicline supply chain and Sopharma will manufacture sufficient
cytisinicline to meet a forecast for a specified demand of cytisinicline for the five years commencing shortly after the commencement of the agreement, with the forecast to be
updated regularly thereafter. Each of us and Sopharma may terminate the Sopharma Supply Agreement in the event of the other party’s material breach or bankruptcy or
insolvency.
Share Purchase Agreement
15
On May 14, 2015, we entered into a Share Purchase Agreement with Sopharma to acquire 75% of the outstanding shares of Extab Corporation for $2.0 million in cash and $2.0
million in a deferred payment, contingent on regulatory approval of cytisinicline by the FDA or the European Medicines Agency. The fair value of the contingent consideration
on the acquisition date was nil. The contingent consideration liability is measured at fair value in our financial statements (see Note 2 “Significant Accounting Policies,
Sopharma Share Purchase Agreement Contingent Consideration“ in the accompanying consolidated Financial Statements).
University of Bristol
In July 2016, we entered into a license agreement with the University of Bristol, or the University of Bristol License Agreement. Under the University of Bristol License
Agreement, we received exclusive and nonexclusive licenses from the University of Bristol to certain patent and technology rights resulting from research activities into
cytisinicline and its derivatives for use in smoking cessation, including a number of patent applications related to novel approaches to cytisinicline binding at the nicotinic
receptor level. Any patents issued in connection with these applications would be scheduled to expire on February 5, 2036, at the earliest.
In consideration of rights granted by the University of Bristol, we agreed to pay amounts of up to $3.2 million, in the aggregate, tied to a financing milestone and to specific
clinical development and commercialization milestones resulting from activities covered by the University of Bristol License Agreement. Additionally, if we successfully
commercialize product candidates subject to the University of Bristol License Agreement, we are responsible for royalty payments in the low-single digits and payments up to a
percentage in the mid-teens of any sublicense income, subject to specified exceptions, based upon net sales of such licensed products.
On January 22, 2018, we and the University of Bristol entered into an amendment to the University of Bristol License Agreement. Pursuant to the amended University of
Bristol License Agreement, we received exclusive rights for all human medicinal uses of cytisinicline across all therapeutic categories from the University of Bristol from
research activities into cytisinicline and its derivatives. In consideration of rights granted by the amended University of Bristol License Agreement, we agreed to pay an initial
amount of $37,500 upon the execution of the amended University of Bristol License Agreement, and additional amounts of up to $1.7 million, in the aggregate, tied to a
financing milestone and to specific clinical development and commercialization milestones resulting from activities covered by the amended University of Bristol License
Agreement, in addition to amounts under the original University of Bristol License Agreement of up to $3.2 million in the aggregate, tied to specific financing, development
and commercialization milestones. Additionally, if we successfully commercialize any product candidate subject to the amended University of Bristol License Agreement or to
the original University of Bristol License Agreement, we will be responsible, as provided in the original University of Bristol License Agreement, for royalty payments in the
low-single digits and payments up to a percentage in the mid-teens of any sublicense income, subject to specified exceptions, based upon net sales of such licensed products.
Up to December 31, 2024, we had paid the University of Bristol $125,000 pursuant to the University of Bristol License Agreement.
Unless otherwise terminated, the University of Bristol License Agreement will continue until the earlier of July 2036 or the expiration of the last patent claim subject to the
University of Bristol License Agreement. We may terminate the University of Bristol License Agreement for convenience upon a specified number of days’ prior notice to the
University of Bristol. The University of Bristol License Agreement will terminate under customary termination provisions including bankruptcy or insolvency or its material
breach of the agreement. Under the terms of the University of Bristol License Agreement, we had provided 100 grams of cytisinicline to the University of Bristol as an initial
contribution.
Summary of Milestone and Contingent Obligations by Product Candidate
The following table sets forth the milestones and contingent obligations that we may be required to pay to third parties under the license and share purchase agreements
described above. As described above, we will also be required to pay certain revenue-based royalties with respect to our product candidate.
Milestone Obligations to Third Parties
Amount Payable
University of Bristol
Up to $4,837,500(1)
Sopharma AD
$2,000,000(2)
(1)
Payable in connection with specific financing, development and commercialization milestones.
(2)
Payable contingent on regulatory approval by the FDA or EMA.
GOVERNMENT REGULATIONS
We are heavily regulated in most of the countries in which we operate. In the United States, the principal regulating authority is the FDA. The FDA regulates the safety and
efficacy of product candidates and research, quality, manufacturing processes, product approval and promotion, advertising and product labeling. In the EU, the EMA and
national regulatory agencies regulate the scientific
16
evaluation, supervision and safety monitoring of product candidates, and oversee the procedures for approval of drugs for the EU and European Economic Area, or EEA,
countries similar regulations exist in most other countries, and in many countries the government also regulates prices. Health authorities in many middle- and lower-income
countries require marketing approval by a recognized regulatory authority, such as the FDA or EMA, before they begin to conduct their application review process and/or issue
their final approval.
United States
It is anticipated that cytisinicline tablets could receive up to seven and a half years of data exclusivity under the Drug Price Competition and Patent Term Restoration Act, also
known as the Hatch-Waxman Act.
Before a new pharmaceutical product may be marketed in the United States, the FDA must approve an NDA for a new drug. The steps required before the FDA will approve an
NDA generally include non-clinical studies followed by multiple stages of clinical trials conducted by the trial sponsor; sponsor submission of the NDA to the FDA for review;
the FDA’s review of the data to assess the drug’s safety and effectiveness; and the FDA’s inspection of the facilities where the product will be manufactured.
As a condition of product approval, the FDA may require a sponsor to conduct post-marketing clinical trials, known as Phase 4 trials, and surveillance programs to monitor the
effect of the approved product. The FDA may limit further marketing of a product based on the results of these post-market trials and programs. Any modifications to a drug,
including new indications or changes to labeling or manufacturing processes or facilities, may require the submission and approval of a new or supplemental NDA before the
modification can be implemented, which may require that we generate additional data or conduct additional non-clinical studies and clinical trials. Our ongoing manufacture
and distribution of drugs is subject to continuing regulation by the FDA, including recordkeeping requirements, reporting of adverse experiences associated with the product,
and adherence to current Good Manufacturing Practices, or cGMPs, which regulate all aspects of the manufacturing process. We are also subject to numerous regulatory
requirements relating to the advertising and promotion of drugs, including, but not limited to, standards and regulations for direct-to-consumer advertising. Failure to comply
with the applicable regulatory requirements governing the manufacture and marketing of our products may subject us to administrative or judicial sanctions, including warning
letters, product recalls or seizures, injunctions, fines, civil penalties and/or criminal prosecution.
Sales and Marketing. The marketing practices of U.S. pharmaceutical companies are generally subject to various federal and state healthcare laws that are intended to prevent
fraud and abuse in the healthcare industry and protect the integrity of government healthcare programs. These laws include anti-kickback laws and false claims laws. Anti-
kickback laws generally prohibit a biopharmaceutical or medical device company from soliciting, offering, receiving or paying any remuneration to generate business,
including the purchase or prescription of a particular product. False claims laws generally prohibit anyone from knowingly and willingly presenting, or causing to be presented,
any claims for payment for reimbursed drugs or services to third-party payors (including Medicare and Medicaid) that are false or fraudulent. Although the specific provisions
of these laws vary, their scope is generally broad and there may not be regulations, guidance or court decisions that apply the laws to any particular industry practices, including
the marketing practices of pharmaceutical and medical device companies. Violations of fraud and abuse laws may be punishable by criminal or civil sanctions and/or exclusion
from federal healthcare programs (including Medicare and Medicaid). The U.S. federal government and various states have also enacted laws to regulate the sales and
marketing practices of pharmaceutical or medical device companies. These laws and regulations generally limit financial interactions between manufacturers and healthcare
providers; require disclosure to the federal or state government and public of such interactions; and/or require the adoption of compliance standards or programs. Many of these
laws and regulations contain ambiguous requirements or require administrative guidance for implementation. Given the lack of clarity in laws and their implementation, our
activities could be subject to penalties under the pertinent laws and regulations.
Healthcare Reform. The United States and state governments continue to propose and pass legislation designed to regulate the healthcare industry. In March 2020, the Patient
Protection and Affordable Care Act, or ACA, as amended by the Healthcare and Education Reconciliation Act, or collectively, the Healthcare Reform Law, was passed and
included changes that significantly affected the pharmaceutical industry, such as:
•
Increasing drug rebates paid to state Medicaid programs under the Medicaid Drug Rebate Program for brand name and generic prescription drugs and extending
those rebates to Medicaid managed care;
•
Requiring pharmaceutical manufacturers to provide discounts on brand name prescription drugs sold to Medicare beneficiaries whose prescription drug costs cause
the beneficiaries to be subject to the Medicare Part D coverage gap; and
•
Imposing an annual fee on manufacturers and importers of brand name prescription drugs reimbursed under certain government programs, including Medicare and
Medicaid.
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The ACA includes provisions designed to increase the number of Americans covered by health insurance. Specifically, since 2014, the ACA has required most individuals to
maintain health insurance coverage or potentially to pay a penalty for noncompliance and has offered states the option of expanding Medicaid coverage to additional
individuals. Additionally, policy efforts designed specifically to reduce patient out-of-pocket costs for medicines could result in new mandatory rebates and discounts or other
pricing restrictions. Adoption of other new legislation at the federal or state level could further affect demand for, or pricing of, our products.
Pricing and Reimbursement. Pricing for our pharmaceutical products will depend in part on government regulation. We will likely be required to offer discounted pricing or
rebates on purchases of pharmaceutical products under various federal and state healthcare programs, such as the Medicaid Drug Rebate Program, the “federal ceiling price”
drug pricing program, the 340B drug pricing program and the Medicare Part D Program. We will also be required to report specific prices to government agencies under
healthcare programs, such as the Medicaid Drug Rebate Program and Medicare Part B. The calculations necessary to determine the prices reported are complex and the failure
to report prices accurately may expose us to penalties.
In the United States, Medicaid currently covers all smoking cessation products including varenicline and bupropion. The ACA substantially changes the way healthcare is
financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. Section 2502 of the ACA specifies that tobacco cessation
medications will be removed from the list of optional medications and required for inclusion in states’ prescription drug benefit. On May 2, 2014 the Department of Health and
Human Services, or HHS, provided guidance into insurance coverage policy that health plans would be in compliance if they cover, among other items, screening for tobacco
use, individual, group and phone counseling, all FDA approved tobacco cessation medications (both prescription and OTC) when prescribed by a healthcare provider, at least
two quit attempts per year, four sessions of counseling and 90 days of treatment, with no cost sharing (co-pay) required.
Government and private third-party payers routinely seek to manage utilization and control the costs of our products. For example, private third-party payers and the majority
of states use preferred drug lists to restrict access to certain pharmaceutical products under both of these types of payer types. Private third-party payers are constantly under
healthcare budgetary constraints and utilize Pharmacy Benefit Managers to extract unit cost savings from drug manufacturers for formulary coverage. Given certain states’
current and potential ongoing fiscal crises, a growing number of states are considering a variety of cost-control strategies, including capitated managed care plans that typically
contain cost by restricting access to certain treatments.
There have also been multiple recent U.S. congressional inquiries and proposed and adopted federal and state legislation designed to, among other things, bring more
transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for
drugs and biologics. In addition, Congress and multiple presidential administrations have indicated that they will continue to seek new legislative and/or administrative
measures to control drug costs. These initiatives recently culminated in the enactment of the Inflation Reduction Act, or the IRA, in August 2022, which will, among other
things, allows HHS to negotiate the selling price of certain drugs and biologics that CMS reimburses under Medicare Part B and Part D, although only high-expenditure single-
source drugs that have been approved for at least seven years (11 years for biologics) can be selected by CMS for negotiation, with the negotiated price taking effect two years
after the selection year. The negotiated prices, which will first become effective in 2026, will be capped at a statutory ceiling price beginning in October 2023 and penalize drug
manufacturers that increase prices of Medicare Part B and Part D drugs at a rate greater than the rate of inflation. The IRA permits the Secretary of HHS to implement many of
these provisions through guidance, as opposed to regulation, for the initial years. Manufacturers that fail to comply with the IRA may be subject to various penalties, including
civil monetary penalties. The IRA also extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. These
provisions will take effect progressively starting in 2023, although they may be subject to legal challenges. We anticipate that additional state and federal healthcare measures
could be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in
reduced demand or lower pricing for cytisinicline, or additional pricing pressures.
Anti-Corruption. The Foreign Corrupt Practices Act of 1977, as amended, or FCPA, prohibits U.S. corporations and their representatives from offering, promising, authorizing
or making payments to any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business abroad. The
scope of the FCPA includes interactions with certain healthcare professionals in many countries. Other countries have enacted similar anti-corruption laws and/or regulations.
Individual states, acting through their attorneys general, have sought to regulate the marketing of prescription drugs under state consumer protection and false advertising laws.
Outside the United States
We expect to encounter similar regulatory and legislative issues in most other countries in which we seek to develop and commercialize cytisinicline.
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New Drug Approvals and Pharmacovigilance. In the EU, the approval of new drugs may be achieved using the Mutual Recognition Procedure, the Decentralized Procedure or
the EU Centralized Procedure. These procedures apply in the EU member states, plus the EEA countries, Norway, Iceland and Liechtenstein. The use of these procedures
generally provides a more rapid and consistent approval process across the EU and EEA than was the case when the approval processes were operating independently within
each country.
In 2012, new pharmacovigilance legislation came into force in the EU. Key changes included the establishment of a new Pharmacovigilance Risk Assessment Committee
within the EMA, with responsibility for reviewing and making recommendations on product safety issues for the EU authorities. It also introduced the possibility for regulators
to require pharmaceutical companies to conduct post-authorization efficacy studies at the time of approval, or at any time afterwards in light of scientific developments. There
are also additional requirements regarding adverse drug reaction reporting and additional monitoring of products. Outside developed markets such as the EU and Japan,
pharmacovigilance requirements vary and are typically less extensive.
Health authorities in many middle- and lower-income countries require marketing approval by a recognized regulatory authority (i.e., similar to the authority of the FDA or the
EMA) before they begin to conduct their application review process and/or issue their final approval. Many authorities also require local clinical data in the country’s
population in order to receive final marketing approval. These requirements delay marketing authorization in those countries relative to the United States and Europe.
CONTRACT RESEARCH AGREEMENTS
Our strategy is to outsource certain product development activities and have established contract research agreements for, non-clinical, clinical, manufacturing and some data
management services. We choose which business or institution to use for these services based on their expertise, capacity and reputation and the cost of the service.
We also provide or have provided quantities of our product candidates to academic research institutions to investigate the mechanism of action. These collaborations expand
our research activities for our product candidates with modest contributions from us.
MANUFACTURING
We do not own or operate manufacturing facilities for the production of cytisinicline, though we may develop our own manufacturing operations in the future. We currently
partner with Sopharma as supplier and contract manufacturer for our required raw materials, active pharmaceutical ingredients and finished drug product for our clinical trials.
In addition to our Sopharma relationship, we utilize contract manufacturing organizations for the clinical packaging supplies of cytisinicline and are in the process of
contracting with additional contract manufacturing organizations for commercial drug supply. We currently employ internal resources and third-party consultants to manage
our clinical manufacturing activities.
Sopharma sources cytisinicline from natural sources including trees and shrubs from the Faboideae subfamily of plant species. The seeds of cytisinicline containing plants are
harvested annually, dried and processed into cytisinicline. The seeds in their natural state are highly toxic and the extraction process removes the toxins to produce highly
purified cytisinicline. Sopharma controls a number of orchards throughout Bulgaria in addition to sourcing seeds and cytisinicline starting material from certain third-party
suppliers. We expect to continue stockpiling cytisinicline to meet the projected demand upon commercial launch.
The active pharmaceutical ingredient, or API, manufacturing process utilizes a series of techniques including solvent extraction, recrystallization, filtration, and purification.
Critical control steps and manufacturing intermediates have been identified and are controlled by internally developed specifications and methods to ensure a consistent and
reproducible process. The highly purified cytisinicline is dried, sieved and packed for storage until further processing into drug product. The cytisinicline API manufacturing
process has been developed and refined over many years of manufacture by Sopharma, which has significant expertise in manufacturing cytisinicline.
Sopharma manufactures cytisinicline API in its facilities in Bulgaria, which are near the capital, Sofia. The API processing facility complies with EU cGMP requirements and
has been inspected by the Bulgarian Drug Agency. During 2022, Sopharma built a new API facility specifically for cytisinicline within its tableting plant in Sofia. Sopharma
currently does not have FDA approval of its facilities in Bulgaria.
Raw materials are essential to our business and are normally available in quantities adequate to meet the needs of our business. Where there are exceptions, the temporary
unavailability of those raw materials has not historically had a material adverse effect on our financial results however, uncertainties in supply chain, transportation logistics
and costs, and political and economic conditions could result in disruptions in our operations and materially impact our financial results.
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SALES AND MARKETING
Our commercial strategy may include the use of strategic partners, distributors, a contract sale force or the establishment of our own commercial marketing and sales
infrastructure. We plan to further evaluate these alternatives including the potential to market and distribute directly to consumers via traditional and virtual channels. We
intend to seek commercial partnerships in ex-U.S. territories.
INTELLECTUAL PROPERTY
The U.S. Supreme Court has held that certain claims to naturally occurring substances are not patentable. Cytisinicline is a naturally occurring product and, therefore, the
compound itself is not patentable in the United States. Furthermore, cytisinicline has been used in other parts of the world for decades, creating further challenges to patenting
uses of the compound.
Our development and commercialization of cytisinicline is protected by our exclusive supply agreement with Sopharma and Sopharma’s proprietary technology, experience
and expertise in cytisinicline extraction. In addition, we intend to utilize market exclusivity laws including those under the Hatch-Waxman Act in the United States and
exclusivity under Directive 2004/27/EC in the EU.
Additionally, we are actively building an intellectual property portfolio around our clinical-stage product candidate and research programs. A key component of this portfolio
strategy is to seek international patent protection with patent applications in the United States and in major market countries that we consider important to the development of
our business. As of December 31, 2024, we control a portfolio of patent families that are owned, co-owned and in-licensed. Those families cover cytisinicline dosing methods,
cytisinicline derivatives, cytisinicline salts, methods of cytisinicline extraction, and cytisinicline formulations, among other inventions, in the United States and foreign
jurisdictions. As of December 31, 2024, we owned, co-owned or in-licensed over 20 issued patents and over 50 pending patent applications. These patents and applications, if
granted, have expiration dates ranging from 2037 to 2042, absent any term adjustments or extensions.
Our success depends in part on our ability to obtain and maintain proprietary protection for our product candidates and other discoveries, inventions, trade secrets and know-
how that are critical to our business operations. Our success also depends in part on our ability to operate without infringing the proprietary rights of others, and in part, on our
ability to prevent others from infringing our proprietary rights. A comprehensive discussion on risks relating to intellectual property is provided under “Risk Factors—Risks
Related to Our Intellectual Property.”
In addition to patent protection, we rely on trade secrets, trademark protection and know-how to expand our proprietary position around our chemistry, technology and other
discoveries and inventions that we consider important to our business. We also seek to protect our intellectual property in part by entering into confidentiality agreements with
our employees, consultants, scientific advisors, clinical investigators and other contractors and also by requiring our employees, commercial contractors and certain consultants
and investigators, to enter into invention assignment agreements that grant us ownership of any discoveries or inventions made by them.
COMPETITION
The development and commercialization of new products is highly competitive. We face competition from major pharmaceutical companies, specialty pharmaceutical
companies, biotechnology companies, universities and other research institutions worldwide with respect to smoking cessation and other product candidates that they may seek
to develop or commercialize in the future. We are aware that many companies have therapeutics marketed or in development for smoking cessation. We expect that our
competitors and potential competitors have historically dedicated, and will continue to dedicate, significant resources to aggressively develop and commercialize their products
in order to take advantage of the significant market opportunity.
Prescription and Over-the-Counter Treatments
Only two non-nicotine, prescription treatments for smoking cessation are currently available in the United States; “varenicline” (formerly marketed by Pfizer as Chantix) and
“bupropion” (formerly marketed by GlaxoSmithKline as Zyban). Both are currently available as generic formulations. Varenicline requires a three-month treatment period and
bupropion is recommended for a period between seven and 12 weeks. While both have been proven effective in aiding smoking cessation, they are also associated with
significant side effects and early discontinuations from treatment. Varenicline’s labeling indicates elevated instances of nausea, abnormal dreams, constipation, flatulence, and
vomiting may be experienced by varenicline-treated patients compared to placebo-treated patients, and bupropion’s product label discloses potential adverse reactions including
insomnia, rhinitis, dry mouth, dizziness, nervous disturbance, anxiety, nausea, constipation, arthralgia and seizures. Both varenicline and buproprion have warning and
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precautions for neuropsychiatric adverse events, including suicidal ideations. High uptake into the brain combined with activity at “off target” receptors could be responsible
for varenicline’s adverse event profile.
The most common OTC treatments bought in pharmacies for smoking cessation in the United States and worldwide are NRTs such as nicotine gums, nicotine lozenges, and
nicotine patches. Each of these products delivers nicotine to the body although they generally do so at different rates and to different parts of the body than does a traditional
cigarette. As concluded by the authors of several published clinical trials conducted by others, these therapies are generally less effective than prescription treatments.
Recognized brands include Niquitin, Nicotinell, Nicorette and Nicoderm. Depending on the duration of treatment, the average cost of certain OTC smoking cessation
treatments can exceed prescription treatments.
Pharmaceutical companies, including larger companies in the industry, who have extensive expertise in non-clinical and clinical testing and in obtaining regulatory approvals
for products, may develop other OTC treatments for smoking cessation. In addition, academic institutions, government agencies and other public and private organizations
conducting research may seek patent protection with respect to potentially competitive products or technologies. These organizations may also establish exclusive collaborative
or licensing relationships with our competitors.
HUMAN CAPITAL RESOURCES
As of December 31, 2024, we had a total of 25 employees, of whom fourteen were engaged in research and development functions, including clinical development, regulatory
affairs and manufacturing, and eleven were engaged in general and administrative functions, including accounting and finance, administration, and commercial.
All of our employees have entered into non-disclosure agreements regarding our intellectual property, trade secrets and other confidential information. None of our employees
are represented by a labor union or covered by a collective bargaining agreement, nor have we experienced any work stoppages. We believe that we maintain satisfactory
relations with our employees.
From time to time, we also use outside consultants to provide advice on our clinical development plans, research programs, administration and potential acquisitions of new
technologies.
We believe that our future success largely depends upon our continued ability to attract and retain highly skilled employees. We emphasize a number of measures and
objectives in managing our human capital assets, including, among others, employee engagement, development, and training, talent acquisition and retention, and employee
safety and wellness. We provide our employees with competitive salaries and bonuses, opportunities for equity ownership, development programs that enable continued
learning and growth and a robust employment package that promotes well-being across all aspects of their lives, including health care, retirement planning and paid time off.
COMPANY INFORMATION
We were incorporated in California in October 1991 and subsequently reorganized as a Delaware corporation in March 1995. Our principal executive offices are located at
22722 29th Dr. SE Suite 100 Bothell, WA 98021 and 1040 West Georgia Street, Suite 1030, Vancouver, B.C. V6E 4H1, Canada and our telephone number is (604) 210-2217.
AVAILABLE INFORMATION
We maintain a website at http://www.achievelifesciences.com. The information contained on or accessible through our website is not part of this Annual Report on Form 10-K.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and
15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are available free of charge on our website as soon as reasonably practicable after we
electronically file such reports with, or furnish those reports to, the SEC. The SEC also maintains an Internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
ITEM 1A.
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other
information contained in this Annual Report on Form 10-K and in the other periodic and current reports and other documents we file with the Securities and Exchange
Commission, before deciding to invest in our common stock. If any of the following risks materialize, our business, financial condition, results of operation and future prospects
will likely be
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materially and adversely affected. In that event, the market price of our common stock could decline, and you could lose all or part of your investment. This list is not
exhaustive, and the order of presentation does not reflect management's determination of priority or likelihood.
Risks Related to Our Financial Condition and Capital Requirements
Substantial doubt exists as to our ability to continue as a going concern. Our ability to continue as a going concern is subject to material uncertainty and dependent on our
success at raising additional capital sufficient to meet our obligations on a timely basis. If we fail to obtain additional financing when needed, we may be unable to
complete the development, regulatory approval and commercialization of our product candidate.
Substantial doubt exists as to our ability to continue as a going concern. Our ability to continue as a going concern is subject to material uncertainty and dependent on our
ability to obtain additional financing. There is no assurance that we will obtain financing from other sources. The uncertainty with respect to our operations and the capital
markets generally may make it more challenging to raise additional capital on favorable terms, if at all.
In addition, we expect to incur significant expenses and increasing operating losses for at least the next several years as we continue our clinical development of, seek
regulatory approval for, and commercialize, cytisinicline and add personnel necessary to operate as a commercial-stage public company. We expect that our operating losses
will fluctuate significantly from quarter to quarter and year to year due to timing of clinical development programs, efforts to achieve regulatory approval and
commercialization.
Our current resources are insufficient to fund our planned operations for the next 12 months. We will continue to require substantial additional capital to continue our clinical
development activities and expand our regulatory, manufacturing and commercialization activities. Accordingly, we will need to raise substantial additional capital from the
sale of our securities, debt, partnering arrangements, non-dilutive fundraising or other financing transactions in order to continue to fund our operations and finance the
remaining development and commercialization of our product candidate. The amount and timing of our future funding requirements will depend on many factors, including the
pace and results of our clinical development, regulatory review and commercialization efforts.
The current financing environment in the United States, particularly for biotechnology companies like us, is challenging and we can provide no assurances as to when this will
improve. Our business may be impacted by macroeconomic conditions, including fluctuating inflation, interest and tariff rates and market conditions as well as political events,
war, terrorism, business interruptions and other geopolitical events and uncertainties beyond our control. These factors may make it challenging to raise additional capital on
favorable terms, if at all. A severe or prolonged economic downturn could result in a variety of risks to our business, including in our ability to raise additional capital when
needed on acceptable terms, if at all. A weak or declining economy also could strain our suppliers, possibly resulting in supply disruption. In addition, current macroeconomic
conditions have caused uncertainty in various sectors, including capital markets. For these reasons, among others, we cannot be certain that additional financing will be
available when and as needed or, if available, that it will be available on acceptable terms. If financing is available, it may be on terms that adversely affect the interests of our
existing stockholders. If adequate financing is not available, we may need to reduce or eliminate our expenditures for research and development of cytisinicline, and may be
required to suspend development of cytisinicline. Our actual capital requirements will depend on numerous factors, including:
•
the progress and results of our research and development programs;
•
the repayment or conversion of our outstanding debt;
•
the time and cost involved in obtaining regulatory approvals for our product candidate;
•
our commercialization activities and arrangements;
•
the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights with respect to our intellectual property;
•
the effect of competing technological and market developments;
•
the effect of changes and developments in our existing collaborative, licensing and other relationships;
•
the effect of interest rate adjustments, which may impact the cost of our borrowing under our loan facility, which includes an adjustable-rate component; and
•
the terms of any new collaborative, licensing, commercialization and other arrangements that we may establish.
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We may not be able to secure sufficient financing on acceptable terms, or at all. Without additional funds, we may be forced to delay, scale back or eliminate some of our
research and development activities or other operations and potentially delay product development in an effort to provide sufficient funds to continue our operations. If any of
these events occur, our ability to achieve our development and commercialization goals would be adversely affected.
We have incurred substantial debt, which could impair our flexibility and access to capital and adversely affect our financial position, and our business would be
materially adversely affected if we are unable to service our debt obligations.
As of December 31, 2024, the principal amounts due under our debt instruments (including the New Debt Agreement, as defined and further described under the section
entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”) totaled $10.0 million.
Servicing our debt requires a significant amount of cash. Our debt is subject to floating interest rates set in relation to the prime rate. Increases in interest rates have made and
may continue to make our debt service costs increase. The New Convertible Term Loan (as defined and further described under the section entitled “Management’s Discussion
and Analysis of Financial Condition and Results of Operations”) matures on December 1, 2027, subject to certain potential extensions. We currently do not generate any cash
flow from operations and if we are unable to make interest and/or principal payments when due, we would be in default under the New Debt Agreement. We may be required to
raise additional capital through future financings or sales of assets to enable us to make interest payments and/or repay our outstanding indebtedness as it becomes due. There
can be no assurance that we will be able to generate cash or raise additional capital. Any debt financing that is available could cause us to incur substantial costs and subject us
to covenants that significantly restrict our ability to conduct our business. If we seek to complete additional equity financings, the interests of existing stockholders may be
diluted. If we are unable to service our loan, the lender may foreclose on and sell the assets securing such indebtedness to satisfy our payment obligations, which could prevent
us from accessing those assets for our business and conducting our business as planned, which could materially harm our financial condition and results of operations.
Our obligations under the New Debt Agreement are secured by substantially all of our assets, other than intellectual property. If we are unable to make payment on our secured
debt instruments when due, the lender under such instrument may foreclose on and sell the assets securing such indebtedness to satisfy our payment obligations, which could
prevent us from accessing those assets for our business and conducting our business as planned, which could materially harm our financial condition and results of operations.
Further, if we are liquidated, the rights of the Lender to repayment would be senior to the rights of the holders of our common stock to receive any proceeds from the
liquidation. The Lender could declare a default under the New Debt Agreement upon the occurrence of any event that the Lender interprets as a material adverse change as
defined under the New Debt Agreement, thereby requiring us to repay the loan immediately or to attempt to reverse the declaration of default through negotiation or litigation.
Any declaration by the Lender of an event of default could significantly harm our business, financial condition, results of operations and prospects and could cause the price of
our common stock to decline. If we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.
Further, the New Debt Agreement contains customary affirmative and restrictive covenants, including covenants regarding the incurrence of additional indebtedness or liens,
investments, transactions with affiliates, delivery of financial statements, payment of taxes, maintenance of insurance, dispositions of property, mergers or acquisitions, and the
requirement we keep substantially all of our cash and investments with SVB, among other customary covenants. We are also restricted from paying dividends or making other
distributions or payments on capital stock, subject to limited exceptions. The New Debt Agreement includes customary representations and warranties, events of default and
termination provisions.
Our existing and any future indebtedness may limit our cash resources available to invest in the ongoing needs of our business
Our outstanding debt combined with our other financial obligations and contractual commitments could have significant adverse consequences, including:
•
reducing cash resources available to fund working capital, capital expenditures, product development efforts and other general corporate purposes;
•
increasing our vulnerability to adverse changes in general economic, industry and market conditions;
•
subjecting us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing;
•
limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and
•
placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.
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We intend to satisfy our current and future debt service obligations with our existing cash and funds from external sources. Nonetheless, we may not have sufficient funds or
may be unable to arrange for additional financing to pay the amounts due under our existing or any future debt facility. Funds from external sources may not be available on
acceptable terms, if at all.
We have incurred losses since inception, have a limited operating history on which to assess our business and anticipate that we will continue to incur losses for the
foreseeable future.
We are a late-stage clinical specialty pharmaceutical company with a limited operating history, are not profitable, have incurred losses in each year since our inception and
expect to continue incurring losses for the foreseeable future.
Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We have devoted substantially all of our financial resources
to developing our cytisinicline product candidate and supporting our operations. To date, we have funded the company primarily through the sale of equity securities and
convertible promissory notes.
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We further expect that our expenses will increase substantially if
and as we:
•
continue the clinical development of cytisinicline;
•
establish a sales, marketing, and distribution infrastructure to commercialize cytisinicline;
•
seek to attract and retain skilled personnel;
•
undertake the manufacturing of cytisinicline or increase volumes manufactured by third parties;
•
seek regulatory approvals and reimbursement for cytisinicline;
•
experience delays in the development of our cytisinicline candidate, including delays in clinical trials and delays in regulatory review;
•
initiate additional non-clinical, clinical, or other trials or studies for cytisinicline;
•
make milestone, royalty or other payments under third-party license and/or supply agreements;
•
seek to establish, maintain, protect, and expand our intellectual property portfolio;
•
seek to discover, identify, assess, acquire, and/or develop other product candidates;
•
encounter safety concerns; or
•
require additional studies to support regulatory approval and commercialization.
Further, the net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not
be a good indication of our future performance.
We have never generated any revenue from product sales and may never be profitable.
We have no products approved for commercialization and have never generated any revenue from product sales. Our ability to generate revenue and achieve profitability
depends on our ability, alone or with strategic collaborators, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize
cytisinicline. We do not anticipate generating revenue from product sales for the foreseeable future. Our ability to generate future revenue from product sales depends heavily
on our success in many areas, including but not limited to:
•
completing research and development of cytisinicline;
•
obtaining regulatory approvals for cytisinicline;
•
manufacturing product and establishing and maintaining supply and manufacturing relationships with third parties that are commercially feasible, satisfy
regulatory requirements and meet our supply needs in sufficient quantities to satisfy market demand for cytisinicline, if approved;
•
marketing, launching and commercializing any product for which we obtain regulatory approval, either directly or with a collaborator or distributor;
•
obtaining reimbursement or pricing for cytisinicline that supports profitability;
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•
gaining market acceptance of cytisinicline as a treatment option;
•
addressing any competing or alternative products, including the potential for generic cytisinicline products;
•
protecting and enforcing our intellectual property rights, if any, including patents, trade secrets, and know-how;
•
negotiating favorable terms in any collaboration, licensing, commercialization, or other arrangements into which we may enter; and
•
attracting, hiring, and retaining qualified personnel.
Even if a product candidate that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing that candidate.
Additionally, if we are not able to generate sufficient revenue from the sale of any approved products to cover our operating costs, we may never become profitable. If we
obtain regulatory approval to market a product candidate, our future revenue will depend upon the size of any markets in which our product candidate may receive approval,
and our ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors, and adequate market share for our product candidate in those markets.
Our cash and cash equivalents could be adversely affected if the financial institutions in which we hold our cash and cash equivalents fail.
We regularly maintain cash balances at third-party financial institutions, including with Silicon Valley Bank, or SVB, both in the United States and internationally, in excess of
the FDIC insurance limit and similar regulatory insurance limits outside the United States. Further, if we enter into a credit, loan or other similar facility with a financial
institution, certain covenants included in such facility may require as security that we keep a significant portion of our cash with the institution providing such facility. If a
depository institution where we maintain deposits fails or is subject to adverse conditions in the financial or credit markets, we may not be able to recover all, if any, of our
deposits which could adversely impact our operating liquidity and financial performance.
Under the terms of the New Debt Agreement, we are required to keep substantially all of our cash and investments with SVB. In March 2023, SVB was closed by the
California Department of Financial Protection and Innovation, which also appointed the FDIC as receiver. Within days, the FDIC assisted depositors of the bank access funds
and we were able to regain full access to our cash and cash equivalents with SVB. In May 2023, First Citizens assumed all of SVB’s deposits and loans. While our deposits are
backed by the FDIC, that support may not last or be honored in the future and we could be materially impacted.
Risks Related to the Development of Our Product Candidate Cytisinicline
Cytisinicline is currently our sole product candidate and there is no guarantee that we will be able to successfully develop and commercialize cytisinicline.
We are currently dependent on the potential development of a single product candidate, cytisinicline. We are still developing cytisinicline and it cannot be marketed or sold in
the United States or in foreign markets until regulatory approval has been obtained from the FDA or applicable foreign regulatory agencies. The process of obtaining regulatory
approval is expensive and time consuming. The FDA and foreign regulatory authorities may never approve cytisinicline for sale and marketing, and even if cytisinicline is
ultimately approved, regulatory approval may be delayed or limited in the United States or in other jurisdictions. Even if we are authorized to sell and market cytisinicline in
one or more markets, there can be no assurance that we will be able to successfully market cytisinicline or that cytisinicline will achieve market acceptance sufficient to
generate profits. If we are unable to successfully develop and commercialize cytisinicline due to failure to obtain regulatory approval for cytisinicline, to successfully market
cytisinicline, to generate profits from the sale of cytisinicline, or due to other risk factors outlined in this report, it would have material adverse effects on our business, financial
condition.
We are dependent upon a single company for the manufacture and supply of cytisinicline.
Our single product candidate, cytisinicline, has been in-licensed from a third party, Sopharma AD, or Sopharma, a Bulgarian third-party supplier. Pursuant to a supply
agreement with Sopharma, Sopharma is currently the exclusive supplier of cytisinicline and cytisinicline active pharmaceutical ingredients (API). We plan to engage other third
parties for our manufacturing process, including, if cytisinicline is approved, to manufacture cytisinicline on a commercial scale, with tableting, blistering and packaging. Our
current supply agreement with Sopharma expires on July 28, 2037, unless extended by agreement between us and Sopharma.
Sopharma currently manufactures all of its cytisinicline API in its facilities in Bulgaria. The conflict in Ukraine, including the possibility of expanded regional or global conflict
and related economic sanctions, may have negative impacts on Sopharma’s business, which could cause them to reduce or terminate investments in the cytisinicline program. If
the supply agreement with
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Sopharma is terminated or if Sopharma is otherwise unable to meet its obligations under the supply agreement, we will need to secure alternative supply and manufacturing
capabilities for cytisinicline and/or cytisinicline API, which we may not be able to do on commercially viable terms or at all and would likely delay development, regulatory
approval and commercialization.
The development and commercialization of our product candidate is dependent upon securing sufficient quantities of cytisinicline from trees and other plants, which grow
outside of the United States in a limited number of locations.
The therapeutic component of our product candidate, cytisinicline, is derived from the seeds of trees and shrubs from the Faboideae subfamily of plant species, which grow in
the mountains of Southern Europe and other limited locations around the world. We have and will continue to pursue alternative sources for cytisinicline, including synthetic
routes, however, all of the cytisinicline sourced to date for our product candidate has been from natural sources and there is no guarantee that any potential synthetic route
developed will be commercially viable. We currently secure cytisinicline exclusively from Sopharma. There can be no assurances that trees and shrubs from the Faboideae
subfamily of plant species will continue to grow in sufficient quantities around the world to meet our forecasts or commercial supply requirements or that the countries from
which we can secure them will continue to allow the exportation of cytisinicline.
We plan to submit an NDA to the FDA for the marketing approval of cytisinicline as a drug therapy in treating nicotine dependence for smoking cessation, based largely
on data from our completed Phase 3 ORCA-2 and ORCA-3 clinical trials and the ongoing ORCA-OL trial; however, there can be no assurance that the data from our
clinical trials will ultimately support an NDA filing or that the FDA will grant marketing approval of cytisinicline without additional clinical or nonclinical studies, or at
all.
Drug product candidates must demonstrate substantial evidence of effectiveness, as well as safety to be approved in the United States. The FDA has interpreted that statutory
standard as generally requiring at least two adequate and well-controlled clinical trials, each convincing on its own, to establish effectiveness and a safety profile. Under certain
circumstances the FDA will determine that data from one adequate and well-controlled clinical trial together with confirmatory evidence obtained prior to or after such clinical
trial are sufficient to constitute substantial evidence of effectiveness.
Cytisinicline is a naturally occurring, plant-based alkaloid. Cytisinicline is structurally similar to nicotine and has a well-defined, dual-acting mechanism of action that is both
agonistic and antagonistic. It is believed to aid in smoking cessation and the treatment of nicotine dependence by interacting with nicotine receptors in the brain, reducing the
severity of nicotine withdrawal symptoms through agonistic effects on nicotine receptors and reducing the reward and satisfaction associated with nicotine through antagonistic
properties. Cytisinicline has been studied in two company-sponsored randomized, multicenter, double-blind, placebo-controlled Phase 3 clinical studies that randomized a total
of 1,602 adult smokers in 37 study sites across the United States.
The FDA has advised us that long-term exposure data to assess for safety beyond 12 weeks will be needed to adequately assess safety risks given that the FDA views smoking
cessation drugs as products for chronic, repeated, and intermittent use as patients may relapse and require subsequent courses of treatment over a lifetime. In the first quarter of
2024, we reached agreement with the FDA that a single, open-label study, which we refer to as ORCA-OL, evaluating the long-term safety effects of cytisinicline will be
sufficient to complete the requirement and enable an NDA submission. We initiated the ORCA-OL trial in May 2024 and in October 2024 we announced the completion of
enrollment of 479 subjects. In January 2025, we announced that the ORCA-OL trial had reached the goal of at least 300 subjects completing six months of cumulative
cytisinicline exposure. However, regardless of these discussions and the results of the ORCA-OL open label study, the FDA may determine that:
•
the existing data, and the data from the ORCA-OL open label study, may not be sufficient and the FDA may require additional clinical and/or nonclinical
studies prior to filing an NDA or prior to approval of cytisinicline for treating nicotine dependence for smoking cessation in adults;
•
the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which we seek approval;
•
the product candidate's risk-benefit assessments may not be acceptable for the proposed indication;
•
the data collected from clinical trials of our product candidate may not be sufficient to support the submission of an application for marketing authorization; and
•
third-parties' manufacturing processes or facilities with which we contract for clinical and commercial supplies may not meet the standards required for
approval.
Failure to obtain regulatory approval to market our product candidate would significantly harm our business, results of operations, and prospects.
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Results of earlier clinical trials of cytisinicline are not necessarily predictive of future results, and any advances of cytisinicline into clinical trials may not have favorable
results or receive regulatory approval.
Even if our clinical trials are completed as planned, we cannot be certain that their results will be consistent with the results of the earlier clinical trials of cytisinicline. Positive
results in non-clinical testing and past clinical trials with respect to the safety and efficacy of cytisinicline do not ensure that results from subsequent clinical trials will also be
positive, and we cannot be sure that the results of subsequent clinical trials will replicate the results of prior clinical trials and non-clinical testing. Any such failure may cause
us to abandon cytisinicline, which would negatively affect our ability to generate any product revenues.
Clinical trials, including the ongoing ORCA-OL trial, are costly, time consuming and inherently risky, and we may fail to demonstrate safety and efficacy to the
satisfaction of applicable regulatory authorities. Any advances of cytisinicline into clinical trials may not have favorable results or receive regulatory approval.
Clinical development is expensive, time consuming and involves significant risk. We cannot guarantee that any clinical trial, including the ongoing ORCA-OL trial, will be
conducted as planned or completed on schedule, if at all. Events that may prevent successful or timely completion of the ongoing ORCA-OL trial, but are not limited to:
•
subjects terminating enrollment in the ORCA-OL trial;
•
failure by clinical sites, CROs or other third parties to adhere to clinical trial requirements;
•
failure by clinical sites, CROs or other third parties to perform in accordance with the good clinical practices requirements of the FDA or applicable foreign
regulatory guidelines;
•
disruptions to our supply chain for the cytisinicline required for the ORCA-OL trial;
•
the occurrence of previously unknown on unobserved adverse events or tolerability issues associated with our product candidate, including those significant
enough to stop the trial or for the FDA or other regulatory agencies to put the ORCA-OL trial on hold;
•
the cost of the ORCA-OL trial;
•
negative or inconclusive results from the ORCA-OL trial, which may result in us deciding, or regulators requiring us, to conduct further additional clinical trials
or abandon development programs in ongoing or other planned indications for cytisinicline;
•
discovery of impurities in our cytisinicline drug product, such as nitrosamines, above the regulators’ prescribed thresholds; and
•
delays in the manufacture or packaging of sufficient quantities of cytisinicline for use the ORCA-OL trial.
Any inability to successfully complete clinical development and obtain regulatory approval for cytisinicline could result in additional costs to us or impair our ability to
generate revenue. In addition, if we make manufacturing or formulation changes to cytisinicline, we may need to conduct additional non-clinical trials, or the results obtained
from such new formulation may not be consistent with previous results obtained. Clinical trial delays could result in delayed regulatory approval and potential
commercialization, as well as shorten any periods during which our products have patent protection and may allow competitors to develop and bring products to market before
we do, which could impair our ability to successfully commercialize cytisinicline and may harm our business and results of operations.
Further, even if the ORCA-OL trial is completed as planned, we cannot be certain that its long-term safety results will be consistent with the results of the earlier clinical trials
of cytisinicline or support an NDA filing. Positive results in non-clinical testing and past clinical trials with respect to the adequate safety and efficacy of cytisinicline do not
ensure that results from subsequent clinical trials will also be positive or adequate, and we cannot be sure that the results of subsequent clinical trials will replicate the results of
prior clinical trials and non-clinical testing. Any such failure may cause us to abandon cytisinicline, which would negatively affect our ability to conduct our business and
generate any product revenues and result in a loss of company value.
Cytisinicline may cause undesirable side effects or have other properties that could delay or prevent regulatory approval, limit the commercial viability of an approved
label, or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by cytisinicline could cause us or regulatory authorities to interrupt, delay, or terminate clinical trials. Even if approved, these could result in a
restrictive label, a shelf life that is not commercially viable or delay regulatory approval by the FDA or comparable foreign authorities.
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If contaminants, or impurities such as nitrosamines, are discovered in quantities above regulators’ thresholds within our supply of cytisinicline, we may potentially delay
product development and approval or have a material adverse impact on our business. Failure to reach agreement with the FDA on acceptable intake levels for impurities, such
as nitrosamines, or exceeding agreed upon levels could delay or prevent regulatory approval.
Additionally, even if cytisinicline receives marketing approval and we or others later identify undesirable side effects caused by cytisinicline, potentially significant negative
consequences could result, including but not limited to:
•
regulatory authorities may withdraw approvals of cytisinicline;
•
regulatory authorities may require additional warnings on the cytisinicline label;
•
we may be required to create a Risk Evaluation and Mitigation Strategy, or REMS, plan, which could include a medication guide outlining the risks of such side
effects for distribution to patients, a communication plan for healthcare providers, and/or other elements to assure safe use;
•
we could be subject to product liability claims for harm caused to patients; and
•
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of cytisinicline, even if approved, and could significantly harm our business, results of
operations, and prospects.
Our product development program may not uncover all possible adverse events that patients who take cytisinicline or our other product candidates may experience. The
number of subjects exposed to cytisinicline or our other product candidates and the average exposure time in the clinical development program may be inadequate to detect
rare adverse events, or chance findings, that may only be detected once the product is administered to more patients and for greater periods of time.
Clinical trials by their nature utilize a sample of the potential patient population. We cannot be fully assured that any and all rare and severe side effects of cytisinicline will be
uncovered. Such rare and severe side effects may only be uncovered with a significantly larger number of patients exposed to cytisinicline or over a significantly longer period
of time. If such safety problems occur or are identified after cytisinicline reaches the market in the United States, or if such safety problems occur or are identified in foreign
markets where cytisinicline is currently marketed, the FDA may require that we amend the labeling of cytisinicline or recall it, or may even withdraw approval for cytisinicline.
If the use or misuse of cytisinicline harms patients, or is perceived to harm patients even when such harm is unrelated to cytisinicline, our regulatory approvals, if any,
could be revoked or otherwise negatively impacted and we could be subject to costly and damaging product liability claims. If we are unable to obtain adequate insurance
or are required to pay for liabilities resulting from a claim excluded from, or beyond the limits of, our insurance coverage, a material liability claim could adversely affect
our financial condition.
The use or misuse of cytisinicline in clinical trials and the sale of cytisinicline if marketing approval is obtained, exposes us to the risk of potential product liability claims.
Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with our
product. There is a risk that cytisinicline may induce adverse events. If we cannot successfully defend against product liability claims, we could incur substantial liability and
costs.
In addition, during the course of treatment, patients may suffer adverse events for reasons that may be related to cytisinicline. Such events could subject us to costly litigation,
require us to pay substantial amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market
cytisinicline, if any, or require us to suspend or abandon our commercialization efforts. Even in a circumstance in which an adverse event is unrelated to cytisinicline, an
investigation into such circumstance may be time-consuming or inconclusive. Such investigations may delay our regulatory approval process or impact and limit the type of
regulatory approvals cytisinicline receives or maintains. As a result, a product liability claim, even if successfully defended, could have a material adverse effect on our
business, financial condition or results of operations and reputation.
If we obtain marketing approval for cytisinicline, we will need to expand our insurance coverage to include the sale of commercial products. We cannot know if we will be able
to continue to obtain product liability coverage and obtain expanded coverage if we require it in sufficient amounts to protect us against losses due to liability, on acceptable
terms, or at all. We may not have sufficient resources to pay for any liabilities resulting from a claim excluded from, or beyond the limits of, our insurance coverage.
Where we have provided indemnities in favor of third parties under our agreements with them, there is a risk that these third parties could incur liability and bring a claim under
such indemnities. An individual may also bring a product liability claim against us alleging that cytisinicline causes, or is claimed to have caused, an injury or is found to be
unsuitable for consumer use. Any such
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product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability,
and a breach of warranties. Claims could also be asserted under state consumer protection acts.
Any product liability claim brought against us, with or without merit, could result in:
•
withdrawal of clinical trial volunteers, investigators, patients or trial sites or limitations on approved indications;
•
an inability to commercialize, or if commercialized, a decreased demand for, cytisinicline;
•
if commercialized, product recalls, withdrawals of labeling, marketing or promotional restrictions or the need for product modification;
•
initiation of investigations by regulators;
•
loss of revenue, if any;
•
substantial costs of litigation, including monetary awards to patients or other claimants;
•
liabilities that substantially exceed our product liability insurance, which we would then be required to pay ourselves;
•
increased product liability insurance rates, or inability to maintain insurance coverage in the future on acceptable terms, if at all;
•
diversion of management’s attention from our business; and
•
damage to our reputation and the reputation of our products and our technology.
Product liability claims may subject us to the foregoing and other risks, which could have a material adverse effect on our business, financial condition or results of operations.
Our business may be negatively affected by weather conditions, natural disasters, and the availability of natural resources, as well as by climate change.
In recent years, extreme weather events and changing weather patterns such as storms, flooding, drought, and temperature changes appear to have become more common. The
production of cytisinicline from the Faboideae subfamily of plant species depends on the availability of natural resources, including sufficient rainfall. Sopharma, our supplier
of cytisinicline, could be adversely affected if it experiences a shortage of fresh water due to droughts or if it experiences other adverse weather conditions in the locations
where cytisinicline is sourced. The long-term effects of climate change on general economic conditions and the pharmaceutical industry in particular are unclear and may
heighten or intensify existing risk of natural disasters. As a result of such events, we could experience cytisinicline shortages, which could have a material adverse effect on our
business, financial condition and results of operations.
In addition, the manufacturing and other operations of Sopharma are located near earthquake fault lines in Sofia, Bulgaria. In the event of a major earthquake, we could
experience business interruptions from the disruption of our cytisinicline supplies, which could have a material adverse effect on our business, financial condition and results of
operations.
We conduct clinical trials internationally, which may trigger additional risks.
Conducting clinical trials in Europe or other countries outside of the United States has additional regulatory requirements that we have to meet in connection with our
manufacturing, distribution, use of data and other matters. Failure to meet such regulatory requirements could delay our clinical trials, the approval, if any, of cytisinicline by
the FDA or other regulatory authorities, or the commercialization of cytisinicline, or result in higher costs or deprive us of potential product revenues. For example, we have
recently conducted clinical trials in Spain and Portugal and are subject to the local regulatory requirements of such jurisdictions.
We may use our financial and human resources to pursue a particular research program or product candidate and fail to capitalize on programs or product candidates
that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and human resources, we may forego or delay pursuit of opportunities with some programs or product candidates or for other indications that
later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or more profitable market
opportunities. Our spending on current and future research and development programs and future product candidates for specific indications may not yield any commercially
viable products. We may also enter into additional strategic collaboration agreements to develop and commercialize some of our programs and potential product candidates in
indications with potentially large commercial markets. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may
relinquish valuable rights to that product
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candidate through strategic collaborations, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development
and commercialization rights to such product candidate, or we may allocate internal resources to a product candidate in a therapeutic area in which it would have been more
advantageous to enter into a partnering arrangement.
Risks Related to Regulatory Approval of Cytisinicline and Other Legal Compliance Matters
If we do not obtain the necessary regulatory approvals in the United States and/or other countries, we will not be able to sell cytisinicline.
We will need approval from the FDA to commercialize cytisinicline in the United States and approvals from similar regulatory authorities in foreign jurisdictions to
commercialize cytisinicline in those jurisdictions. In order to obtain FDA approval of cytisinicline, we must submit an NDA to the FDA, demonstrating that cytisinicline is
safe, pure and potent, and effective for its intended use. This demonstration requires significant research including completion of clinical trials. Satisfaction of the FDA’s
regulatory requirements typically takes many years, depending upon the type, complexity and novelty of the product candidate and requires substantial resources for research,
development and testing. We cannot predict whether our clinical trials will demonstrate the safety and efficacy of cytisinicline or if the results of any clinical trials will be
sufficient to advance to the next phase of development or for approval from the FDA. We also cannot predict whether our research and clinical approaches will result in data
that the FDA considers safe and effective for the proposed indications of cytisinicline. The FDA has substantial discretion in the product approval process. The approval
process may be delayed by changes in government regulation, future legislation or administrative action or changes in FDA policy that occur prior to or during our regulatory
review. Even if we comply with all FDA requests, the FDA may ultimately reject one or more of our applications. We may never obtain regulatory approval for cytisinicline.
Failure to obtain approval from the FDA or comparable regulatory authorities in foreign jurisdictions to commercialize cytisinicline will leave us without saleable products and
therefore without any source of revenues. In addition, the FDA may require us to conduct additional clinical testing or to perform post-marketing studies, as a condition to
granting marketing approval of a product or permit continued marketing, if previously approved. If conditional marketing approval is obtained, the results generated after
approval could result in loss of marketing approval, changes in product labeling, and/or new or increased concerns about the side effects or efficacy of a product. The FDA has
significant post-market authority, including the explicit authority to require post-market studies and clinical trials, labeling changes based on new safety information and
compliance with FDA-approved risk evaluation and mitigation strategies. The FDA’s exercise of its authority has in some cases resulted, and in the future could result, in
delays or increased costs during product development, clinical trials and regulatory review, increased costs to comply with additional post-approval regulatory requirements and
potential restrictions on sales of approved products. In foreign jurisdictions, the regulatory approval processes generally include the same or similar risks as those associated
with the FDA approval procedures described above. We cannot be certain that we will receive the approvals necessary to commercialize cytisinicline for sale either within or
outside the United States.
Further, in June 2024, the U.S. Supreme Court reversed its longstanding approach under the Chevron doctrine, which provided for judicial deference to regulatory agencies,
including the FDA. As a result of this decision, we cannot be sure whether there will be increased challenges to existing agency regulations or how lower courts will apply the
decision in the context of other regulatory schemes without more specific guidance from the U.S. Supreme Court. For example, this decision may result in more companies
bringing lawsuits against the FDA to challenge longstanding decisions and policies of the FDA, which could undermine the FDA’s authority, lead to uncertainties in the
industry, and disrupt the FDA’s normal operations, which could impact the timely review of any regulatory filings or applications we submit to the FDA.
Disruptions at the FDA may slow the time necessary for new products to be reviewed and/or approved, which would adversely affect our business. In addition, there is
substantial uncertainty regarding new initiatives and how these might impact the FDA, its implementation of laws, regulations, policies and guidance and its personnel.
Similar initiatives may also be directed toward other government agencies. These initiatives could prevent, limit or delay development and regulatory approval of our
product candidates, which would adversely affect our business.
Disruptions at the FDA may slow the time necessary for new products to be reviewed and/or approved, which would adversely affect our business. Changes in FDA staffing
could result in delays in the FDA’s responsiveness or in its ability to review submissions or applications, issue regulations or guidance, or implement or enforce regulatory
requirements in a timely fashion or at all. If any legislation, executive orders, or lapses in agency funding impose constraints on the FDA’s ability to engage in oversight and
implementation activities in the normal course, our business may be negatively impacted.
Similar consequences would also result in the event of another significant shutdown of the federal government. For example, in 2024, the U.S. government was on the verge of
a shutdown and has previously shut down several times, and certain regulatory agencies, such as the FDA, had to furlough critical employees and stop critical activities. If a
prolonged government shutdown occurs, or if geopolitical or global health concerns prevent the FDA from conducting their regular inspections, reviews, or other regulatory
activities, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could
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have a material adverse effect on our business. Further, future government shutdowns or delays could impact our ability to access the public markets and obtain necessary
capital in order to properly capitalize and continue our operations.
FDA-regulated industries, such as ours, face uncertainty with regard to the regulatory environment we will face as we proceed with research, development and
commercialization. Some of these efforts have manifested to date in the form of personnel measures that could impact the FDA’s ability to hire and retain key personnel, which
could result in delays or limitations on our ability to obtain guidance from the FDA on our product candidates in development and obtain the requisite regulatory approvals in
the future. There remains general uncertainty regarding future activities. New executive orders, regulations, policies or guidance could be issued or promulgated that adversely
affects us or creates a more challenging or costly environment to pursue the development of new therapeutic products. Alternatively, state governments may attempt to address
or react to changes at the federal level with changes to their own regulatory frameworks in a manner that is adverse to our operations. If we become negatively impacted by
future governmental orders, regulations, policies or guidance, there could be a material adverse effect on us and our business.
Healthcare legislative and executive reform measures may have a material adverse effect on our business, financial condition or results of operations.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Healthcare Reform Law
was passed, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry.
The Healthcare Reform Law, among other things, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are
calculated for products that are inhaled, infused, instilled, implanted, or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug
Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of
specified branded prescription products, and promotes a new Medicare Part D coverage gap discount program.
There have also been multiple recent U.S. congressional inquiries and proposed and adopted federal and state legislation designed to, among other things, bring more
transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for
drugs and biologics. In addition, Congress and multiple presidential administrations have indicated that they will continue to seek new legislative and/or administrative
measures to control drug costs. These initiatives recently culminated in the enactment of the Inflation Reduction Act, or the IRA, in August 2022, which will, among other
things, allow HHS to negotiate the selling price of certain drugs and biologics that CMS reimburses under Medicare Part B and Part D, although only high-expenditure single-
source drugs that have been approved for at least 7 years (11 years for biologics) can be selected by CMS for negotiation, with the negotiated price taking effect two years after
the selection year. The negotiated prices, which will first become effective in 2026, will be capped at a statutory ceiling price beginning in October 2023, penalize drug
manufacturers that increase prices of Medicare Part B and Part D drugs at a rate greater than the rate of inflation. The IRA permits the Secretary of HHS to implement many of
these provisions through guidance, as opposed to regulation, for the initial years. Manufacturers that fail to comply with the IRA may be subject to various penalties, including
civil monetary penalties. The IRA also extends enhanced subsidies for individuals purchasing health insurance coverage in U.S. Affordable Care Act, or ACA, marketplaces
through plan year 2025. These provisions took effect progressively starting in 2023, although they may be subject to legal challenges. We anticipate that additional state and
federal healthcare measures could be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and
services, which could result in reduced demand or lower pricing for cytisinicline, or additional pricing pressures. Currently, ACA and other federal laws and rules require most
health insurance plans in the U.S. to cover some level of tobacco cessation treatments, including smoking cessation counseling and medications. If these provisions are
repealed, in whole or in part, our business, financial condition, or results of operations could be negatively affected.
Our ability to obtain services, reimbursement or funding may be impacted by possible reductions in federal spending in the United States as well as globally.
U.S. federal government agencies currently face potentially significant spending reductions. Under the Budget Control Act of 2011, the failure of Congress to enact deficit
reduction measures of at least $1.2 trillion for the years 2013 through 2021 triggered automatic cuts to most federal programs. These cuts include aggregate reductions to
Medicare payments to providers of up to two percent per fiscal year, which went into effect beginning on April 1, 2013 and will stay in effect through 2025 unless additional
Congressional action is taken. The American Taxpayer Relief Act of 2012, which was enacted on January 1, 2013, among other things, reduced Medicare payments to several
providers, including hospitals and imaging centers. The full impact on our business of these automatic cuts is uncertain.
If government spending is reduced, anticipated budgetary shortfalls may also impact the ability of relevant agencies, such as the FDA or the National Institutes of Health to
continue to function at current levels. Amounts allocated to federal grants and contracts may be reduced or eliminated. These reductions may also impact the ability of relevant
agencies to timely review and approve drug research
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and development, manufacturing, and marketing activities, which may delay our ability to develop, market and sell any products we may develop. Any reductions in
government spending in countries outside the United States may also impact us negatively, such as by limiting the functioning of international regulatory agencies in countries
outside the United States or by eliminating programs on which we may rely.
Even if we obtain regulatory approval for cytisinicline, we will remain subject to ongoing regulatory requirements in connection with the sale and distribution of
cytisinicline.
Even if cytisinicline is approved by the FDA or comparable foreign regulatory authorities, we will be subject to ongoing regulatory requirements with respect to manufacturing,
labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing clinical trials, and submission of safety, efficacy and other post-
approval information, including both federal and state requirements in the United States and the requirements of comparable foreign regulatory authorities. Compliance with
such regulatory requirements will likely be costly and the failure to comply would likely result in penalties, up to and including, the loss of such approvals from the FDA or
comparable foreign regulatory authorities.
Manufacturers and manufacturers’ facilities are required to continuously comply with FDA and comparable foreign regulatory authority requirements, including ensuring that
quality control and manufacturing procedures conform to current cGMP regulations and corresponding foreign regulatory manufacturing requirements. As such, we, Sopharma
and other contract manufacturers, if any, will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any NDA
or marketing authorization application. Sopharma currently does not have FDA approval of its facilities in Bulgaria. If Sopharma or our other contract manufacturers fail to
maintain cGMP compliance or fail inspections with the FDA and other regulators, then our business could severely be harmed.
Ongoing post-approval monitoring and clinical trial obligations may be costly to us and the failure to meet such obligations may result in the withdrawal of such approvals.
Any regulatory approvals that we receive for cytisinicline may be subject to limitations on the approved indicated uses for which cytisinicline may be marketed or to the
conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy
of cytisinicline. We will be required to report adverse reactions and production problems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation
addressing product safety issues could result in delays in product development or commercialization, or increased costs to assure compliance. If our original marketing approval
for cytisinicline was obtained through an accelerated approval pathway, we could be required to conduct a successful post-marketing clinical trial in order to confirm the
clinical benefit for our products. An unsuccessful post-marketing clinical trial or failure to complete such a trial could result in the withdrawal of marketing approval.
If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility
where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, the regulatory agency may impose restrictions on that product or us,
including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may,
among other things:
•
issue warning letters;
•
impose civil or criminal penalties;
•
suspend or withdraw regulatory approval;
•
suspend any of our ongoing clinical trials;
•
refuse to approve pending applications or supplements to approved applications submitted by us;
•
impose restrictions on our operations, including closing our contract manufacturers’ facilities; or
•
require a product recall.
Any government investigation of alleged violations of law would be expected to require us to expend significant time and resources in response and could generate adverse
publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to develop and commercialize our products and the
value of us and our operating results would be adversely affected.
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We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, and health information privacy and security laws. If we
are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
If we obtain FDA approval for cytisinicline and begin commercializing it in the United States, our operations may be subject to various federal and state fraud and abuse laws,
including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws may impact, among
other things, our proposed sales, marketing, and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states
in which we conduct our business. The laws that may affect our ability to operate include:
•
the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying
remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare
program, such as the Medicare and Medicaid programs;
•
federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly
presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;
•
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a
scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;
•
HIPAA, as amended by the Health Information Technology and Clinical Health Act, and its implementing regulations, which imposes specified requirements
relating to the privacy, security, and transmission of individually identifiable health information;
•
the federal physician sunshine requirements under the Healthcare Reform Law requires manufacturers of products, devices, biologics, and medical supplies to
report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other
healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate
family members and applicable group purchasing organizations; and
•
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-
party payor, including governmental and private payors, to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant
compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential
referral sources; state laws that require product manufacturers to report information related to payments and other transfers of value to physicians and other
healthcare providers or marketing expenditures, and state laws governing the privacy and security of health information in specified circumstances, many of
which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject
to challenge under one or more of such laws. In addition, recent healthcare reform legislation has strengthened these laws. For example, the Healthcare Reform Law, among
other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of
this statute or specific intent to violate it. Moreover, the Healthcare Reform Law provides that the government may assert that a claim including items or services resulting from
a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties,
including civil and criminal penalties, damages, fines, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, imprisonment, and the
curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and its results of operations.
Our employees, independent contractors, consultants, commercial partners, principal investigators, or CROs may engage in misconduct or other improper activities,
including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.
We are exposed to the risk of fraud or misconduct by employees, independent contractors, consultants, commercial partners, principal investigators, or CROs, which could
include intentional, reckless, negligent, or unintentional failures to comply with FDA regulations,
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comply with applicable fraud and abuse laws, provide accurate information to the FDA, report financial information or data accurately, or disclose unauthorized activities to us.
This misconduct could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, which could result in regulatory sanctions and
serious harm to our reputation. It is not always possible to identify and deter this type of misconduct, and the precautions we take to detect and prevent this activity may not be
effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in
compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions
could have a significant impact on our business, financial condition and results of operations, including the imposition of significant fines or other sanctions. Further, even if we
are successful in asserting a defense, we may incur substantial costs in preparing and maintaining our defense and any such action would be time- and resource-intensive and
potentially divert management’s attention from the business, which could adversely affect our business and results of operations.
Moreover, our employees are increasingly utilizing social media tools and our website as a means of communication. Despite our efforts to monitor social media
communications, there is risk that the unauthorized use of social media by our employees to communicate about our products or business, or any inadvertent disclosure of
material, nonpublic information through these means, may result in violations of applicable laws and regulations, which may give rise to liability and result in harm to our
business. In addition, there is also risk of inappropriate disclosure of sensitive information, which could result in significant legal and financial exposure and reputational
damages that could potentially have a material adverse impact on our business, financial condition, results of operations and prospects. Our employees could also
inappropriately utilize artificial intelligence, or AI, in connection with their social media communications, introducing another potential source of reputational damage or other
potential legal or financial exposure.
A Breakthrough Therapy designation by the FDA may not lead to a faster development or regulatory review or approval process for the vaping/ e-cigarette cessation
indication and it does not increase the likelihood that our product candidates will receive marketing approval.
The FDA has granted Breakthrough Therapy designation for cytisinicline for nicotine e-cigarette, or vaping, cessation. A breakthrough therapy is defined as a drug or biologic
that is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical evidence
indicates that the drug or biologic may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial
treatment effects observed early in clinical development. For product candidates that have been designated as breakthrough therapies, interaction and communication between
the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development but does not guarantee a more efficient path.
Our receipt of Breakthrough Therapy designation for cytisinicline may not result in a faster development process, review or approval and does not assure ultimate approval by
the FDA. In addition, when a product candidate qualifies as a breakthrough therapy, the FDA may later decide that the product no longer meets the conditions for qualification.
Risks Related to our Business Operations
It is difficult to evaluate our current business, predict our prospects and forecast our financial performance and growth.
To date our business activities have been focused primarily on the development and regulatory approval of cytisinicline and its various alternative forms. Although we have not
generated revenue to date, we expect that, after any regulatory approval, any receipt of revenue will be attributable to sales of cytisinicline, primarily in the United States, the
EU (including the U.K.) and Asia. Because we devote substantially all of our resources to the development of cytisinicline and rely on cytisinicline as our sole source of
potential revenue for the foreseeable future, any factors that negatively impact this product, or result in decreasing product sales, would materially and adversely affect our
business, financial condition and results of operations.
Our future success depends in part on our ability to attract, retain, and motivate other qualified personnel.
We will need to expand and effectively manage our managerial, operational, financial, development and other resources in order to successfully pursue our development and
commercialization efforts for our existing and future product candidates. We expect to need additional scientific, technical, operational, financial and other personnel. Our
success depends on our continued ability to attract, retain and motivate highly qualified personnel, such as management, clinical and preclinical personnel, including our
executive chairman Thomas B. King, and our executive officers Richard Stewart, Mark Oki, Cindy Jacobs and Jaime Xinos. In addition, although we have entered into
employment agreements with each of Mr. King, Mr. Stewart, Mr. Oki, Dr. Jacobs and Ms. Xinos, such
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agreements permit those executives to terminate their employment with us at any time, subject to providing us with advance written notice.
We may not be able to attract and retain personnel on acceptable terms, if at all, given the competition among numerous pharmaceutical and biotechnology companies for
individuals with similar skill sets. In addition, failure to succeed in development and commercialization of cytisinicline may make it more challenging to recruit and retain
qualified personnel. The inability to recruit and retain qualified personnel, or the loss of the services of our current personnel may impede the progress of our research,
development, and commercialization objectives and would negatively impact our ability to succeed in our product development strategy.
We will need to expand our organization and we may experience difficulties in managing this growth, which could disrupt our operations.
We will need to expand our organization as we prepare for potential commercialization of cytisinicline, which may require us to divert a disproportionate amount of our
attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. We do not currently have a commercial
infrastructure, and we may not be able to successfully develop a commercial infrastructure to support the commercialization of cytisinicline on the timeline needed, or at all.
Commercialization requires significantly greater financial and organizational resources, which may not be available to us. We may not be able to effectively manage the
expansion of our operations, which may result in weaknesses in its infrastructure, operational mistakes, loss of business opportunities, loss of employees, and reduced
productivity among remaining employees. Expanded growth and commercialization requires significant capital expenditures and may divert financial resources from other
projects, such as the development of additional product candidates. If we are unable to effectively manage our growth or commercialize plans, our expenses may increase more
than expected, our ability to generate and/or grow revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and
our ability to commercialize product candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth and commercialization.
In the future, we may invest in the development of additional indications for cytisinicline. If we invest in and are unsuccessful in developing additional indications for
cytisinicline, our business, financial condition and results of operations may be adversely affected.
In the future, we may invest in the research and development of new indications for cytisinicline to address nicotine dependence associated with the use of e-cigarette, or
vaping, products. Given their recent introduction, the use of vaping products is not fully understood which may increase the risk of failure in this area. We expect that we will
need to invest significant amounts of capital to pursue development of an e-cigarette cessation indication. If we are unable to provide such additional capital when needed, we
may be unable to complete the development, regulatory approval and commercialization of an e-cigarette cessation indication.
The development of additional indications for cytisinicline is highly uncertain. During the research and development cycle, we may expend significant time and resources on
developing additional indications without any assurance that we will recoup our investments or that our efforts will be commercially successful. A high rate of failure is
inherent in the discovery and development of additional indications, and failure can occur at any point in the process, including late in the process after substantial investment.
Further, any new indications may not be accepted by physicians and the medical community at large, and competitors may develop and market equivalent or superior products.
Failure to launch commercially successful new indications for cytisinicline after significant investment could have a material adverse effect on our business, financial condition
and results of operations.
Our internal computer systems, or those of our third-party collaborators or other service providers, may fail or suffer security breaches and cyber-attacks, which could
result in a material disruption of our development programs.
We believe that we take reasonable steps that are designed to protect the security, integrity and confidentiality of the information we collect, use, store, and disclose, but
inadvertent or unauthorized data access may occur despite our efforts. Our system protections may be ineffective or inadequate, or we could be impacted by software bugs or
other technical malfunctions, as well as employee error or malfeasance. Additionally, privacy and data protection laws are evolving, and it is possible that these laws may be
interpreted and applied in a manner that is inconsistent with our data handling safeguards and practices that could result in fines, lawsuits, and other penalties, and significant
changes to our or our third-party collaborators or service providers business practices and products and service offerings. To the extent that the measures we or our third-party
collaborators or service providers have taken prove to be insufficient or inadequate, we may become subject to litigation, breach notification obligations, or regulatory or
administrative sanctions, which could result in significant fines, penalties, damages, harm to our reputation, or loss of customers. While we have not experienced any material
losses as a result of any system failure, accident or security breach to date, we have been the subject of certain phishing attempts in the past. If such an event were to occur and
cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss of our trade secrets
or other proprietary information or other similar disruptions. Additionally, a party who circumvents our security measures could, among other
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effects, appropriate patient information or other proprietary data, cause interruptions in our operations, or expose our collaborators to hacks, viruses, and other disruptions. For
example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to
recover or reproduce the data. In addition, insurance coverage to compensate for any losses associated with such events, if available, may not be adequate to cover all potential
losses. The development and maintenance of these systems, controls and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to
overcome security measures become increasingly sophisticated.
To the extent that any disruption, security breach, or cyber-attack were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of personal,
confidential or proprietary information, we could incur liability, our competitive position could be harmed and the further development and commercialization of our product
candidate could be delayed. Depending on the nature of the information compromised, in the event of a data breach or other unauthorized access to our patient data, we may
also have obligations to notify patients and regulators about the incident, and we may need to provide some form of remedy, such as a subscription to credit monitoring
services, pay significant fines to one or more regulators, or pay compensation in connection with a class-action settlement (including under the new private right of action under
the California Consumer Privacy Act of 2018). Such breach notification laws continue to evolve and may be inconsistent from one jurisdiction to another. Complying with
these obligations could cause us to incur substantial costs and could increase negative publicity surrounding any incident that compromises customer data. Additionally, the
financial exposure from the events referenced above could either not be insured against or not be fully covered through any insurance that we may maintain or obtain in the
future, and there can be no assurance that the limitations of liability in any of our contracts would be enforceable or adequate or would otherwise protect us from liabilities or
damages as a result of the events referenced above. Any of the foregoing could have an adverse effect on our business, reputation, financial condition and results of operations.
In efforts to innovate and optimize operational efficiency, certain third parties with whom we work may integrate AI into various aspects of their work with us. While we do not
currently utilize AI tools in a significant way, we may in the future integrate AI into various projects. While AI presents opportunities for enhanced productivity and innovation,
it also introduces inherent risks, including legal and regulatory, that could adversely impact our business and reputation. Proper use of AI can lead to improved decision-
making, cost reduction, and competitive advantage. However, improper use, including algorithmic biases, ethical considerations, data privacy issues, unknown or zero-day
software vulnerabilities, and potential regulatory non-compliance, by our employees or third parties with whom we work could result in reputational damage, legal liabilities,
and financial losses. The rapidly evolving regulatory landscape surrounding AI also poses a risk, as new laws and regulations could impose additional compliance burdens,
resulting in increased operational costs. We are committed to implementing robust governance and control mechanisms to mitigate these risks, but there can be no assurance
that such measures will adequately prevent or mitigate the adverse effects that the integration and use of AI may have on our business, financial condition, and results of
operations.
Risks Related to Our Reliance on Third Parties
We expect to continue to rely on third parties to manufacture cytisinicline. We currently exclusively rely on Sopharma to manufacture cytisinicline for use in clinical trials
and plan to engage other third parties for our manufacturing process, including to manufacture cytisinicline on a commercial scale, if approved. Our commercialization of
cytisinicline could be stopped, delayed or made less profitable if Sopharma fails to obtain approval of government regulators, fails to provide us with sufficient quantities of
product or fails to do so at acceptable quality levels or prices.
We do not currently have, nor do we currently plan to develop, the internal infrastructure or capability to manufacture our clinical supplies for use in the conduct of our clinical
trials, and we lack the resources and the capability to manufacture cytisinicline on a clinical or commercial scale. We currently exclusively rely on Sopharma to manufacture
cytisinicline for use in clinical trials and plan to engage other third parties for our manufacturing process, including, if cytisinicline is approved, to manufacture cytisinicline on
a commercial scale, with tableting, blistering and packaging. We may encounter technical difficulties or delays in the transfer of cytisinicline manufacturing on a commercial
scale to other third-party manufacturers, encounter difficulties and delays in identifying third-party manufacturers other than Sopharma. We may be unable to enter into
agreements for commercial supply with third-party manufacturers on acceptable terms, or at all. If and when product sales for cytisinicline commence and grow, cytisinicline
will require production processes to be scaled up. We will be dependent on external manufacturers and suppliers to ensure that their manufacturing processes can be scaled up
adequately such that we are able to supply the market. If any of our key suppliers are unable or unwilling to scale up production, or we otherwise experience a product shortfall,
any such product shortfall could delay commercialization of cytisinicline and impair sales, and our business, financial condition and results of operations could be materially
adversely affected.
Sopharma and potential other third-party manufacturers are subject to regulatory requirements covering manufacturing, testing, quality control and record keeping relating to
product candidates and are also subject to ongoing inspections by regulatory agencies. While Sopharma has been subject to oversight by regulators in Europe and Bulgaria, they
have never been inspected by the FDA and there is no assurance that their quality systems will be satisfactory to pass a pre-approval inspection by the FDA. Failure by
Sopharma or any
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of our potential third-party manufacturers to comply with applicable regulations may result in long delays and interruptions to our product candidate supply while we seek to
secure another supplier that meets all regulatory requirements.
Our reliance on Sopharma and potential other third-party manufacturers exposes us to the following additional risks:
•
Sopharma and potential other third-party manufacturers might be unable to timely manufacture cytisinicline or produce the quantity and quality required to
meet our clinical and commercial needs, if any;
•
Sopharma and potential other third-party manufacturers may not be able to execute our manufacturing procedures appropriately;
•
Sopharma and potential other third-party manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time
required to supply our clinical trials or to successfully produce, store and distribute our products;
•
Sopharma and potential other third-party manufacturers are or will be subject to ongoing periodic unannounced inspection by the FDA and corresponding state
agencies to ensure strict compliance with cGMPs and other government regulations and corresponding foreign standards. We do not have control over
Sopharma’s, or other third parties’, compliance with these regulations and standards;
•
we may not own, or may have to share, the intellectual property rights to any improvements made by Sopharma and potential other third-party manufacturers in
the manufacturing process for cytisinicline;
•
we do not own all the intellectual property rights to cytisinicline, and Sopharma and potential other third-party manufacturers could license such rights to third
parties or begin supplying other third parties with cytisinicline; and
•
Sopharma and potential other third-party manufacturers could breach or terminate their agreement with us.
Each of these risks could delay our clinical trials, the approval, if any, of cytisinicline by the FDA or the commercialization of cytisinicline or result in higher costs or deprive
us of potential product revenue.
We currently rely on Sopharma to package the cytisinicline used in our clinical trials. If Sopharma fails to timely deliver the supplies needed, then our clinical studies could be
delayed materially. Sopharma may fail to perform under their contractual obligations or may fail to deliver the required commercial product on a timely basis and at
commercially reasonable prices. If we are required to identify and qualify an alternate manufacturer, we may be forced to delay or suspend our clinical trials.
The manufacture of medical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques
and process controls. Manufacturers of medical products often encounter difficulties in production, particularly in scaling up and validating initial production and absence of
contamination. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error,
shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if contaminants are discovered in the supply of
cytisinicline or in the Sopharma manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the
contamination. We cannot be assured that any stability or other issues relating to the manufacture of cytisinicline will not occur in the future. Additionally, Sopharma may
experience manufacturing difficulties due to resource constraints or as a result of labor disputes or political instability in the countries in which Sopharma conducts its
operations. For example, the military conflict between Russia and Ukraine may increase the likelihood of supply interruptions and hinder our ability to find the materials we
need to make our product candidate. If Sopharma were to encounter any of these difficulties, or otherwise fail to comply with its contractual obligations, our ability to provide
our product candidate to patients in clinical trials could be delayed or suspended. Any delay or interruption in the supply of clinical trial supplies could delay the completion of
clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at
additional expense or terminate clinical trials completely. Similar political instability could also harm the commercial production and supply of cytisinicline in the event that
cytisinicline is ultimately approved for commercial sale.
In June 2021, Pfizer Inc. halted the distribution of its smoking cessation drug, Chantix (varenicline) after heightened levels of a nitrosamine impurity, called N-nitroso-
varenicline, which were above the FDA’s acceptable daily intake limit, were found in some lots of Chantix pills. Long-term use of products containing N-nitroso-varenicline
may be associated with a potential increased cancer risk in humans. In September 2021, Pfizer announced a nationwide recall in the United States of all lots of Chantix and
have also withdrawn the product in other countries around the globe. We have undertaken a review of cytisinicline in accordance with regulatory guidance to assess the risk of
the presence of nitrosamines and other potential impurities. If contaminants, or impurities
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such as nitrosamines, are discovered in quantities above regulators’ thresholds within our supply of cytisinicline, we may potentially delay product development and approval
or have a material adverse impact on our business.
We and our third-party manufacturers may also be impacted by new legislation and regulations relating to the manufacture of medical products. For example, legislation has
been introduced and passed in Congress to limit certain U.S. biotechnology companies from using equipment or services produced or provided by select Chinese biotechnology
companies, including those affiliated with the manufacture of our API, Wuxi STA, and others in Congress have advocated for the use of existing executive branch authorities to
limit those Chinese service providers’ ability to engage in business in the U.S. We cannot predict what actions may ultimately be taken with respect to trade relations between
the United States and China or other countries, what products and services may be subject to such actions or what actions may be taken by the other countries in retaliation.
We rely on third parties to conduct our clinical trials and perform other services. If these third parties do not successfully perform and comply with regulatory
requirements, we may not be able to successfully complete clinical development, obtain regulatory approval or commercialize cytisinicline and our business could be
substantially harmed.
We plan to rely upon third-party CROs to conduct, monitor and manage our ongoing clinical programs. We rely on these parties for execution of clinical trials and manage and
control only some aspects of their activities. We remain responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal,
regulatory, and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to
comply with all applicable laws, regulations and guidelines, including those required by the FDA and comparable foreign regulatory authorities for all of our product candidates
in clinical development. If we or any of our CROs or vendors fail to comply with applicable laws, regulations and guidelines, the results generated in our clinical trials may be
deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications.
We cannot be assured that our CROs and other vendors will meet these requirements, or that upon inspection by any regulatory authority, such regulatory authority will
determine that efforts, including any of our clinical trials, comply with applicable requirements. Our failure to comply with these laws, regulations and guidelines may require
us to repeat clinical trials, which would be costly and delay the regulatory approval process.
If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs in a timely manner or do so on
commercially reasonable terms. In addition, our CROs may not prioritize our clinical trials relative to those of other customers and any turnover in personnel or delays in the
allocation of CRO employees by the CRO may negatively affect our clinical trials. If CROs do not successfully carry out their contractual duties or obligations or meet
expected deadlines, continued development of cytisinicline may be delayed or terminated and we may not be able to meet our current plans with respect to cytisinicline. CROs
may also involve higher costs than anticipated, which could negatively affect our financial condition and operations.
We may not be able to establish or maintain the third-party relationships that are necessary to develop or potentially commercialize cytisinicline.
Our business plan relies heavily on third-party collaborators, partners, licensees, clinical research organizations, clinical investigators, vendors or other third parties to support
our research and development efforts and to conduct clinical trials for cytisinicline. We cannot guarantee that we will be able to successfully negotiate agreements for, or
maintain relationships with, these third parties on a commercially reasonable basis, if at all. If we fail to establish or maintain such third-party relationships as anticipated, our
business could be adversely affected.
We may be unable to realize the potential benefits of any collaborations which we may enter into with other companies for the development and commercialization of
cytisinicline.
We may enter into a collaboration with third parties concerning the development and/or commercialization of cytisinicline; however, there is no guarantee that any such
collaboration will be successful. Collaborations may pose a number of risks, including:
•
collaborators often have significant discretion in determining the efforts and resources that they will apply to the collaboration, and may not commit sufficient
resources to the development, marketing or commercialization of cytisinicline;
•
collaborators may not perform their obligations as expected;
•
any such collaboration may significantly limit our share of potential future profits from the associated program, and may require us to relinquish potentially
valuable rights to cytisinicline, or other potential products or proprietary technologies or grant licenses on terms that are not favorable to us;
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•
collaborators may cease to devote resources to the development or commercialization of cytisinicline if the collaborators view cytisinicline as competitive with
their own products or product candidates;
•
disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the course of development, might cause delays or
termination of the development or commercialization of cytisinicline, and might result in legal proceedings, which would be time consuming, distracting and
expensive;
•
collaborators may be impacted by changes in their strategic focus or available funding, or business combinations involving them, which could cause them to
divert resources away from the collaboration;
•
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;
•
the collaborations may not result in us achieving revenues to justify such transactions; and
•
collaborations may be terminated and, if terminated, may result in a need for us to raise additional capital to pursue further development or commercialization
of cytisinicline.
As a result, a collaboration may not result in the successful development or commercialization of cytisinicline.
We enter into various contracts in the normal course of our business in which we indemnify the other party to the contract. In the event we have to perform under these
indemnification provisions, it could have a material adverse effect on our business, financial condition and results of operations.
In the normal course of business, we enter into academic, commercial, service, collaboration, licensing, consulting and other agreements that contain indemnification
provisions. With respect to our academic and other research agreements, we typically indemnify the institution and related parties from losses arising from claims relating to the
products, processes or services made, used, sold or performed pursuant to the agreements for which we have secured licenses, and from claims arising from our or our
sublicensees’ exercise of rights under the agreement. With respect to our collaboration agreements, we indemnify our collaborators from any third-party product liability claims
that could result from the production, use or consumption of the product, as well as for alleged infringements of any patent or other intellectual property right by a third party.
With respect to consultants, we indemnify them from claims arising from the good faith performance of their services.
Should our obligation under an indemnification provision exceed applicable insurance coverage or if we were denied insurance coverage, our business, financial condition and
results of operations could be adversely affected. Similarly, if we are relying on a collaborator to indemnify us and the collaborator is denied insurance coverage or the
indemnification obligation exceeds the applicable insurance coverage, and if the collaborator does not have other assets available to indemnify us, our business, financial
condition and results of operations could be adversely affected.
We may rely on third parties to perform many essential services for any of our current or future product candidates that we commercialize, including services related to
warehousing and inventory control, distribution, government price reporting, customer service, accounts receivable management, cash collection, and adverse event
reporting. If these third parties fail to perform as expected or to comply with legal and regulatory requirements, our ability to commercialize any of our current or future
product candidates will be significantly impacted and we may be subject to regulatory sanctions.
We may retain third‑party service providers to perform a variety of functions related to the sale and distribution of any of our current or future product candidates, key aspects
of which will be out of our direct control. These service providers may provide key services related to warehousing and inventory control, distribution, government price
reporting, customer service, accounts receivable management, and cash collection, and, as a result, most of our inventory may be stored at a single warehouse maintained by
one such service provider. If we retain a service provider, we would substantially rely on it as well as other third‑party providers that perform services for us, including
entrusting our inventories of products to their care and handling. If these third‑party service providers fail to comply with applicable laws and regulations, fail to meet expected
deadlines, or otherwise do not carry out their contractual duties to us, or encounter physical or natural damage at their facilities, our ability to deliver product to meet
commercial demand would be significantly impaired and we may be subject to regulatory enforcement action.
In addition, we may engage third parties to perform various other services for us relating to adverse event reporting, safety database management, fulfillment of requests for
medical information regarding our product candidates and related services. If the quality or accuracy of the data maintained by these service providers is insufficient, or these
third parties otherwise fail to comply with regulatory requirements related to adverse event reporting, we could be subject to regulatory sanctions.
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Additionally, if a third-party errs in calculating government pricing information from transactional data in our financial records, it could impact our discount and rebate liability
and potentially cause government programs to overpay providers for our products, which could expose us to significant False Claims Act liability and other civil monetary
penalties.
Risks Related to Commercialization of Cytisinicline
We face substantial competition and our competitors may discover, develop or commercialize products faster or more successfully than us.
The development and commercialization of new products is highly competitive. We face competition from major pharmaceutical companies, specialty pharmaceutical
companies, biotechnology companies, universities and other research institutions worldwide with respect to products for smoking cessation and other product candidates that
we may seek to develop or commercialize in the future. We are aware that many companies have therapeutics marketed or in development for smoking cessation. We expect
that our competitors and potential competitors have historically dedicated, and will continue to dedicate, significant resources to aggressively develop and commercialize their
products in order to take advantage of the significant market opportunity.
We have and will continue to pursue new cytisinicline products and alternative sources of cytisinicline used for our products, including additional natural and synthetic sources
and routes. The pursuit and development of alternative cytisinicline products and sources is expensive, time consuming, involves significant risk and may not be commercially
feasible. There is no guarantee that we will be successful, or that we will be able to develop new products or alternative cytisinicline sources first before our competitors do.
Many of our competitors have substantially greater financial, name recognition, manufacturing, marketing, research, technical and other resources than us. Additional mergers
and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Further, our competitors may
develop new products that are safer, more effective or more cost-efficient than cytisinicline. Large pharmaceutical companies in particular have extensive expertise in non-
clinical and clinical testing and in obtaining regulatory approvals for products. In addition, academic institutions, government agencies, and other public and private
organizations conducting research may seek patent protection with respect to potentially competitive products or technologies. These organizations may also establish exclusive
collaborative or licensing relationships with our competitors. Failure of cytisinicline to effectively compete against established treatment options or in the future with new
products currently in development would harm our business, financial condition, results of operations and prospects.
The commercial success of cytisinicline will depend upon the degree of market acceptance by physicians, patients, third-party payors, and others in the medical community.
Failure to obtain or maintain adequate reimbursement or insurance coverage for products, if any, could limit our ability to market cytisinicline and decrease our ability to
generate revenue.
Even with the approvals from the FDA and comparable foreign regulatory authorities, the commercial success of cytisinicline will depend in part on the healthcare providers,
patients, and third-party payors accepting cytisinicline as medically useful, cost-effective, and safe. Cytisinicline may not gain market acceptance by physicians, patients and
third-party payors. The degree of market acceptance of cytisinicline will depend on a number of factors, including but not limited to:
•
the safety and efficacy of cytisinicline as demonstrated in clinical trials and potential advantages over competing treatments, if any;
•
the clinical indications for which approval is granted, if any, including any limitations or warnings contained in cytisinicline’s approved labeling;
•
the cost of treatment;
•
the perceived ratio of risk and benefit of these therapies by physicians and the willingness of physicians to recommend the product to patients based on such
risks and benefits;
•
the marketing, sales and distribution support for cytisinicline;
•
the publicity concerning cytisinicline or competing products and treatments;
•
the pricing and availability of third-party insurance coverage and reimbursement;
•
negative perceptions or experiences with our competitor’s products may be ascribed to cytisinicline; and
•
availability of cytisinicline from other suppliers and/or distributors.
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Even if cytisinicline displays a favorable efficacy and safety profile upon approval, market acceptance of cytisinicline remains uncertain. Efforts to educate the medical
community and third-party payors on the benefits of cytisinicline, if any, may require significant investment and resources and may never be successful.
Sales of cytisinicline, if any, will depend substantially, both domestically and abroad, on the extent to which the costs of cytisinicline will be paid for or reimbursed by health
maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or government payors and private payors. Significant uncertainty exists as to
the reimbursement status for newly approved prescription products, including coding, coverage and payment. There is no uniform policy requirement for coverage and
reimbursement for prescription products among third-party payors in the United States; therefore, coverage and reimbursement for our products could differ significantly from
payor to payor. In the United States, third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies, but they
also have their own methods and approval process apart from Medicare coverage and reimbursement determinations. It is difficult to predict what CMS will decide with respect
to reimbursement for novel product candidates such as cytisinicline and what reimbursement codes cytisinicline may receive if approved. If coverage and reimbursement are
not available, or are available only in limited amounts, we may have to subsidize or provide cytisinicline for free or we may not be able to successfully commercialize
cytisinicline
Additionally, third-party payors, including governmental and private insurers, may also encourage the use of generic products instead of cytisinicline, or a generic version of
cytisinicline, which require a prescription or may be available OTC. If our products fail to achieve an adequate level of acceptance by physicians, patients, third-party payors,
and other healthcare providers, we will not be able to generate sufficient revenue to become or remain profitable.
Outside the United States, selling operations are generally subject to extensive governmental price controls and other price-restrictive regulations, and we believe the increasing
emphasis on cost-containment initiatives in Europe, Canada, and other countries has and will continue to put pressure on the pricing and usage of products. In many countries,
the prices of products are subject to varying price control mechanisms as part of national health systems. Price controls or other changes in pricing regulation could restrict the
amount that we are able to charge for our products, if any. Accordingly, in markets outside the United States, the potential revenue may be insufficient to generate
commercially reasonable revenue and profits.
To secure coverage and reimbursement for any product that might be approved for sale, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate
the medical necessity and cost-effectiveness of the product to third-party payors, which costs would be in addition to those required to obtain FDA or other comparable
regulatory approvals. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Moreover, eligibility for
reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs. Interim payments for new products, if applicable, may also not be
sufficient to cover our costs and may not be made permanent. Payment rates may vary according to the use of the product and the clinical setting in which it is used, may be
based on payments allowed for lower cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products may
be reduced by mandatory discounts or rebates required by third-party payors and by any future relaxation of laws that presently restrict imports of products from countries
where they may be sold at lower prices than in the United States.
Accordingly, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our
products to each payor separately, with no assurance that coverage and adequate payment will be applied consistently or obtained. The process for determining whether a payor
will cover and how much it will reimburse a product may be separate from the process of seeking approval of the product or for setting the price of the product. Even if
reimbursement is provided, market acceptance of our products may be adversely affected if the amount of payment for our products proves to be unprofitable for health care
providers or less profitable than alternative treatments or if administrative burdens make our products less desirable to use.
Increasing efforts by governmental and private payors in the United States and abroad to limit or reduce healthcare costs may result in restrictions on coverage and the level of
reimbursement for new products.
Increasing efforts by governmental and private payors in the United States and abroad to limit or reduce healthcare costs may result in restrictions on coverage and the level of
reimbursement for new products and, as a result, they may not cover or provide adequate payment for our products. We expect to experience pricing pressures in connection
with products due to the increasing trend toward managed healthcare, including the increasing influence of health maintenance organizations and additional legislative changes.
The downward pressure on healthcare costs in general, particularly prescription products, has and is expected to continue to increase in the future. As a result, profitability of
cytisinicline, if any, may be more difficult to achieve even if regulatory approval is received.
The containment of health care costs has become a priority of federal and state governments and the prices of drug products have been a focus in this effort. For example, there
have been several recent U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship
between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. We expect that federal, state and local
governments in the United States will continue to consider legislation directed at lowering the total cost of health care. Individual states in the United States have increasingly
passed legislation and implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions
on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk
purchasing. In December
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2020, the U.S. Supreme Court held unanimously that federal law does not preempt the states’ ability to regulate pharmaceutical benefit managers and other members of the
health care and pharmaceutical supply chain, an important decision that may lead to further and more aggressive efforts by states in this area.
It is uncertain whether and how future legislation or regulatory changes, to the ACA and otherwise, could affect prospects for our product candidates or what actions third-party
payors may take in response to any such health care reform proposals or legislation. Adoption of price controls and cost containment measures, and adoption of more restrictive
policies in jurisdictions with existing controls and measures reforms may prevent or limit our ability to generate revenue, attain profitability or commercialize our product
candidates. Currently, the ACA and other federal laws and rules require most health insurance plans in the United States to cover some level of tobacco cessation treatments,
including smoking cessation counseling and medications. If these provisions are repealed, in whole or in part, our business, financial condition, or results of operations could
be negatively affected.
Failure by us or a commercial partner to obtain timely or adequate coverage and pricing for our products, if approved, or obtaining such coverage and pricing at unfavorable
levels, could materially adversely affect our business, financial conditions, results of operations and prospects.
Sopharma may breach its supply agreement with us and sell cytisinicline into our territories or permit third parties to export cytisinicline into our territories and negatively
affect our commercialization efforts of our products in our territories.
We are currently dependent on the exclusivity provisions of our supply agreement with Sopharma to conduct our business and to prevent Sopharma from competing, directly
and indirectly, with us in the United States and Western Europe. If Sopharma were to breach the exclusivity provisions of the supply agreement with us and sell or distribute
cytisinicline directly into our territories or permit third parties to export cytisinicline into our territories, among other things, the increase in competition within our anticipated
markets could have a material adverse effect on our business, results of operations and financial condition.
The illegal distribution and sale by third parties of counterfeit versions of cytisinicline, stolen products, or alternative third-party distribution and sale of cytisinicline could
have a negative impact on our financial performance or reputation.
Cytisinicline is not eligible for composition of matter patents in the United States as it is a naturally occurring substance. As such, third parties are able to manufacture, sell or
distribute cytisinicline without royalties or other payments to us and compete with our products in the United States and potentially worldwide and negatively impact our
commercialization efforts of our products. We are aware of additional cytisinicline products approved in several European countries and we may not be able to block other third
parties from launching generic versions of cytisinicline. Third parties may also sell or distribute cytisinicline as an herbal or homeopathic product. Other than regulatory
exclusivity or other limitations, there may be little to nothing to stop these third parties from manufacturing, selling or distributing cytisinicline. Because we have no ability to
set rigorous safety standards or control processes over third-party manufacturers, sellers or distributors of cytisinicline, excluding Sopharma, these formulations of cytisinicline
may be unsafe or cause adverse effects to patients and negatively impact the reputation of cytisinicline as a safe and effective smoking cessation aid.
Third parties could illegally distribute and sell counterfeit versions of cytisinicline, especially on online marketplaces, which do not meet the rigorous manufacturing and testing
standards under cGMP. Counterfeit products are frequently unsafe or ineffective, and may even be life-threatening. Counterfeit medicines may contain harmful substances, the
wrong dose of the active pharmaceutical ingredient or no active pharmaceutical ingredients at all. However, to distributors and users, counterfeit products may be visually
indistinguishable from the authentic version.
Reports of adverse reactions to counterfeit products, increased levels of counterfeiting, or unsafe cytisinicline products could materially affect patient confidence in our
cytisinicline product. It is possible that adverse events caused by unsafe counterfeit or other cytisinicline products that we do not produce will mistakenly be attributed to our
cytisinicline product. In addition, thefts of inventory that are not properly stored at warehouses, plants or while in-transit, and which are sold through unauthorized channels
could adversely impact patient safety, our reputation, and our business. Public loss of confidence in the integrity in cytisinicline as a result of counterfeiting, theft, or improper
manufacturing processes could have a material adverse effect on our business, results of operations, and financial condition.
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It is illegal to sell unapproved prescription medicines in the United States. Sopharma’s cytisinicline brand is currently approved for sale in certain Central and Eastern European
countries. Cytisinicline has not yet received a marketing approval from the FDA, and we intend to conduct the requisite clinical trials to obtain approval for the marketing of
cytisinicline in the United States and in major global markets. We are aware that products purporting to be Sopharma’s cytisinicline brand are available, via third-party internet
sites, for importation in the United States and other global markets. We have no control over the authenticity of products purchased through these sites, which may be
counterfeit or sourced from distributors in Central and Eastern Europe without authorization to sell into the United States or EU.
We may attempt to form collaborations in the future with respect to cytisinicline, but we may not be able to do so, which may cause us to alter our development and
commercialization plans.
We may attempt to form strategic collaborations, create joint ventures or enter into licensing arrangements with third parties with respect to our programs that we believe will
complement or augment our existing business. We may face significant competition in seeking appropriate strategic collaborators, and the negotiation process to secure
appropriate terms is time consuming and complex. We may not be successful in our efforts to establish such a strategic collaboration for cytisinicline on terms that are
acceptable to us, or at all. This may be because cytisinicline may be deemed to be at too early of a stage of development for collaborative effort, our research and development
pipeline may be viewed as insufficient, the competitive or intellectual property landscape may be viewed as too intense or risky, or cytisinicline’s patent protection insufficient,
and/or third parties may not view cytisinicline as having sufficient potential for commercialization, including the likelihood of an adequate safety and efficacy profile.
Any delays in identifying suitable collaborators and entering into agreements to develop and/or commercialize cytisinicline could delay the development or commercialization
of cytisinicline, which may reduce our competitiveness even if we reach the market. Absent a strategic collaborator, we would need to undertake development and/or
commercialization activities at our own expense. If we elect to fund and undertake development and/or commercialization activities on our own, we may need to obtain
additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we are unable to do so, we may not be able to develop our product
candidate cytisinicline or bring it to market and our business may be materially and adversely affected.
We may not be successful in any efforts to identify, license, discover, develop, or commercialize additional product candidates.
Although a substantial amount of our effort will focus on clinical testing, approval, and potential commercialization of cytisinicline, our sole product candidate, the success of
our business is also expected to depend in part upon our ability to identify, license, discover, develop, or commercialize additional product candidates. Research programs to
identify new product candidates require substantial technical, financial, and human resources. We may focus our efforts and resources on potential programs or product
candidates that ultimately prove to be unsuccessful. Our research programs or licensing efforts may fail to yield additional product candidates for clinical development and
commercialization for a number of reasons, including but not limited to the following:
•
our research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;
•
we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;
•
our potential product candidates may not succeed in non-clinical or clinical testing;
•
our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or
unlikely to receive marketing approval;
•
competitors may develop alternatives that render our potential product candidates obsolete or less attractive;
•
potential product candidates we develop may be covered by third parties’ patents or other exclusive rights;
•
the market for a potential product candidate may change during our program so that such a product may become unreasonable to continue to develop;
•
a potential product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
•
a potential product candidate may not be accepted as safe and effective by patients, the medical community, or third-party payors.
If any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify, license, discover, develop, or
commercialize additional product candidates, which would have a material adverse effect on our business, financial condition or results of operations and could potentially
cause us to cease operations.
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We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations.
Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminal liability and other serious
consequences for violations that can harm our business.
We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade
sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S.
domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in
the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other partners
from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We currently
have an agreement with Sopharma to supply cytisinicline, and we may engage third parties for clinical trials outside of the United States, to sell our products abroad or provide
other services in connection with commercialization, and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals. We have direct or
indirect interactions with officials and employees of government agencies or other organizations. We can be held liable for the corrupt or other illegal activities of our
employees, agents, contractors, and other partners, even if we do not explicitly authorize or have actual knowledge of such activities. Any violations of the laws and regulations
described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of
contract and fraud litigation, reputational harm, and other consequences.
Risks Related to our Intellectual Property
If we are unable to maintain effective proprietary rights for our product candidate or any future product candidates, we may not be able to compete effectively in our
proposed markets.
We currently rely primarily on trade secret protection and on confidentiality agreements to protect proprietary know-how that is not patentable or that we elect not to patent,
processes for which patents are difficult to enforce and any other elements of our product candidate discovery and development processes that involve proprietary know-how,
information or technology that is not covered by patents. Trade secrets can be difficult to protect, however, and even where they are protected, they generally provide less
intellectual property protection to the holder of the trade secret than to a holder of a patent. We seek to protect our proprietary technology and processes, in part, by entering
into confidentiality agreements with our employees, consultants, scientific advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data and
trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these
individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets
may otherwise become known or be independently discovered by competitors.
Although we expect all of our employees and consultants to assign their inventions to us, and all of our employees, consultants, advisors, and any third parties who have access
to our proprietary know-how, information, or technology to enter into confidentiality agreements, we cannot provide any assurances that all such agreements have been duly
executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or
independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of our trade secrets could impair our competitive
position and may have a material adverse effect on our business, financial condition or results of operations. Additionally, if the steps taken to maintain our trade secrets are
deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret.
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
We are currently developing cytisinicline in treating nicotine dependence for smoking cessation in adults. Our commercial success depends in part on our ability to develop,
manufacture, market and sell our product candidates and use our proprietary technology without infringing the patent rights of third parties. We are not aware of any patents or
patent applications that would prevent the development, manufacture or marketing of cytisinicline for smoking cessation.
We are aware of U.S. and foreign patents and pending patent applications owned by third parties that cover certain other therapeutic uses of cytisinicline. We are currently
monitoring these patents and patent applications. We may in the future pursue available proceedings in the United States and foreign patent offices to challenge the validity of
these patents and patent applications. In addition, or alternatively, we may consider whether to seek to negotiate a license of rights to technology covered by one or more of
such patents and patent applications for these certain additional therapeutic uses. If any third-party patents or patent applications cover our product candidates or technologies in
other therapeutic uses, we may not be free to manufacture or market our product candidates for additional therapeutic uses, absent such a license, which may not be available to
us on commercially reasonable terms, or at all.
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It is also possible that we have failed to identify relevant third-party patents or applications. For example, applications filed before November 29, 2000 and applications filed
after that date that will not be filed outside the United States remain confidential until patents issue. Moreover, it is difficult for industry participants, including us, to identify all
third-party patent rights that may be relevant to our product candidates and technologies because patent searching is imperfect due to differences in terminology among patents,
incomplete databases and the difficulty in assessing the meaning of patent claims. We may fail to identify relevant patents or patent applications or may identify pending patent
applications of potential interest but incorrectly predict the likelihood that such patent applications may issue with claims of relevance to our technology. In addition, we may
be unaware of one or more issued patents that would be infringed by the manufacture, sale or use of a current or future product candidate, or we may incorrectly conclude that a
third-party patent is invalid, unenforceable or not infringed by our activities. Additionally, pending patent applications that have been published can, subject to specified
limitations, be later amended in a manner that could cover our technologies, our product candidates or the use of our product candidates.
There have been many lawsuits and other proceedings involving patent and other intellectual property rights in the pharmaceutical industries, including patent infringement
lawsuits, interferences, oppositions, and reexamination proceedings before the U.S. Patent and Trademark Office, or USPTO, and corresponding foreign patent offices. U.S.
and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing our product candidate. As the
biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our product candidate may be subject to claims of infringement of the
patent rights of third parties.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of
our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee
resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys’
fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial
time and monetary expenditure.
We intend to rely on patent rights for certain aspects of our product candidates and certain future product candidates. If we are unable to obtain or maintain an adequate
proprietary position from this approach, we may not be able to compete effectively in our markets.
Although we rely or will rely in part on trade secret protection as part of our intellectual property rights strategies, we also intend to rely on patent rights to protect certain
aspects of our technologies and upon the patent rights of third parties from which we license certain of our technologies.
We have sought to protect our proprietary position by filing patent applications in the United States and certain other countries around the world related to future product
candidates. This process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a
timely manner or at all. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.
The patent position of pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain unsolved.
The patent applications that we own may fail to result in issued patents with claims that cover our product candidates in the United States or in other foreign countries. There is
no assurance that all potentially relevant prior art relating to our patent applications or our patents (once issued) have been found, which can invalidate a patent or prevent a
patent from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover our future product candidates, third parties may
challenge their validity, enforceability, or scope, which may result in such patents being narrowed, found unenforceable or invalidated. Furthermore, even if they are
unchallenged, our patents and patent applications may not adequately protect our intellectual property, provide exclusivity for our future product candidates, or prevent others
from designing around our claims. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our
business.
We cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or
will be threatened by third parties. Any successful opposition to these patents or any other patents owned by or licensed to us after patent issuance could deprive us of rights
necessary for the successful commercialization of any future product candidates that we may develop. Further, if we encounter delays in regulatory approvals, the period of
time during which we could market a future product candidate under patent protection could be reduced.
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If we cannot obtain and maintain effective protection of exclusivity from our regulatory efforts and intellectual property rights, including patent protection or data exclusivity,
for our product candidates, we may not be able to compete effectively and our business and results of operations would be harmed.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity, and is therefore costly, time-consuming, and inherently
uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have
narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty
with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained, if any. Depending
on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our
ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
In Assoc. for Molecular Pathology v. Myriad Genetics, Inc., the U.S. Supreme Court held that certain claims to naturally occurring substances are not patentable. Cytisinicline
is a naturally occurring product and is not patentable. Our intellectual property strategy involves novel formulations of cytisinicline and there is no guarantee that such patents
will be issued or if issued, will be broad enough to prevent competitors from developing competing cytisinicline products. Although we do not believe that any patents that may
issue from our pending patent applications directed at our product candidate, if issued in their currently pending forms, as well as patent rights licensed by us, will be found
invalid based on this decision, we cannot predict how future decisions by the courts, the U.S. Congress or the USPTO may impact the value of our patent rights. There could be
similar changes in the laws of foreign jurisdictions that may impact the value of our patent rights or our other intellectual property rights.
We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or that
our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We employ individuals who were previously employed at other biotechnology or pharmaceutical companies. Although we have written agreements and make every effort to
ensure that our employees, consultants, and independent contractors do not use the proprietary information or intellectual property rights of others in their work for us, we may
in the future be subject to any claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties.
Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual
property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs
and be a distraction to management and other employees.
It is difficult and costly to protect our proprietary rights and as a result we may not be able to ensure their protection. In addition, patents have a limited lifespan and will
eventually expire.
Market exclusivity awarded by the FDA upon the approval of an NDA is limited in scope and duration. Our commercial success will depend in part on obtaining, maintaining,
enforcing, and defending against third‑party challenges, patent and trade secret protection for our current and future product candidates that we may develop, license or acquire,
as well as the related manufacturing methods. We will be able to protect our technologies from unauthorized use by third parties to the extent that the technologies are covered
by valid and enforceable patents or trade secrets.
The patent prosecution process is expensive and time consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost
or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.
Moreover, should we enter into additional collaborations we may be required to consult with or cede control to collaborators regarding the prosecution, maintenance, and
enforcement of our patent applications and patents. Therefore, these patents and patent applications may not be prosecuted and enforced in a manner consistent with the best
interests of our business. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for
which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in pharmaceutical or biotechnology patents has emerged to
date in the United States. The patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the
United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in
our patents and patent applications or in
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third‑party patents and patent applications. The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may
not adequately protect our rights or permit us to gain or keep our competitive advantage. Moreover, the patent application process is also subject to numerous risks and
uncertainties, and there can be no assurance that we or any of our future development partners will be successful in protecting any of our current or future product candidates
that we may develop, license, or acquire by obtaining and defending patents. For example:
•
we may not have been the first to conceive of and reduce to practice the inventions covered by each of our pending patent applications and issued patents;
•
we may not have been the first to file patent applications for these inventions;
•
others may independently develop similar or alternative technologies or duplicate any of our product candidates or technologies;
•
it is possible that none of the pending patent applications will result in issued patents;
•
the issued patents may not cover commercially viable active products, may not provide us with any competitive advantages, or may be successfully challenged
by third parties;
•
we may not develop additional proprietary technologies that are patentable;
•
patents of others may have an adverse effect on our business;
•
noncompliance with requirements of governmental patent agencies can result in abandonment or lapse of a patent or patent application, resulting in partial or
complete loss of patent rights in the relevant jurisdiction, potentially allowing competitors to enter the market earlier than would otherwise have been the case;
•
our competitors, many of whom have substantially greater resources than we do and many of whom have made significant investments in competing
technologies, may seek or may have already obtained patents that will limit, interfere with, or eliminate our ability to make, use, and sell our potential product
candidates; or
•
there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of available patent protection both inside and
outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns.
Patents have a limited lifespan. In most countries, including the United States, the expiration of a patent is typically 20 years from the date that the application for the patent is
filed. Various extensions of patent term may be available in particular countries; however, in all circumstances the life of a patent, and the protection it affords, has a limited
term. If we encounter delays in obtaining regulatory approvals, the period of time during which we could market a product under patent protection could be reduced. We expect
to seek extensions of patent terms where these are available in any countries where we are prosecuting patents. Such possible extensions include those permitted under the Drug
Price Competition and Patent Term Restoration Act of 1984 in the United States, which permits a patent term extension of up to five years to cover an FDA‑approved product.
The actual length of the extension will depend on the amount of patent term lost while the product was in clinical trials. However, the applicable authorities, including the
USPTO and the FDA in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are
available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage
of our investment in development and clinical trials by referencing our clinical and preclinical data, and then may be able to launch their product earlier than might otherwise be
the case.
Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment, and other requirements imposed by
governmental patent agencies, and our patent protection could be reduced or eliminated for noncompliance with these requirements.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment, and other similar provisions during
the patent prosecution process. Periodic maintenance fees, renewal fees, annuity fees, and various other governmental fees on patents or patent applications will be due to be
paid to the USPTO and various patent agencies outside of the United States in several stages over the lifetime of the patents and applications. We have systems in place to
remind us to pay these fees, and we employ and rely on reputable law firms and other professionals to effect payment of these fees to the USPTO and non-U.S. patent agencies
for the patents and patent applications we own and those that we in‑license. We also employ reputable law firms and other professionals to help us comply with the various
documentary and other procedural requirements with respect to the patents and patent applications that we own and those that we in‑license. In some cases, an inadvertent lapse
can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in
abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the
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relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming, and unsuccessful.
Competitors may infringe our issued patents, our in-licensed patents, or other intellectual property that we own or in-license. To counter infringement or unauthorized use, we
may be required to file infringement claims, which can be expensive and time consuming. Any claims we assert against perceived infringers could provoke these parties to
assert counterclaims against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or
unenforceable, in whole or in part; construe the patent’s claims narrowly; or refuse to stop the other party from using the technology at issue on the grounds that our patents do
not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information
could be compromised by disclosure during this type of litigation.
Most of our competitors are larger than we are and have substantially greater resources than we do. They are, therefore, likely to be able to sustain the costs of complex patent
litigation longer than we could. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to
continue our clinical trials, continue our internal research programs, in-license needed technology, or enter into development partnerships that would help us bring our product
candidates to market.
We or our licensors may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting, and defending patent applications and patents on product candidates in all countries throughout the world would be prohibitively expensive, and our
intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do
not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from
practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other
jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export
otherwise infringing products to territories where we have patent protection, but where enforcement rights are not as strong as those in the United States. These products may
compete with our product candidates and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries
do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents generally.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put
our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us. We
may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce
our or our licensors’ intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we
develop or license.
Risks Related to Our Common Stock
The price for our common stock is volatile.
The market prices for our common stock and that of pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the
factors that may cause the market price of our common stock to fluctuate include:
•
our ability to raise additional capital, the terms of such capital, and our ability to continue as a going concern;
•
the ability of us or our partners to develop cytisinicline and other product candidates and conduct clinical trials that demonstrate such product candidates are
safe and effective;
•
the ability of us or our partners to obtain regulatory approvals for cytisinicline or other product candidates, and delays or failures to obtain such approvals;
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•
failure of any of our product candidates to demonstrate safety and efficacy, receive regulatory approval and achieve commercial success;
•
the ability of us to establish a commercial infrastructure and complete other pre-commercialization and commercialization tasks to necessary to successfully
commercialize cytisinicline should it be approved by the FDA;
•
failure to maintain our existing third-party license, manufacturing and supply agreements;
•
failure by us or our licensors to prosecute, maintain, or enforce our intellectual property rights;
•
changes in laws or regulations applicable to our candidates;
•
any inability to obtain adequate supply of product candidates or the inability to do so at acceptable prices;
•
adverse regulatory authority decisions;
•
introduction of new or competing products by our competitors;
•
failure to meet or exceed financial and development projections we may provide to the public;
•
the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;
•
announcements of significant acquisitions, strategic partnerships, joint ventures, or capital commitments by us or our competitors;
•
disputes or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain intellectual property protection for
our technologies;
•
additions or departures of key personnel;
•
significant lawsuits, including intellectual property or stockholder litigation;
•
if securities or industry analysts do not publish research or reports about us, or if they issue an adverse or misleading opinion regarding our business and stock;
•
changes in federal or global health policies, legislation or the review and oversight functions of federal health regulatory bodies;
•
changes in the market valuations of similar companies;
•
general market or macroeconomic conditions and geopolitical conditions, including fluctuating inflation, interest and tariff rates, increased volatility in the debt
and equity markets, instability in the global banking system, global health crises and pandemics and geopolitical conflict, and their potentially material adverse
impact on our business and the execution of our preclinical studies and clinical trials;
•
sales of our common stock us or our stockholders in the future;
•
trading volume of our common stock;
•
adverse publicity relating to our markets generally, including with respect to other products and potential products in such markets;
•
changes in the structure of healthcare payment systems;
•
period-to-period fluctuations in our financial results; and
•
tweets or other social media posts related to our market and industry.
Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad
market fluctuations may also adversely affect the trading price of our common stock. An increase in the market price of our common stock, which is uncertain and
unpredictable, may be the sole source of gain from an investment in our common stock. An investment in our common stock may not be appropriate for investors who require
dividend income. We have never declared or paid cash dividends on our capital stock and do not anticipate paying any cash dividends on our capital stock in the foreseeable
future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. As a result, capital appreciation, if any, of
our common stock will be the sole source of gain for stockholders for the foreseeable future. Accordingly, an investment in our common stock may not be appropriate for
investors who require dividend income or investors who are not prepared to bear a significant risk of losses from such an investment.
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A significant portion of our total outstanding shares of common stock may be sold into the public market at any point, which could cause the market price of our common
stock to drop significantly, even if our business is doing well, and result in significant dilution to our stockholders.
Sales of a substantial number of shares of our common stock in the public market could occur at any time, either by us or our stockholders. These sales, or the perception in the
market that we or holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. Our outstanding shares of common stock may
be freely sold in the public market at any time to the extent permitted by Rules 144 and 701 under the Securities Act of 1933, as amended, or the Securities Act, or to the extent
such shares have already been registered under the Securities Act and are held by non-affiliates.
In July 2024, we entered into the New Debt Agreement with the Lenders for term loans of up to $20.0 million. Subject to certain terms and conditions, the Lenders may convert
all or any part of the outstanding New Convertible Term Loan and accrued and unpaid interest at any time prior to maturity into shares of our common stock at a conversion
price equal to (i) for the first tranche of $10.0 million, $7.00 per share, subject to customary anti-dilution adjustments and (ii) for the second and third tranches of $5.0 million
each, the greater of (x) $4.854 per share, subject to customary anti-dilution adjustments, and (y) the lower of (a) 150% of the average of the closing sale price of our common
stock during the 10 trading days preceding the effective date of such tranche and (b) 150% of the closing sale price of our common stock on the trading day immediately
preceding the effective date of such tranche. Additionally, all outstanding amounts under the New Convertible Term Loan, including accrued and unpaid interest, will
mandatorily convert into shares of our common stock, at the conversion price, on such date, if any, when the closing price per share of our common stock has been (i) for the
first tranche, equal to or greater than $24.00 for 30 consecutive trading days prior to such date and (ii) for the second and third tranches, three times the applicable conversion
price for such tranche, in each case, for the 30 consecutive trading days prior to such date. We are aware that there can be no assurance that the New Convertible Term Loan
will be available to us for borrowing nor whether the Lender will be willing to work with us on any modifications to the current New Convertible Term Loan or the New Debt
Agreement.
As of December 31, 2024, there were 2,139,414 shares of our common stock subject to outstanding options and 1,283,750 subject to outstanding restricted stock units, almost
all of which have been registered under the Securities Act on Form S-8. The shares so registered can be freely sold in the public market after being issued to the option holder
upon exercise, except to the extent they are held by an affiliate of ours, in which case such shares will become eligible for sale in the public market as permitted by Rule 144
under the Securities Act. Furthermore, as of December 31, 2024, there were approximately 17,521,398 shares of our common stock subject to outstanding warrants to purchase
common stock, with a weighted average exercise price of $5.15 per share, and 142,857 shares of our common stock subject to outstanding pre-funded warrants, with an
exercise price of $0.001 per share. To the extent any of these warrants are exercised, the shares underlying these warrants may be immediately sold in the public market. In
February 2024, we announced the sale and issuance of warrants to purchase up to 13,086,151 shares of common stock (or pre-funded warrants), with an exercise price of
$4.906 per share (or $4.905 per pre-funded warrant), in a concurrent private placement with the sale of 13,086,151 shares of common stock sold in a registered direct offering.
We registered the shares underlying these warrants (or pre-funded warrants) for resale on Form S-3, which was declared effective on May 6, 2024. If these shares are issued
upon exercise of the warrants (or pre-funded warrants), they may be immediately sold in the public market.
The sale of additional shares of our common stock, the conversion of the New Convertible Term Loan into shares of our common stock, the exercise of any of our outstanding
warrants, the exercise of any of our outstanding options, or the settlement of our restricted stock units would have a dilutive impact on our existing stockholders and could
cause the market price of our common stock to decline significantly. Sales of our common stock, the conversion of the New Convertible Term Loan, the exercise of any of our
outstanding warrants, the exercise of any of our outstanding options, the settlement of our restricted stock units or the perception that such events will occur, could also
encourage short sales by third parties, which could contribute to the further decline of the price of our common stock. Additionally, the sale of a substantial number of shares of
our common stock, the conversion of the New Convertible Term Loan, the exercise of any of our outstanding warrants, the exercise of any of our outstanding options, the
settlement of our restricted stock units or the perception that such events will occur, could make it more difficult for us to sell equity or equity-related securities in the future at
a time and at a price that we might otherwise wish.
In addition, in the future, we plan to raise additional capital through private placements or public offerings of our equity or debt securities. We cannot be certain that additional
funding will be available on acceptable terms, if at all. To the extent that we raise additional financing by issuing equity securities, we may do so at a price per share that
represents a discount to the then-current per share trading price of our common stock and our stockholders may experience significant dilution. Any debt financing, if available,
may involve restrictive covenants, such as limitations on our ability to incur additional indebtedness, limitations on our ability to acquire or license intellectual property rights
and other operating restrictions that could adversely affect our ability to conduct our business.
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If we raise additional capital, the terms of the financing transactions may cause dilution to existing stockholders or contain terms that are not favorable to us.
In the future, we plan to raise additional capital through private placements or public offerings of our equity or debt securities. We cannot be certain that additional funding will
be available on acceptable terms, if at all. To the extent that we raise additional financing by issuing equity securities, we may do so at a price per share that represents a
discount to the then-current per share trading price of our common stock and our stockholders may experience significant dilution. Any debt financing, if available, may
involve restrictive covenants, such as limitations on our ability to incur additional indebtedness, limitations on our ability to acquire or license intellectual property rights and
other operating restrictions that could adversely affect our ability to conduct our business.
We are a smaller reporting company and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common
stock less attractive to investors.
We are currently a “smaller reporting company” as defined in the Exchange Act, and are thus allowed to provide simplified executive compensation disclosures in our filings,
are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that an independent registered public accounting firm provide an attestation report on the
effectiveness of internal control over financial reporting and have certain other decreased disclosure obligations in our SEC filings. We cannot predict whether investors will
find our common stock less attractive because of our reliance on any of these exemptions. If some investors find our common stock less attractive as a result, there may be a
less active trading market for our common stock and our stock price may be more volatile.
If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, our business, or our market, our stock price and
trading volume could decline.
The trading market for our common stock is influenced by the research and reports that equity research analysts publish about us and our business. We do not have any control
over the equity research analysts that provide research coverage of our common stock or the content and opinions included in their reports. The price of our stock could decline
if one or more equity research analysts downgrades our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of our
company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.
General Risk Factors
We are at risk of securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities, including in circumstances where
such declines occur in close proximity to the announcement of clinical trial results. Additionally, our stock price and those of other biotechnology and biopharmaceutical
companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s
attention and resources, which could harm our business.
We incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.
We incur significant legal, accounting and other expenses associated with public company reporting requirements. We also incur costs associated with corporate governance
requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the SEC and The Nasdaq Capital Market. These rules and regulations
impose significant legal and financial compliance costs and make some activities more time-consuming and costly. In addition, it may be difficult for us to attract and retain
qualified individuals to serve on our board of directors or as executive officers, which may adversely affect investor confidence and could cause our business or stock price to
suffer.
Shareholder activists could cause a disruption to our business.
An activist investor may indicate disagreement with our strategic direction or capital allocation policies and may seek representation on our board of directors. Our business,
operating results or financial condition could be adversely affected and may result in, among other things:
•
increased operating costs, including increased legal expenses, insurance, administrative expenses and associated costs incurred in connection with director
election contests;
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•
uncertainties as to our future direction, which could result in the loss of potential business opportunities and could make it more difficult to attract, retain, or
motivate qualified personnel, and strain relationships with investors and customers; and
•
reduction or delay in our ability to effectively execute our current business strategy and to implement new strategies.
Anti-takeover provisions under Delaware law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our
management.
Because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which prohibits stockholders owning in
excess of 15% of our outstanding voting stock from merging or combining with us. Although we believe these provisions collectively will provide for an opportunity to receive
higher bids by requiring potential acquirors to negotiate with our board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In
addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove then current management by making it more difficult for stockholders
to replace members of the board of directors, which is responsible for appointing the members of management.
Our bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could
limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our bylaws provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any
action asserting a breach of fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, any action asserting a claim against us arising
pursuant to any provisions of the Delaware General Corporation Law, our certificate of incorporation or our bylaws, or any action asserting a claim against us that is governed
by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or
our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. If a court were to find the choice of
forum provision contained in the bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other
jurisdictions.
Failure to maintain effective internal control over financial reporting could have a material adverse effect on our reputation, results of operations and financial condition.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports, prevent fraud and operate successfully as a public company. Any
failure to execute on our internal controls and continue to maintain effective internal controls, to timely implement any necessary additional improvement to our internal
controls or to effect remediation of any future material weakness or significant deficiency could, among other things, result in losses from fraud or error, harm our reputation or
cause investors to lose confidence in our reported financial information, all of which could have a material adverse effect on our reputation, results of operations, or financial
condition.
Management reviews and updates our systems of internal controls and procedures, as appropriate. Any system of controls is based in part on certain assumptions and can
provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply
with regulations related to controls and procedures could have a material adverse effect on our reputation, results of operations and financial condition.
Because our merger resulted in an ownership change under Section 382 of the U.S. Internal Revenue Code for OncoGenex, pre-merger net operating loss carryforwards
and certain other tax attributes are now subject to limitations.
If a corporation undergoes an “ownership change” within the meaning of Section 382 of the U.S. Internal Revenue Code, the corporation’s net operating loss carryforwards and
certain other tax attributes arising from before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if
there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds fifty percentage points over a rolling three-year period. Similar rules
may apply under state tax laws. Our 2017 merger involving OncoGenex and Achieve Life Sciences, Inc. resulted in an ownership change for OncoGenex and, accordingly,
OncoGenex’s net operating loss carryforwards and certain other tax attributes will be subject to limitations on their use after the merger. Additional ownership changes in the
future could result in additional limitations on the combined organization’s net operating loss carryforwards. Consequently, even if we achieve profitability, we may not be able
to utilize a material portion of our net operating loss carryforwards and other tax attributes, which could have a material adverse effect on cash flow and results of operations.
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U.S. federal tax reform and changes in other tax laws could increase our tax burden and adversely affect our business and financial condition.
In December 2017, the U.S. government enacted comprehensive tax legislation, the Tax Cuts and Jobs Act of 2017, significantly reforming the Internal Revenue Code of 1986,
as amended. These changes include, among others, (i) a permanent reduction to the corporate income tax rate, (ii) a partial limitation on the deductibility of business interest
expense, (iii) a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system (along with certain rules designed to prevent
erosion of the U.S. income tax base) and (iv) a one-time tax on accumulated offshore earnings held in cash and illiquid assets, with the latter taxed at a lower rate.
In addition, beginning in 2022, tax legislation requires research and experimental expenditures to be capitalized and amortized ratably over a five-year period. Any such
expenditures attributable to research conducted outside the United States must be capitalized and amortized over a 15-year period.
Notwithstanding the reduction in the corporate income tax rate, the overall impact of this tax reform is uncertain, and our business and financial condition could be adversely
affected. Furthermore, it is uncertain if and to what extent various states will conform to the enacted federal tax law or any newly enacted federal legislation. In addition, new
legislation or regulation which could affect our tax burden, or that of our suppliers, could be enacted by any governmental authority, including foreign tax authorities. We
cannot predict the timing or extent of such tax related developments which could have a negative impact on our financial results. Additionally, we use our best judgment in
attempting to quantify and reserve for these tax obligations. However, a challenge by a taxing authority, our ability to utilize tax benefits such as carryforwards or tax credits, or
a deviation from other tax related assumptions could have a material adverse effect on our business, results of operations, or financial condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Cybersecurity Risk Management and Strategy
Our process for managing cybersecurity risk is comprised of technologies, controls, and procedures designed to detect, assess, and manage threats and control access. We
utilize a variety of systems, software, and services including firewalls, network and endpoint monitoring, anti-malware, detection and response, patch management, and
backups to mitigate, identify, analyze, and respond to identified vulnerabilities and incidents in a timely manner.
We evaluate our security posture on an ongoing basis via vulnerability scans, penetration testing, and threat intelligence monitoring. We periodically conduct third-party
security assessments and regularly evaluate our processes against industry standard security frameworks. We conduct regular security training to elevate awareness and foster a
security conscious culture among all employees.
We leverage third party service providers and solutions in many aspects of our operations. Our vendor management and oversight procedures include assessment of cyber
security risk.
We do not believe there are any currently known cybersecurity risks that are reasonably likely to materially impact our business strategy, operations, or financial condition. If
we were to experience a material cybersecurity incident in the future, such incident may have an adverse effect, including on our business operations, operating results, or
financial condition. For more information regarding cybersecurity risks that we face and the related potential impacts on our business, see the risk factor titled “Our internal
computer systems, or those of our third-party collaborators or other service providers, may fail or suffer security breaches and cyber-attacks, which could result in a
material disruption of our development programs.”
Cybersecurity Governance
Cybersecurity is an important part of our risk management processes and an area of increasing focus for our board of directors, or Board, and management.
The Audit Committee of our Board, or Audit Committee, is responsible for the oversight of risks from cybersecurity threats. At least annually, the Audit Committee receives an
overview from management of our cybersecurity threat risk management and strategy processes covering topics such as data security posture, results from third-party
assessments, progress towards pre-determined risk-mitigation-related goals, our incident response plan, and material cybersecurity threat risks or incidents and developments,
as well as the steps management has taken to respond to such risks. Members of the Audit Committee are also encouraged to regularly engage in
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ad hoc conversations with management on cybersecurity-related news events and discuss any updates to our cybersecurity risk management and strategy programs. Potential
material cybersecurity threat risks are also considered during Board meeting discussions of important matters like risk management, business continuity planning, and other
relevant matters.
Our cybersecurity risk assessment and management processes are implemented and maintained by certain members of our management, including our Senior Director of
Information Technology who has served in various roles managing information technology and information security for over twenty-five years and reports directly to the Chief
Financial Officer.
Management is also responsible for hiring appropriate personnel, integrating cybersecurity considerations into our overall risk management strategy, and for communicating
key priorities to employees, as well as for approving budgets, helping prepare for cybersecurity incidents, approving cybersecurity processes, and reviewing security
assessments and other security-related reports.
Our cybersecurity incident response and vulnerability management processes involve management, who participates in our disclosure controls and procedures. Our
cybersecurity incident response and vulnerability management processes are designed to escalate certain cybersecurity incidents and vulnerabilities to members of management
depending on the circumstances, including work with the company’s incident response team to help us mitigate and remediate cybersecurity incidents of which they are
notified. In addition, the company’s incident response processes include reporting to the Audit Committee for certain cybersecurity incidents.
Management is involved with our efforts to prevent, detect, and mitigate cybersecurity incidents by overseeing preparation of cybersecurity policies and procedures, testing of
incident response plans, and engagement of vendors to conduct penetration tests. Management participates in cybersecurity incident response efforts by being a member of the
incident response team and helping direct our response to cybersecurity incidents.
ITEM 2. PROPERTIES
We have business offices located in Bothell, Washington and Vancouver, British Columbia.
On November 19, 2018, we entered into a lease agreement for our office space in Vancouver, British Columbia, which commenced on February 1, 2019, and had a four-year
term. On December 16, 2022, we entered into an agreement to extend the lease for another two-year term, which commenced on February 1, 2023. On December 9, 2024, we
entered into an agreement to extend the lease for another two-year term, which commenced on February 1, 2025. Pursuant to this lease, we rent approximately 2,367 square feet
of office space. The annual rent is approximately $0.1 million.
On November 9, 2023, we entered into a lease agreement for our office space in Bothell, Washington, which commenced on March 1, 2024, and had a one-year term. On
October 24, 2024, we entered into an agreement to extend the lease for a six month term, which commenced on March 1, 2025. The annual rent is approximately $15,800.
We believe that the facilities we currently lease are sufficient for our anticipated near-term needs.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently a party to any legal
proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on the results of our operations or
financial position. There are no material proceedings to which any director, officer or any of our affiliates, any owner of record or beneficially of more than five percent of any
class of our voting securities, or any associate of any such director, officer, our affiliates, or security holder, is a party adverse to us or our consolidated subsidiary or has a
material interest adverse thereto.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Our common stock first began trading on the Nasdaq National Market under the symbol “SNUS” on October 12, 1995. In connection with a corporate transaction and name
change, our common stock commenced trading on the Nasdaq Capital Market under the stock symbol “OGXI”, effective August 21, 2008. Following the completion of a
corporate transaction and name change, our common stock commenced trading on the Nasdaq Capital Market under the stock symbol “ACHV”, effective August 2, 2017.
No cash dividends have been paid on our common stock, and we do not anticipate paying any cash dividends in the foreseeable future. As of March 10, 2025, there were
approximately 11 stockholders of record. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares of record are
held by banks, brokers, and other financial institutions.
The information required by this item regarding equity compensation plan information is set forth in Part III, Item 12 of this Annual Report on Form 10-K.
No purchases of equity securities during the year ended December 31, 2024 were made by us or on our behalf.
ITEM 6. RESERVED
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes
included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements based
upon current expectations that involve risks and uncertainties. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,”
“anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of various factors, including but not limited to those discussed in the section titled “Risk Factors” and in other parts of this Annual
Report on Form 10-K. A discussion and analysis of our financial condition, results of operations, and cash flows for the year ended December 31, 2023 compared to the year
ended December 31, 2022 is included in Item 7 of Part II, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on
Form 10-K for the year ended December 31, 2023 filed with the SEC on March 28, 2024.
Overview
We are a late-stage clinical specialty pharmaceutical company with a sole mission to address the global nicotine dependence epidemic in combustible cigarette and e-cigarette
usage through the development and commercialization of cytisinicline. There are an estimated 29 million adults in the United States alone who smoke combustible cigarettes
and an estimated 11 million adults in the United States who utilize e-cigarettes. Tobacco use is currently the leading cause of preventable death and is responsible for more than
eight million deaths worldwide and nearly half a million deaths in the United States annually. More than 87% of lung cancer deaths, 61% of all pulmonary disease deaths, and
32% of all deaths from coronary heart disease are attributable to smoking and exposure to secondhand smoke.
While nicotine e-cigarettes are thought to be less harmful than combustible cigarettes, they remain highly addictive and can deliver harmful chemicals which can cause lung
injury or cardiovascular disease. In 2024, 1.6 million high school and middle school students reported using e-cigarettes. Research shows adolescents who have used e-
cigarettes are seven times more likely to become smokers one year later compared to those who have never used e-cigarettes. Recently, the U.S. Food and Drug Administration,
or FDA, granted Breakthrough Therapy Designation for cytisinicline for nicotine e-cigarette, or vaping, cessation. Breakthrough Therapy Designation is a process that
expedites the development and review of new drugs and biologics that are intended to treat serious or life-threatening conditions and have preliminary clinical evidence
indicating substantial improvement over existing therapies. Currently, there are no FDA approved drug therapies indicated specifically as an aid to nicotine e-cigarette
cessation. We believe cytisinicline represents a unique opportunity to significantly impact global health by addressing the considerable unmet need among millions of smokers
and e-cigarettes users.
Cytisinicline is a plant-based alkaloid with a high binding affinity to the nicotinic acetylcholine receptor. It is believed to work in treating nicotine dependence for smoking and
e-cigarette cessation by interacting with nicotine receptors in the brain by reducing the severity of withdrawal symptoms, and reducing the reward and satisfaction associated
with nicotine products. Cytisinicline is an investigational product candidate being developed for treatment of nicotine dependence and has not been approved by the FDA for
any indication in the United States.
We believe cytisinicline represents a unique opportunity to significantly impact global health by addressing the considerable unmet need among millions of smokers and e-
cigarettes users. If approved by the FDA, it may become one of the first new prescription medicines in nearly two decades aimed at aiding individuals in overcoming nicotine
dependence. We believe cytisinicline is differentiated from existing smoking cessation treatments given its combination of efficacy, well-tolerated safety profile, and a shorter
therapy duration, as demonstrated in clinical trials.
We have no products approved for commercial sale and have not generated any revenue from product sales to date. We have never been profitable and have incurred operating
losses in each year since inception. Our net loss was $39.8 million for the year ended December 31, 2024. As of December 31, 2024, we had an accumulated deficit of $205.6
million, cash, cash equivalents and marketable securities balance of $34.4 million and a positive working capital balance of $29.8 million. During the year ended December 31,
2024, net cash used in operations was $29.8 million.
Substantial doubt exists as to our ability to continue as a going concern. Our ability to continue as a going concern is subject to material uncertainty and dependent on our
ability to obtain additional financing. For additional information, see the section titled “—Liquidity, Capital Resources and Going Concern.”
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License & Supply Agreements
Sopharma License and Supply Agreements
We are party to a license agreement, or the Sopharma License Agreement, and a supply agreement, or the Sopharma Supply Agreement, with Sopharma. Pursuant to the
Sopharma License Agreement, we were granted access to all available manufacturing, efficacy and safety data related to cytisinicline, as well as a granted patent in several
European countries related to new oral dosage forms of cytisinicline providing enhanced stability. Additional rights granted under the Sopharma License Agreement include the
exclusive use of, and the right to sublicense, certain cytisinicline trademarks in all territories described in the Sopharma License Agreement. Under the Sopharma License
Agreement, we agreed to pay a nonrefundable license fee. In addition, we agreed to make certain royalty payments equal to a mid-single digit percentage of all net sales of
cytisinicline products in our territory during the term of the Sopharma License Agreement, including those sold by a third party pursuant to any sublicense which may be
granted by us. To date, any amounts paid to Sopharma pursuant to the Sopharma License Agreement have been immaterial.
Share Purchase Agreement
In May 2015, we entered into a Share Purchase Agreement with Sopharma to acquire 75% of the outstanding shares of Extab Corporation for $2.0 million in cash and $2.0
million in a deferred payment, contingent on regulatory approval of cytisinicline by the FDA or the European Medicines Agency, or EMA. The fair value of the contingent
consideration on the acquisition date was nil. The contingent consideration liability is measured at fair value in our financial statements,
As of December 31, 2024, the fair value of the contingent consideration was estimated to be $1.1 million as compared to $0.5 million as of December 31, 2023. (see Note 2
"Significant Accounting Policies, Sopharma Share Purchase Agreement Contingent Consideration" in the accompanying consolidated Financial Statements). We recognized a
loss of $0.6 million for the year ended December 31, 2024.
University of Bristol License Agreement
In July 2016, we entered into a license agreement with the University of Bristol, or the University of Bristol License Agreement. Under the University of Bristol License
Agreement, we received exclusive and nonexclusive licenses from the University of Bristol to certain patent and technology rights resulting from research activities into
cytisinicline and its derivatives, including a number of patent applications related to novel approaches to cytisinicline binding at the nicotinic receptor level.
In consideration of rights granted by the University of Bristol, we paid a nominal license fee and agreed to pay amounts of up to $3.2 million, in the aggregate, tied to a
financing milestone and to specific clinical development and commercialization milestones resulting from activities covered by the University of Bristol License Agreement.
Additionally, if we successfully commercialize any product candidates subject to the University of Bristol License Agreement, we are responsible for royalty payments in the
low-single digits and payments up to a percentage in the mid-teens of any sublicense income, subject to specified exceptions, based upon net sales of such licensed products.
On January 22, 2018, we and the University of Bristol entered into an amendment to the University of Bristol License Agreement. Pursuant to the amended University of
Bristol License Agreement we received exclusive rights for all human medicinal uses of cytisinicline across all therapeutic categories from the University of Bristol from
research activities into cytisinicline and its derivatives. In consideration of rights granted by the amended University of Bristol License Agreement, we paid an initial amount of
$37,500 and agreed to pay additional amounts of up to $1.7 million, in the aggregate, tied to a financing milestone and to specific clinical development and commercialization
milestones, in addition to amounts under the original University of Bristol License Agreement. Additionally, if we successfully commercialize any product candidate subject to
the amended University of Bristol License Agreement or to the original University of Bristol License Agreement, we will be responsible for royalty payments in the low-single
digits and payments up to a percentage in the mid-teens of any sublicense income, subject to specified exceptions, based upon net sales of such licensed products. Through
December 31, 2024, we have paid the University of Bristol $125,000 pursuant to the University of Bristol License Agreement.
Research and Development Expenses
Research and development, or R&D, expenses consist primarily of costs for clinical trials, manufacture of product, personnel costs, milestone payments to third parties,
facilities, regulatory activities, non-clinical studies and allocations of other R&D-related costs. External expenses for clinical trials include fees paid to clinical research
organizations, clinical trial site costs and patient treatment costs.
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We manage our clinical trials through contract research organizations and independent medical investigators at our sites and at hospitals and expect this practice to continue.
Due to our ability to utilize resources across several projects, we do not record or maintain information regarding the indirect operating costs incurred for our R&D programs on
a program-specific basis. In addition, we believe that allocating costs on the basis of time incurred by our employees does not accurately reflect the actual costs of a project.
The process of conducting clinical trials and non-clinical studies necessary to obtain regulatory approval is costly and time consuming and we may never succeed in achieving
marketing approval for cytisinicline. (See “Item 1A. Risk Factors—Risks Related to the Development of Our Product Candidate Cytisinicline.”)
Successful development of cytisinicline is highly uncertain and may not result in an approved product. We cannot estimate completion dates for development activities or when
we might receive material net cash inflows from our R&D projects, if ever. We anticipate we will make determinations as to which markets, and therefore, which regulatory
approvals, to pursue and how much funding to direct toward achieving regulatory approval in each market on an ongoing basis in response to our ability to enter into new
strategic alliances with respect to each program or potential product candidate, the scientific and clinical success of each future product candidate, and ongoing assessments as
to each future product candidate’s commercial potential. We will need to raise additional capital and may seek additional strategic alliances in the future in order to advance our
various programs.
Our projects or intended R&D activities may be subject to change from time to time as we evaluate results from completed studies, our R&D priorities and available resources.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for our personnel in executive, finance and accounting, and other administrative functions, as
well as consulting costs, including commercial, corporate communications, market research, business consulting, human resources and intellectual property. Other costs include
professional fees for legal and auditing services, insurance and facility costs.
Results of Operations
Years Ended December 31, 2024 and 2023
Research and Development Expenses
Our research and development expenses for our cytisinicline clinical development program are as follows (in thousands):
Year Ended December 31,
2024
2023
Clinical development program:
Cytisinicline
$
22,817 $
15,814
Total research and development expenses
$
22,817 $
15,814
Research and development expenses for the years ended December 31, 2024 and 2023 were $22.8 million and $15.8 million, respectively. The increase in 2024 as compared to
2023 was primarily due to the initiation, in May 2024, of our ORCA-OL open label safety trial. This increase was partially offset by a reduction in costs associated with our
Phase 3 ORCA-3 trial and Phase 2 ORCA-V1 trial as both were completed in the second quarter of 2023.
General and Administrative Expenses
Our general and administrative expenses were as follows (in thousands):
Year Ended December 31,
2024
2023
Total general and administrative expenses
$
16,252 $
11,436
G&A expenses for the years ended December 31, 2024 and 2023 were $16.3 million and $11.4 million, respectively. The increase in 2024 as compared to 2023 was primarily
due to higher employee expenses associated with stock based compensation expense and severance costs, commercial launch preparation costs, consulting costs, and legal
expenses associated with patent activities and general corporate activities.
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Interest Income
Total interest income for the years ended December 31, 2024 and 2023 was $2.4 million and $0.8 million, respectively. The increase in interest income for the year ended
December 31, 2024 as compared to the same period in 2023was primarily due to higher average cash balances throughout 2024 and higher interest rates.
Interest Expense
Total interest expense for the years ended December 31, 2024 and 2023 was $2.2 million and $2.9 million, respectively. The decrease in interest expense for the year ended
December 31, 2024 as compared to the same period in 2023 was due to a lower principal balance on our New Convertible Term Loan, relative to the Convertible Term Loan,
that bears only a monthly interest as a result of the debt refinancing under the New Debt Agreement (see “Liquidity and Capital Resources” below).
Change in fair value of contingent consideration
We determine the fair value of the contingent consideration using a probability based discounted cash flow model whereby we forecast the timing of the cash flow of the related
future payment based on cytisinicline’s current clinical development phase and the remaining requirements for regulatory approval. Adjustments to the fair value of the
contingent liabilities, other than payments, are recorded as a gain or loss in the Consolidated Statements of Loss and Comprehensive Loss (see Note 7 “Fair Value
Measurements, Fair Value of Sopharma Share Purchase Agreement Contingent Consideration” in the accompanying consolidated Financial Statements).
For the years ended December 31, 2024 and 2023 we recognized losses of $0.6 million and $0.5 million, respectively.
Loss on extinguishment of 2023 SVB convertible term loan
The debt refinancing under the New Debt Agreement was recognized as an extinguishment of debt under Accounting Standards Update, or ASU, 470-50. The difference
between the reacquisition price and carrying value was recognized on the Consolidated Statement of Loss as a loss on extinguishment of debt.
For the year ended December 31, 2024 we incurred a loss on extinguishment of debt of $0.3 million.
Liquidity, Capital Resources and Going Concern
We have incurred an accumulated deficit of $205.6 million through December 31, 2024 and we expect to incur substantial additional losses in the future as we operate our
business and continue or expand our regulatory, manufacturing, commercialization and other R&D activities and other operations. We have not generated any revenue from
product sales to date, and we may not generate product sales revenue in the near future, if ever. As of December 31, 2024, we had a cash, cash equivalents and marketable
securities balance of $34.4 million and a positive working capital balance of $29.8 million. For the year ended December 31, 2024, net cash used in operations was $29.8
million.
We have historically financed our operations through equity and debt financings. While we believe that we will be able to settle our commitments and liabilities in the normal
course of business as they fall due during the next 12 months, as a late-stage clinical specialty pharmaceutical company with no current sources of revenue, we are dependent
on our ability to raise funds (through public or private securities offerings, debt financings, government funding or grants, or other sources, which may include licensing,
collaborations or other strategic transactions or arrangements) to support the ongoing advancement of our clinical trials and corporate activities. We believe that our existing
cash, cash equivalents and marketable securities will be sufficient for us to fund our current operating expenses and capital expenditures into the third quarter of 2025.
The financial results have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and liabilities and commitments
in the normal course of business.
Substantial doubt exists as to our ability to continue as a going concern. Our ability to continue as a going concern is subject to material uncertainty and dependent on our
ability to obtain additional financing. We have historically financed our operations through equity offerings and/or debt financings. There can be no assurance that financing
from these or other sources will be available to us in the future. Without additional funds, we may be forced to delay, scale back or eliminate some of our research and
development activities or other operations and potentially delay product development in an effort to provide sufficient funds to continue our
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operations. If any of these events occur, our ability to achieve our development and commercialization goals would be adversely affected.
Our current resources are insufficient to fund our planned operations for the next 12 months. We will continue to require substantial additional capital to continue our clinical
development and commercialization activities. Accordingly, we will need to raise substantial additional capital from the sale of our securities, debt, partnering arrangements,
non-dilutive fundraising or other financing transactions in order to continue to fund our operations and finance the remaining development and commercialization of our
product candidate. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development,
regulatory review and commercialization efforts. The uncertainty with respect to our operations and the market generally may also make it challenging to raise additional
capital on favorable terms, if at all. In addition, current macroeconomic conditions have caused uncertainty in various sectors, including capital markets. Failure to raise capital
as and when needed, on favorable terms or at all, will have a negative impact on our financial condition and our ability to develop our product candidate.
In addition, we expect to incur significant expenses and increasing operating losses for at least the next several years as we continue our clinical development of, seek
regulatory approval for, and commercialize, cytisinicline and add personnel necessary to operate as a commercial-stage public company. We expect that our operating losses
will fluctuate significantly from quarter to quarter and year to year due to timing of clinical development programs and efforts to achieve regulatory approval and
commercialization.
The consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should we be unable to
continue as a going concern. Such adjustments could be material.
We did not have during the periods presented, and we do not currently have, any commitments or obligations, including contingent obligations, other than the Sopharma
Contingent Consideration, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on our
financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.
Convertible Debt
On July 25, 2024, we entered into a contingent convertible debt agreement, or New Debt Agreement, with Silicon Valley Bank, or SVB, a division of First-Citizens Bank &
Trust Company, or FCB, in its capacity as administrative agent and collateral agent, and FCB, as a lender, or Lender, pursuant to which the Lender provided term loans having
an aggregate original principal amount of $10.0 million, with additional term loans of up to $10.0 million available upon the occurrence of certain events as provided for in the
New Debt Agreement and further described below, or New Convertible Term Loan. Our obligations under the New Debt Agreement are secured by substantially all of our
assets, other than intellectual property.
The New Convertible Term Loan matures on December 1, 2027, which maturity date may be extended to June 1, 2028 upon the occurrence of certain events as provided for in
the New Debt Agreement. The first tranche of the New Convertible Term Loan, which was advanced on July 25, 2024, has an aggregate original principal amount of $10.0
million. The Lender will further make available to us, upon our request: (a) on or prior to October 31, 2025, a second tranche of the New Convertible Term Loan having an
aggregate principal amount of $5.0 million in the event that we receive written notice that the FDA has accepted for filing our NDA with respect to cytisinicline for a smoking
cessation indication, or the Additional Term Loan Event I, and (b) on or prior to December 31, 2025, a third tranche of the New Convertible Term Loan having an aggregate
principal amount of $5.0 million, subject to the Lender’s sole discretion. Interest is calculated on the outstanding principal amount of the New Convertible Term Loan at a
floating rate per annum equal to the greater of (i) 7.0% and (ii) the prime rate minus 1.0%, which interest shall be payable in cash monthly in arrears and shall be payable on the
earlier to occur of (x) the first day of the first month following any extension of credit by the Lender for our credit, (y) the date of any prepayment pursuant to the New Debt
Agreement, or (z) the maturity date. The New Convertible Term Loan will be “interest-only” until December 31, 2025, subject to extension as provided for in the New Debt
Agreement. The “interest-only” period may be extended to June 30, 2026, if (i) prior to December 31, 2025, we have received at least $40,000,000 in net cash proceeds from
the issuance equity interests and (ii) the conditions of Additional Term Loan Event I have been satisfied.
Subject to certain terms and conditions, the conversion feature grants the Lender or, pursuant to an assignment, any designee thereof, or Conversion Right Holders (as defined
in the New Debt Agreement), the right to convert part or all of the outstanding aggregate original principal amount of the New Convertible Term Loan, plus accrued and unpaid
interest, into shares of our common stock at a conversion price equal to $7.00, subject to customary adjustment provisions. The Conversion Right Holders have the further right
to convert part or all of the outstanding principal amount of the second and third tranches of the New Convertible Term Loan, plus accrued and unpaid interest, into shares of
our common stock at a conversion price equal to the greater of (i) $4.854, subject to customary adjustment provisions, and (ii) the lower of (a) 150% of the average of the
closing sale price of our common stock during
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the 10 trading days preceding the effective date of such tranche and (b) 150% of the closing sale price of our common stock on the trading day immediately preceding the
effective date of such tranche.
The conversion rights may be exercised at each Conversion Right Holder's option any time prior to repayment of the New Convertible Term Loan; provided, however, that the
Conversion Right Holders will not be permitted to convert part or all of the outstanding aggregate original principal amount of the New Convertible Term Loan without the
agreement of the relevant Conversion Right Holder and us if the sum of the amount of debt to be converted; and the aggregate amount of debt previously converted pursuant to
any such voluntary conversion, divided by the aggregate of all debt that is then outstanding or that has been repaid other than by conversion exceeds 50%.
Additionally, the outstanding principal of the New Convertible Term Loan, plus accrued and unpaid interest, will automatically be converted into shares of our common stock
at the applicable conversion price on such date if any, when the closing price per share of our common stock has been equal to or greater than (a) in the case of the outstanding
aggregate original principal amount of the New Convertible Term Loan, plus accrued and unpaid interest, $24.00 or, (b) in the case of the outstanding principal amount of the
second and third tranches of the New Convertible Term Loan, plus accrued and unpaid interest, three times the applicable conversion price, in each case for the thirty
consecutive trading days prior to such date, and the Liquidity Conditions (as defined in the New Debt Agreement) have been satisfied.
The New Convertible Term Loan may be repaid at our election and upon notice to the Agent (as defined in the New Debt Agreement) by paying the Lender an amount equal to
(i) a prepayment fee equal to (a) 3.0% of the aggregate outstanding principal balance if such prepayment occurs on or prior to the first anniversary of the New Convertible Term
Loan, (b) 2.0% of the aggregate outstanding principal balance if such prepayment occurs after the first anniversary, but on or prior to the second anniversary, of the New
Convertible Term Loan or (c) 1.0% of the aggregate outstanding principal balance if such prepayment occurs after the second anniversary of the New Convertible Term Loan
and before the maturity date; (ii) 4.0% of the original aggregate principal amount of the New Convertible Term Loan and (iii) all other sums due and payable under the New
Convertible Term Loan.
The New Debt Agreement contains customary affirmative and restrictive covenants, including covenants regarding the incurrence of additional indebtedness or liens,
investments, transactions with affiliates, delivery of financial statements, payment of taxes, maintenance of insurance, dispositions of property, mergers or acquisitions, among
other customary covenants. We are also restricted from paying dividends or making other distributions or payments on our capital stock, subject to limited exceptions. The New
Debt Agreement also includes customary representations and warranties, events of default and termination provisions. The Lender may not engage in any short sales of, or
other hedging transactions in, our common stock while any amounts are outstanding under the New Debt Agreement.
In connection with the New Debt Agreement, we entered into a Registration Rights Agreement, or RRA, with the Lender, pursuant to which we registered for resale shares of
our common stock issuable to the Conversion Right Holders upon the conversion of outstanding debt under the New Debt Agreement. Our obligations under the RRA will
terminate with respect to a holder of applicable registrable securities if, as of the date we would be required to provide written notice of such registration, (x) the aggregate
number of registrable securities then issued and issuable to such holder and to such holder’s affiliates, together with all other shares then held beneficially and/or of record by
such holder and its affiliates, does not exceed 7.0% of our then-total shares issued and outstanding (calculated including all such registrable securities and other shares), or (y)
we and such holder mutually reasonably agree that all registrable securities then issued and issuable to such holder and its affiliates may then be sold by such holder without the
requirement to be in compliance with Rule 144 promulgated under the Securities Act, or Rule 144, and otherwise without restriction or limitation pursuant to Rule 144.
Virtu At-the-Market Sales Agreement
On December 21, 2021, we entered into an At-the-Market Offering Sales Agreement, or ATM, with Virtu Americas, LLC, as sales agent. The ATM was terminated on
February 29, 2024, and no further sales of our common stock will be made pursuant to the ATM.
Through the date of termination of the ATM, we offered and sold an aggregate of 200,000 shares of our common stock. These aggregate sales resulted in gross proceeds to us
of approximately $1.5 million. During the year ended December 31, 2024, we did not sell any shares of our common stock pursuant to the ATM.
November 2022 Private Placement
In November 2022, we entered into subscription agreements with certain accredited investors pursuant to which we sold to the purchasers in a private placement transaction
approximately 4,093,141 units at a purchase price of $4.625 per unit, with each unit
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consisting of two shares of common stock and a common stock purchase warrant to purchase one share of common stock, or the Warrants.
The Warrants are exercisable at a price per share of common stock of $4.50, subject to adjustment. The Warrants are exercisable beginning on the six-month anniversary of the
initial closing date of the private placement offering, or May 18, 2023, or the Initial Exercise Date, and will expire on the seven year anniversary of the initial closing date of
the private placement offering, or November 18, 2029. The Warrants cannot be exercised by a Warrant holder if, after giving effect thereto, such Warrant holder would
beneficially own more than 19.99% of our outstanding common stock. Additionally, subject to certain exceptions, if, after the Initial Exercise Date, (i) the volume weighted
average price of our common stock for each of 30 consecutive trading days, or the Measurement Period, which Measurement Period commenced on November 18, 2022,
exceeds 300% of the exercise price (subject to adjustments for stock splits, recapitalizations, stock dividends and similar transactions), (ii) the average daily trading volume for
such Measurement Period exceeds $500,000 per trading day and (iii) certain other equity conditions are met, and subject to a beneficial ownership limitation, then we may call
for cancellation of all or any portion of the Warrants then outstanding.
We received approximately $17.9 million in net proceeds from the private placement after deducting placement agent expenses and commissions and offering expenses.
May 2023 Registered Direct Offering
In May 2023, we entered into a securities purchase agreement with certain purchasers, pursuant to which we sold 3,000,000 shares of common stock at a price of $5.50 per
share in a registered direct offering. The offering of the shares was made pursuant to our shelf registration statement on Form S-3, including the prospectus dated January 5,
2022 contained therein, and the prospectus supplement dated May 25, 2023.
We received approximately $15.3 million in net proceeds from the registered direct offering after deducting placement agent fees and offering expenses.
February 2024 Registered Direct Offering and Concurrent Private Placement
In February 2024, we entered into a securities purchase agreement with certain purchasers, pursuant to which we sold 13,086,151 shares of common stock at a price of $4.585
per share in a registered direct offering. The offering of the shares was made pursuant to our shelf registration statement on Form S-3, including the prospectus dated January 5,
2022 contained therein, and the prospectus supplement dated February 29, 2024.
In a concurrent private placement, we issued unregistered warrants to purchase up to 13,086,151 shares of common stock at an exercise price of $4.906 per share (provided,
however, that the purchaser may elect to exercise the warrants for pre-funded warrants in lieu of shares of common stock at an exercise price of $4.906, minus $0.001, the
exercise price of each pre-funded warrant). These warrants will be immediately exercisable for shares of common stock or pre-funded warrants in lieu thereof, and will expire
on the earlier of (i) three and one-half years following the date of issuance and (ii) 30 days following our public disclosure of the acceptance of an NDA for cytisinicline by the
FDA in a Day 74 Letter or equivalent correspondence. The shares of common stock issuable upon exercise of the warrants (or pre-funded warrants, as applicable) were
subsequently registered pursuant to our registration statement on Form S-3, which was declared effective on May 6, 2024.
The registered direct offering raised total gross proceeds of approximately $60.0 million, and after deducting approximately $3.9 million in placement agent fees and offering
expenses, we received net proceeds of approximately $56.1 million.
Jefferies Open Market Sale Agreement
On September 27, 2024, we entered into an Open Market Sale Agreement, or Sale Agreement, with Jefferies LLC, or Jefferies, as sales agent, to establish an at-the-market
offering program through which we may sell shares of our common stock with an aggregate offering price of up to $50.0 million. During the year ended December 31, 2024,
we did not sell any shares under the Sale Agreement. As of December 31, 2024, we had $50.0 million available under the Sale Agreement.
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Cash Flows
Operating Activities
For the years ended December 31, 2024 and 2023, net cash used in operating activities was $29.8 million and $24.5 million, respectively. The increase in net cash used in
operations in 2024 as compared to 2023 was due to higher R&D expenses associated with initiation, in May 2024, and ramp up of enrollment of our ORCA-OL trial and the
timing of required upfront prepayments by our clinical vendors. This was partially offset by reduced costs associated with our Phase 3 ORCA-3 trial and Phase 2 ORCA-V1
trial as both were completed in the second quarter of 2023.
Financing Activities
For the years ended December 31, 2024 and 2023 net cash provided by financing activities was $48.5 million and $15.3 million, respectively. Net cash provided by financing
activities for the year ended December 31, 2024 relates to proceeds received from our February 2024 registered direct offering, the New Convertible Term Loan associated with
the refinancing transaction in July 2024, warrant exercises, and stock sales under our employee stock purchase plan. This was partially offset by repayment of our Convertible
Term Loan associated with the refinancing transaction. Net cash provided by financing activities for the year ended December 31, 2023 relates to proceeds received from our
May 2023 private placement, and warrant exercises.
Investing Activities
Net cash used in investing activities in 2024 was due to transactions involving marketable securities in the normal course of business. Investing activities in 2023 consisted of
property and equipment purchases.
Critical Accounting Policies and Estimates
Use of Estimates
The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and notes thereto. Actual results could differ from these estimates. Estimates and
assumptions principally relate to estimates of contingent considerations, the initial fair value and forfeiture rates of stock options issued to employees and consultants, the
estimated compensation cost on performance restricted stock unit awards, clinical trial and manufacturing accruals, estimated useful lives of property, plant, equipment and
intangible assets, estimates and assumptions in contingent liabilities.
Intangible Assets
Our intangible assets are subject to amortization and are amortized using the straight-line method over their estimated period of benefit. We evaluate the carrying amount of
intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.
Impairment of Long-Lived Assets
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. We conduct our
long-lived asset impairment analyses in accordance with ASC 360-10-15, “Impairment or Disposal of Long-Lived Assets.” ASC 360-10-15 requires us to group assets and
liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the
sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as
the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.
Goodwill
Goodwill acquired in a business combination is assigned to the reporting unit that is expected to benefit from the combination as of the acquisition date. Goodwill is tested for
impairment on an annual basis or, more frequently, if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit.
Sopharma Share Purchase Agreement Contingent Consideration
63
We may be required to pay future contingent consideration to Sopharma as part of the Share Purchase Agreement, which is contingent upon obtaining regulatory approval of
cytisinicline by the FDA or the EMA. We determine the fair value of the contingent consideration using a probability based discounted cash flow approach whereby we
forecast the timing of the cash flow of the related future payment based on cytisinicline's current clinical development phase and the remaining requirements for regulatory
approval. We then discount the expected payment amount to calculate the present value and then apply a probability of success in obtaining regulatory approval as of the
valuation date. We evaluate the underlying projection used in determining the fair value each period and make updates as necessary.
The significant assumptions we use to value the contingent consideration are the forecasted timing of the future payment, the risk-adjusted discount rate and the probability of
success which are all considered significant unobservable inputs, and as such, the liability is classified as a Level 3 measurement. The risk-adjusted discount rate is adjusted for
credit risk. An increase in the discount rate or decrease in the probability of success would result in a decrease in the fair value of the contingent consideration. Conversely, a
decrease in the discount rate or increase in the probability of success would result in an increase in the fair value of the contingent consideration.
Government Grants
We account for government grants by recognizing the benefit of the grant as qualifying expenditures are incurred provided that there is reasonable assurance that we have
complied with all conditions under the terms of the grant and that the amount requested for reimbursement will be received. The government grant reduces the research and
development expenses to which it relates on our statement of profit and loss.
Research and Development Expenses
Research and development costs are expensed as incurred, net of related refundable investment tax credits, with the exception of non-refundable advance payments for goods or
services to be used in future research and development, which are capitalized in accordance with ASC 730, “Research and Development” and included within Prepaid Expenses
or Other Assets depending on when the assets will be utilized.
Clinical trial expenses are a component of research and development costs. These expenses include fees paid to contract research organizations and investigators and other
service providers, which conduct certain product development activities on our behalf. We use an accrual basis of accounting, based upon estimates of the amount of service
completed. In the event payments differ from the amount of service completed, prepaid expense or accrued liabilities amounts are adjusted on the balance sheet. These expenses
are based on estimates of the work performed under service agreements, milestones achieved, patient enrollment and experience with similar contracts. We monitor each of
these factors to the extent possible and adjust estimates accordingly.
Stock-Based Compensation
Under the fair value recognition provisions of the ASC 718, “Stock Compensation”, we use the modified prospective method with respect to options granted to employees and
directors. The expense is amortized on a straight-line basis over the graded vesting period.
Restricted Stock Unit Awards
We grant restricted stock unit awards that generally vest and are expensed over a four-year period. We also granted restricted stock unit awards that vest in conjunction with
certain performance conditions to certain executive officers and key employees. At each reporting date, we evaluate whether achievement of the performance conditions is
probable. Compensation expense is recorded over the appropriate service period based upon our assessment of accomplishing each performance provision or the occurrence of
other events that may have caused the awards to accelerate and vest.
Warrants
We account for warrants pursuant to the authoritative guidance on accounting for derivative financial instruments indexed to, and We account for warrants pursuant to the
authoritative guidance on accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, on the understanding that in compliance
with applicable securities laws, the warrants require the issuance of registered securities upon exercise and therefore do not sufficiently preclude an implied right to net cash
settlement. We have warrants classified as equity and these are not reassessed for their fair value at the end of each reporting period. Warrants classified as equity are initially
measured at their fair value and recognized as part of stockholders’ equity. Determining the appropriate fair-value model and calculating the fair value of registered warrants
requires considerable judgment, including estimating stock price volatility and expected warrant life. The computation of expected volatility was based on the historical
volatility of
64
comparable companies from a representative peer group selected based on industry and market capitalization. A small change in the estimates used may have a relatively large
change in the estimated valuation. We use the Black-Scholes pricing model to value the warrants.
Recent Accounting Standards
In December 2023, the Financial Accounting Standards Board, or FASB, issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. This
guidance is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced
income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the United States. and in foreign jurisdictions. ASU
2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is
permitted. We are evaluating this standard to determine if adoption will have a material impact on our consolidated financial statements.
Recent Adopted Accounting Policies
In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to provide enhanced
segment disclosures. The standard will require disclosures about significant segment expenses and other segment items and identifying the Chief Operating Decision Maker and
how they use the reported segment profitability measures to assess segment performance and allocate resources. These enhanced disclosures are required for all entities on an
interim and annual basis, even if they have only a single reportable segment. The standard is effective for years beginning after December 15, 2023, and interim periods within
annual periods beginning after December 15, 2024 and early adoption is permitted. The adoption of this standard did not have a significant impact on our financial position or
results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
65
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm (PCAOB ID 271)
66
Consolidated Balance Sheets as of December 31, 2024 and 2023
68
Consolidated Statements of Loss and Comprehensive Loss for the years ended December 31, 2024, 2023 and 2022
69
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2024, 2023 and 2022
70
Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022
71
Notes to Consolidated Financial Statements
72
66
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Achieve Life Sciences, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Achieve Life Sciences, Inc. and its subsidiaries (the Company) as of December 31, 2024 and 2023, and the
related consolidated statements of loss and comprehensive loss, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2024,
including the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses from operations and cash outflows from operating activities that raise substantial doubt about its
ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be
communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Contingent consideration arising from the Sopharma share purchase agreement
As described in Notes 2, 6 and 7 to the consolidated financial statements, in 2015 the Company entered into a Share Purchase Agreement with Sopharma AD to acquire 75% of
the outstanding shares of Extab Corporation for $2.0 million in cash and $2.0 million in a deferred payment, contingent on regulatory approval of cytisinicline by the Federal
Drug Administration or the European Medicines Agency. As of December 31, 2024, the fair value of the contingent consideration was estimated to be $1.1 million.
Management determined the fair value of the contingent consideration using a probability based discounted cash flow model whereby management forecasted the timing of the
cash flow of the related future payment based on cytisinicline’s current clinical development phase and the remaining requirements for regulatory approval. Management then
discounted the expected payment amount to
67
calculate the present value and then applied a probability of success in obtaining regulatory approval as of the valuation date. Management’s significant assumptions include the
forecasted timing of the future payment, the probability of success and the risk-adjusted discount rate. The discount rate is adjusted for credit risk.
The principal considerations for our determination that performing procedures relating to the contingent consideration arising from the Sopharma share purchase agreement is a
critical audit matter are (i) the significant judgments required by management in determining the fair value of the contingent consideration and (ii) a high degree of auditor
judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions relating to the probability of success, the risk-adjusted
discount rate, and forecasted timing of the future payment. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.
These procedures included, among others, (i) reading the agreement related to the contingent consideration, (ii) evaluating the appropriateness of the probability based
discounted cash flow model, (iii) testing the completeness and accuracy of underlying data used in the model, and (iv) evaluating the reasonableness of the significant
assumptions used by management related to the probability of success, the risk-adjusted discount rate and the forecasted timing of the future payment. Evaluating
management’s significant assumptions related to the probability of success and the forecasted timing of the future payment involved evaluating whether these assumptions were
reasonable by considering the agreement associated with the transaction, industry information regarding clinical trial success rates and drug development timelines, and
whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist with the
evaluation of the appropriateness of the probability based discounted cash flow model and the reasonableness of the risk-adjusted discount rate.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, Canada
March 11, 2025
We have served as the Company's auditor since 2017.
68
Achieve Life Sciences, Inc.
Consolidated Balance Sheets
(In thousands, except per share and share amounts)
December 31,
2024
2023
ASSETS
Current assets:
Cash and cash equivalents [note 3 and note 7]
$
12,753
$
15,546
Marketable securities [note 7]
21,607
—
Grant receivable [note 4]
—
111
Prepaid expenses and other assets
2,107
1,325
Total current assets
36,467
16,982
Restricted cash and other assets [note 7 and note 8]
39
92
Right-of-use assets [note 12]
119
66
License agreement [note 5 and note 6]
974
1,197
Goodwill
1,034
1,034
Total assets
$
38,633
$
19,371
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
1,950
$
618
Accrued liabilities other
573
351
Accrued clinical liabilities
1,077
280
Accrued compensation
3,027
2,311
Contingent consideration [note 6 and note 7]
—
528
Current portion of long-term obligations [note 12]
55
63
Current portion of convertible debt [note 7 and note 9]
—
16,662
Total current liabilities
6,682
20,813
Non-current liabilities:
Non-current portion of convertible debt [note 7 and note 9]
9,837
—
Contingent consideration [note 6 and note 7]
1,149
—
Long-term obligations [note 12]
66
6
Total liabilities
17,734
20,819
Commitments and contingencies [note 12]
Stockholders' equity:
Series A convertible preferred stock, $0.001 par value, 9,158 shares designated, zero issued and outstanding at
December 31, 2024 and December 31, 2023.
—
—
Series B convertible preferred stock, $0.001 par value, 6,256 shares designated, zero issued and outstanding at
December 31, 2024 and December 31, 2023.
—
—
Common stock, $0.001 par value, 150,000,000 shares authorized, 34,685,072
and 21,165,760 issued and outstanding at December 31, 2024 and December 31, 2023, respectively.
103
90
Additional paid-in capital
226,343
164,209
Accumulated deficit
(205,578)
(165,751)
Accumulated other comprehensive income
31
4
Total stockholders' equity
20,899
(1,448)
Total liabilities and stockholders' equity
$
38,633
$
19,371
Going concern [note 1]
See accompanying notes.
69
Achieve Life Sciences, Inc.
Consolidated Statements of Loss and Comprehensive Loss
(In thousands, except per share and share amounts)
Year Ended December 31,
2024
2023
2022
EXPENSES
Research and development
$
22,817 $
15,814 $
30,078
General and administrative
16,252
11,436
10,722
Total operating expenses
39,069
27,250
40,800
OTHER INCOME (EXPENSE)
Interest income
2,356
825
199
Interest expense [note 9]
(2,180)
(2,853)
(1,789)
Change in fair value of contingent consideration [note 6 and note 7]
(621)
(528)
—
Loss on extinguishment of 2023 SVB convertible term loan [note 9]
(283)
—
—
Other expense
(30)
(9)
40
Total other expense
(758)
(2,565)
(1,550)
Net Loss
$
(39,827) $
(29,815) $
(42,350)
OTHER COMPREHENSIVE INCOME
Net unrealized gain on securities
27
—
—
Total other comprehensive income (loss)
27
—
—
Comprehensive loss
$
(39,800) $
(29,815) $
(42,350)
Basic and diluted net loss per common share [note 11 [i]]
$
(1.24) $
(1.50) $
(4.00)
Shares used in computation of basic and diluted net loss per common share
[note 11 [i]]
32,071,146
19,827,354
10,593,034
See accompanying notes.
70
Achieve Life Sciences, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands, except share amounts)
Accumulated
Additional
Other
Total,
Common Stock
Preferred Stock
Paid-in
Comprehensive
Accumulated
Stockholders’
Shares
Amount
Shares
Amount
Capital
Income (Loss)
Deficit
Equity
Balance, December 31, 2021
9,453,542
79
—
—
121,545
4
(93,586 )
28,042
Stock-based compensation expense
—
—
—
—
3,270
—
—
3,270
Shares issued on exercise of warrants
3,709
—
—
—
24
—
—
24
Shares issued from purchase agreement with Virtu
200,000
—
—
—
1,330
—
—
1,330
Shares issued as settlement with trade vendor
3,584
—
—
—
26
—
—
26
Restricted stock unit settlements
26,625
—
—
—
—
—
—
—
Restricted stock unit settlements withheld and
retired to treasury
(5,605 )
—
—
—
(47 )
—
—
(47 )
Shares issued under employee share purchase plan
28,892
—
—
—
126
—
—
126
Shares issued - November 2022 private placement
8,186,282
8
—
—
17,874
—
—
17,882
Net loss
—
—
—
—
—
—
(42,350 )
(42,350 )
Balance, December 31, 2022
17,897,029
87
—
—
144,148
4
(135,936 )
8,303
Stock-based compensation expense
—
—
—
—
3,439
—
—
3,439
Shares issued on exercise of warrants
98,333
—
—
—
227
—
—
227
Financing costs relating to November 2022 private
placement
—
—
—
—
(30 )
—
—
(30 )
Shares issued - May 2023 private placement
3,000,000
3
—
—
15,298
—
—
15,301
SVB convertible debt refinancing discount
—
—
—
—
1,074
—
—
1,074
Restricted stock unit settlements
139,750
—
—
—
—
—
—
—
Restricted stock unit settlements withheld and
retired to treasury
(29,352 )
—
—
—
(220 )
—
—
(220 )
Shares issued as settlement with trade vendor
60,000
—
—
—
273
—
—
273
Net loss
—
—
—
—
—
—
(29,815 )
(29,815 )
Balance, December 31, 2023
21,165,760
90
—
—
164,209
4
(165,751 )
(1,448 )
Stock-based compensation expense
—
—
—
—
5,325
—
—
5,325
Shares issued on exercise of warrants
295,126
—
—
—
682
—
—
682
Shares issued - February 2024 private placement
13,086,151
13
—
—
56,063
—
—
56,076
Restricted stock unit settlements
113,125
—
—
—
—
—
—
—
Restricted stock unit settlements withheld and
retired to treasury
(23,733 )
—
—
—
(114 )
—
—
(114 )
Shares issued under employee share purchase plan
48,643
—
—
—
178
—
—
178
Other comprehensive income
—
—
—
—
—
27
—
27
Net loss
—
—
—
—
—
—
(39,827 )
(39,827 )
Balance, December 31, 2024
34,685,072
103
—
—
226,343
31
(205,578 )
20,899
See accompanying notes.
71
Achieve Life Sciences, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2024
2023
2022
Operating Activities:
Net loss
$
(39,827) $
(29,815) $
(42,350)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization [note 5]
229
228
236
Stock-based compensation [note 11[c], note 11[d] and note 11[e]]
5,325
3,439
3,270
Shares issued as settlement with trade vendor
—
273
26
Accrued interest on SVB convertible debt [note 9]
799
1,216
1,170
Amortization of 2024 SVB convertible term loan transaction costs [note 9]
23
—
—
Accretion of discount on modification of debt [note 9]
365
430
—
Loss on extinguishment of 2023 SVB convertible term loan [note 9]
283
—
—
Contingent consideration [note 6 and note 7]
621
528
—
Changes in operating assets and liabilities:
Grant receivable [note 4]
111
(6)
48
Prepaid expenses and other assets
(765)
1,176
(931)
Accounts payable
1,332
(1,042)
799
Accrued liabilities other
222
(32)
55
Accrued clinical liabilities
797
(1,449)
376
Accrued compensation
716
633
(263)
Lease obligation
(1)
(58)
(5)
Net cash used in operating activities
(29,770)
(24,479)
(37,569)
Financing Activities:
Proceeds from exercise of warrants [note 11[g]]
682
227
24
Proceeds from ATM, net of issuance costs [note 11[b]]
—
—
1,330
Proceeds from employee stock purchase plan [note 11[e]]
178
—
126
Taxes paid related to net share settlement of equity awards
(114)
(220)
(47)
Proceeds from the November 2022 private placement, net of issuance costs [note 11[b]]
—
(30)
17,882
Proceeds from May 2023 private placement, net of issuance costs [note 11[b]]
—
15,301
—
Proceeds from February 2024 registered direct offering, net of issuance costs [note 11[b]]
56,076
—
—
Repayment of 2023 SVB convertible term loan [note 7 and note 9]
(18,109)
—
—
Receipt of 2024 SVB convertible term loan less transaction costs [note 7 and note 9]
9,814
—
—
Net cash provided by financing activities
48,527
15,278
19,315
Investing Activities:
Purchase of property and equipment
—
(21)
—
Purchase of investments
(47,887)
—
—
Maturities of investments
26,307
—
—
Net cash provided by (used in) investing activities
(21,580)
(21)
—
Effect of exchange rate changes on cash
—
(3)
3
Net increase (decrease) in cash, cash equivalents and restricted cash
(2,823)
(9,225)
(18,251)
Cash, cash equivalents and restricted cash at beginning of year
15,596
24,821
43,072
Cash, cash equivalents and restricted cash at end of year
$
12,773 $
15,596 $
24,821
See accompanying notes.
72
Achieve Life Sciences, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share and share amounts)
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTY
Achieve Life Sciences, Inc. (referred to as “Achieve,” “we,” “us,” or “our”) is a late-stage clinical specialty pharmaceutical company committed to the global development and
commercialization of cytisinicline for smoking cessation and nicotine dependence. We were incorporated in the state of Delaware, and operate out of Bothell, Washington and
Vancouver, British Columbia.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and
settlement of liabilities and commitments in the normal course of business.
We have historically experienced recurring losses from operations and have incurred an accumulated deficit of $205.6 million through December 31, 2024. As of December 31,
2024, we had cash, cash equivalents and marketable securities of $34.4 million and a positive working capital balance of $29.8 million. For the year ended December 31, 2024,
we incurred a net loss of $39.8 million and net cash used in operating activities was $29.8 million.
Substantial doubt exists as to our ability to continue as a going concern. Our ability to continue as a going concern is subject to material uncertainty and dependent on our
ability to obtain additional financing. We have historically financed our operations through equity offerings and/or debt financings. There can be no assurance that financing
from these or other sources will be available to us in the future. Without additional funds, we may be forced to delay, scale back or eliminate some of our research and
development, or R&D, activities or other operations and potentially delay product development in an effort to provide sufficient funds to continue our operations. If any of
these events occurs, our ability to achieve our development and commercialization goals would be adversely affected.
Our current resources are insufficient to fund our planned operations for the next 12 months. We will continue to require substantial additional capital to continue our clinical
development and commercialization activities. Accordingly, we will need to raise substantial additional capital from the sale of our securities, debt, partnering arrangements,
non-dilutive fundraising or other financing transactions in order to continue to fund our operations and finance the remaining development and commercialization of our
product candidate. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts.
The uncertainty with respect to our operations and the market generally may also make it challenging to raise additional capital on favorable terms, if at all. Failure to raise
capital as and when needed, on favorable terms or at all, will have a negative impact on our financial condition and our ability to develop our product candidate. We expect our
expenses to substantially increase over time in connection with our ongoing activities, particularly as we advance our product candidate in clinical development and support
future commercialization.
We are required to keep substantially all of our cash and cash equivalents with a single financial institution, Silicon Valley Bank, or SVB, a division of First-Citizens Bank &
Trust Company, or FCB, as required by the covenants of our New Debt Agreement (Note 3 – Financial Instruments and Risk - Concentration of Cash and Cash Equivalents
Risk and Note 9 – Convertible Debt).
Our commercial bank balances exceed federal insurance limits. We have not experienced any losses in our cash and cash equivalents for the years ended December 31, 2024
and 2023.
These consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should we be unable to
continue as a going concern. Such adjustments could be material.
Basis of Presentation
The consolidated financial statements include the accounts of Achieve and our wholly owned subsidiaries, Achieve Life Sciences Technologies Inc., Achieve Life Science,
Inc., Extab Corporation, and Achieve Pharma UK Limited. All intercompany balances and transactions have been eliminated.
73
2. ACCOUNTING POLICIES
Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and notes thereto. Actual results could differ from these estimates. Estimates and
assumptions principally relate to estimates of contingent considerations, the initial fair value and forfeiture rates of stock options issued to employees and consultants, the
estimated compensation cost on performance restricted stock unit awards, clinical trial and manufacturing accruals, estimated useful lives of property, plant, equipment and
intangible assets, estimates and assumptions in goodwill impairment assessment, estimates and assumptions in contingent liabilities.
Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents, which we consider as available for sale and carry at fair
value, with unrealized gains and losses, if any, reported as accumulated other comprehensive income or loss, which is a separate component of stockholders’ equity.
Marketable Securities
Marketable securities consist of financial instruments purchased with an original maturity of greater than three months and less than one year. We consider our marketable
securities as available-for-sale and carry them at fair value, with unrealized gains and losses, if any, reported as accumulated other comprehensive income or loss, which is a
separate component of stockholders’ equity. Realized gains and losses on the sale or impairment, if any, of these securities, are recognized in net income or loss. The cost of
investments sold is based on the specific identification method.
Fair value of financial instruments
The fair value of our marketable securities is based on quoted market prices and trade data for comparable securities.
Other financial instruments including accounts payable, accrued liabilities other, accrued clinical liabilities and accrued compensation are carried at cost, which we believe
approximates fair value because of the short-term maturities of these instruments.
Intellectual Property
The costs of acquiring intellectual property rights to be used in the research and development process, including licensing fees and milestone payments, are charged to research
and development expense as incurred in situations where we have not identified an alternative future use for the acquired rights, and are capitalized in situations where we have
identified an alternative future use. No costs associated with acquiring intellectual property rights have been capitalized to date. Costs of maintaining intellectual property rights
are expensed as incurred.
Intangible Assets
Our intangible assets are subject to amortization and are amortized using the straight-line method over their estimated period of benefit. We evaluate the carrying amount of
intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.
Goodwill
Goodwill acquired in a business combination is assigned to the reporting unit that is expected to benefit from the combination as of the acquisition date. Goodwill is tested for
impairment on an annual basis or, more frequently, if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit.
74
Sopharma Share Purchase Agreement Contingent Consideration
We may be required to pay future contingent consideration to Sopharma, AD as part of the Share Purchase Agreement, which is contingent upon obtaining regulatory approval
of cytisinicline by the FDA or the EMA.We determine the fair value of the contingent consideration using a probability based discounted cash flow approach whereby we
forecast the timing of the cash flow of the related future payment based on cytisinicline's current clinical development phase and the remaining requirements for regulatory
approval. We then discount the expected payment amount to calculate the present value and then apply a probability of success in obtaining regulatory approval as of the
valuation date. We evaluate the underlying projection used in determining the fair value each period and make updates as necessary.
The significant assumptions we use to value the contingent consideration are the forecasted timing of the future payment, the risk-adjusted discount rate and the probability of
success which are all considered significant unobservable inputs, and as such, the liability is classified as a Level 3 measurement. The risk-adjusted discount rate is adjusted for
credit risk. An increase in the discount rate or decrease in the probability of success would result in a decrease in the fair value of the contingent consideration. Conversely, a
decrease in the discount rate or increase in the probability of success would result in an increase in the fair value of the contingent consideration.
Property and Equipment
Property and equipment assets are recorded at cost less accumulated depreciation. Depreciation expense on assets acquired under capital lease is recorded within depreciation
expense. Depreciation is recorded on a straight-line basis over the following periods:
Computer equipment
3 years
Furniture and fixtures
5 years
Machinery and equipment
5 - 10 years
Leasehold improvements and equipment under capital lease
Over the term of the lease
Impairment of Long-Lived Assets
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. We conduct our
long-lived asset impairment analyses in accordance with ASC 360-10-15, “Impairment or Disposal of Long-Lived Assets.” ASC 360-10-15 requires us to group assets and
liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the
sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as
the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.
Income Taxes
Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the differences between the carrying values of assets and
liabilities and their respective income tax bases and for operating losses and tax credit carry forwards. A valuation allowance is provided for the portion of deferred tax assets
that is more likely than not to be unrealized. Deferred tax assets and liabilities are measured using the enacted tax rates and laws.
Government Grants
We account for government grants by recognizing the benefit of the grant as qualifying expenditures are incurred provided that there is reasonable assurance that we have
complied with all conditions under the terms of the grant and that the amount requested for reimbursement will be received. The government grant reduces the research and
development, or R&D, expenses to which it relates on our statement of profit and loss.
Research and Development Costs
Research and development costs are expensed as incurred, net of related refundable investment tax credits, with the exception of non-refundable advance payments for goods or
services to be used in future research and development, which are capitalized in accordance
75
with ASC 730, “Research and Development” and included within Prepaid Expenses or Other Assets depending on when the assets will be utilized.
Clinical trial expenses are a component of research and development costs. These expenses include fees paid to contract research organizations and investigators and other
service providers, which conduct certain product development activities on our behalf. We use an accrual basis of accounting, based upon estimates of the amount of service
completed. In the event payments differ from the amount of service completed, prepaid expense or accrued liabilities amounts are adjusted on the balance sheet. These expenses
are based on estimates of the work performed under service agreements, milestones achieved, patient enrollment and experience with similar contracts. We monitor each of
these factors to the extent possible and adjust estimates accordingly.
Stock-Based Compensation
Under the fair value recognition provisions of the ASC 718, “Stock Compensation,” we use the modified prospective method with respect to options granted to employees and
directors. The expense is amortized on a straight-line basis over the graded vesting period.
Restricted Stock Unit Awards
We grant restricted stock unit awards that generally vest and are expensed over a four-year period. We also granted restricted stock unit awards that vest in conjunction with
certain performance conditions to certain executive officers and key employees. At each reporting date, we evaluate whether achievement of the performance conditions is
probable. Compensation expense is recorded over the appropriate service period based upon our assessment of accomplishing each performance provision or the occurrence of
other events that may have caused the awards to accelerate and vest.
Segment Information
We follow the requirements of ASC 280, “Segment Reporting.” Operating segments are identified as components of an enterprise about which separate discreet financial
information is available for evaluation by our Chief Executive Officer, the chief operating decision-maker, or CODM. The CODM assesses performance based on consolidated
net income that is also reported on the Consolidated Statements of Loss and Comprehensive Loss as Net Loss.
We view our operations and manage our business as one operating segment, dedicated to the development and commercialization of cytisinicline for nicotine dependence, with
operations located in Canada, the United States and the U.K .
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) consists of unrealized gains and
losses on our available-for-sale marketable securities. We report the components of comprehensive loss in the statement of stockholders’ equity.
Loss per Common Share
Basic loss per common share is computed using the weighted average number of common shares outstanding during the period. Diluted loss per common share is computed in
accordance with the treasury stock method. The effect of potentially issuable common shares from outstanding stock options, restricted stock unit awards and warrants are anti-
dilutive for all periods presented.
Warrants
We account for warrants pursuant to the authoritative guidance on accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock,
on the understanding that in compliance with applicable securities laws, the warrants require the issuance of registered securities upon exercise and therefore do not sufficiently
preclude an implied right to net cash settlement. We have warrants classified as equity and these are not reassessed for their fair value at the end of each reporting period.
Warrants classified as equity are initially measured at their fair value and recognized as part of stockholders’ equity. Determining the appropriate fair-value model and
calculating the fair value of registered warrants requires considerable judgment, including estimating stock price volatility and expected warrant life. The computation of
expected volatility was based on the historical volatility of comparable companies from a representative peer group selected based on industry and market capitalization. A
small change in the
76
estimates used may have a relatively large change in the estimated valuation. We use the Black-Scholes pricing model to value the warrants.
Reporting Currency and Foreign Currency Translation
Our functional and reporting currency is the U.S. dollar. Revenues and expenses denominated in other than U.S. dollars are translated at average monthly rates.
The functional currency of our foreign subsidiary is the U.S. dollar. For this foreign operation, assets and liabilities denominated in other than U.S. dollars are translated at the
period-end rates for monetary assets and liabilities and historical rates for non-monetary assets and liabilities. Revenues and expenses denominated in other than U.S. dollars
are translated at average monthly rates. Gains and losses from this translation are recognized in the consolidated statement of loss and comprehensive loss.
Recent Accounting Standards
In December 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2023-09 “Income Taxes (Topic 740): Improvements to
Income Tax Disclosures”. This guidance is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address
investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in
foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively.
Early adoption is permitted. We are evaluating this standard to determine if adoption will have a material impact on our consolidated financial statements.
In November 2024, the FASB issued ASU2024-03 "Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):
Disaggregation of Income Statement Expenses". The standard will require additional disclosure of the nature of expenses included in the income statement in response to
longstanding requests from investors for more information about an entity’s expenses. The new standard requires disclosures about specific types of expenses included in the
expense captions presented on the face of the income statement as well as disclosures about selling expenses. ASU2024-03 applies to all public business entities and is effective
for annual reporting periods beginning after December 15, 2026 and interim reporting periods within annual reporting periods beginning after December 15, 2027. The
requirements will be applied prospectively with the option for retrospective application. Early adoption is permitted. We are evaluating this standard to determine if adoption
will have a material impact on our consolidated financial statements.
Recent Adopted Accounting Policies
In November 2023, the FASB issued ASU2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to provide enhanced
segment disclosures. The standard will require disclosures about significant segment expenses and other segment items and identifying the Chief Operating Decision Maker and
how they use the reported segment profitability measures to assess segment performance and allocate resources. These enhanced disclosures are required for all entities on an
interim and annual basis, even if they have only a single reportable segment. The standard is effective for years beginning after December 15, 2023, and interim periods within
annual periods beginning after December 15, 2024 and early adoption is permitted. The adoption of this standard did not have a significant impact on our financial position or
results of operations.
3. FINANCIAL INSTRUMENTS AND RISK
Concentration of Cash and Cash Equivalents Risk
We place our cash primarily in commercial checking accounts with various financial institutions. As of December 31, 2024, approximately $0.2 million of our cash and $1.8
million of our cash equivalents (Note 7 – Fair Value Measurements) is held in a single financial institution, SVB, as required by the covenants of our New Debt Agreement
(Note 9 – Convertible Debt). Our commercial bank balances exceed federal insurance limits.
77
We have not experienced any losses in our cash and cash equivalents for the years ended December 31, 2024 and 2023.
Concentration of Credit Risk
For certain of our financial instruments, including cash and cash equivalents, accounts payable, accrued liabilities other, accrued clinical liabilities and accrued compensation
carrying values approximate fair value due to their short-term nature. Our cash equivalents are recorded at fair value.
Financial risk is the risk to our results of operations that arises from fluctuations in interest rates and foreign exchange rates and the degree of volatility of these rates as well as
credit risk associated with the financial stability of the issuers of the financial instruments. Foreign exchange rate risk arises as a portion of our expenses are denominated in
other than U.S. dollars.
We invest our excess cash in accordance with investment guidelines, which limit our credit exposure for securities to any one financial institution or corporation other than
securities issued by the U.S. government. We only invest in A (or equivalent) rated securities with maturities of one year or less. These securities generally mature within one
year or less and in some cases are not collateralized. At December 31, 2024 the average days to maturity of our portfolio of cash equivalents and marketable securities was 67
days. We do not use derivative instruments to hedge against any of these financial risks.
4. GOVERNMENT GRANT
In July 2021, we announced that we were awarded a grant from the National Institute on Drug Abuse, or NIDA, of the National Institutes of Health, or NIH, to evaluate the use
of cytisinicline as a treatment for cessation of nicotine e-cigarette use. This initial grant award, in the amount of $0.3 million, commenced on August 1, 2021, and was utilized
to complete critical regulatory and clinical operational activities, such as protocol finalization, clinical trial site identification, drug packaging, and submission of a new
Investigational New Drug Application, or IND, to the U.S. Food and Drug Administration, or FDA, for investigating cytisinicline in nicotine e-cigarette users.
In November 2021, we announced that the FDA had completed their review and accepted the IND, to investigate cytisinicline as a cessation treatment in this population. In
June 2022, following NIH review of completed milestones, we announced that we were awarded the next grant funding from the NIDA in the amount of approximately $2.5
million, which we have used to conduct the ORCA-V1 Phase 2 clinical trial.
In June 2022, we announced the initiation of the ORCA-V1 Phase 2 clinical trial. ORCA-V1 evaluated the efficacy and safety of 3 mg cytisinicline dosed three times daily
compared to placebo in approximately 160 adult e-cigarette users at five clinical trial locations in the United States. Participants were randomized to receive cytisinicline or
placebo for 12 weeks in combination with standard cessation behavioral support.
The NIDA/NIH grant for ORCA-V1 was fully utilized as of the first quarter of 2024 and we have received the full amount of approximately $2.5 million in reimbursements
from NIDA/NIH. We do not expect to receive any further reimbursements from this grant. For the years ended December 31, 2024 and 2023 we incurred $16,000 and $1.2
million, respectively, in qualifying R&D expenditures under the NIDA/NIH grant which has been recorded as a reduction in R&D expense. From inception of the grant award
to December 31, 2024, we have received approximately $2.5 million in reimbursements from NIDA/NIH.
The grant award is expected to cover approximately half of the total ORCA-V1 clinical study costs. The Primary Investigators for the grant are Dr. Cindy Jacobs our Chief
Medical Officer, and Dr. Nancy Rigotti, Professor of Medicine at Harvard Medical School and Director, Tobacco Research and Treatment Center, Massachusetts General
Hospital.
5. INTANGIBLES
All of our intangible assets are subject to amortization and are amortized using the straight-line method over their estimated useful life.
We acquired license and supply agreements, in relation to cytisinicline, upon the acquisition of Extab Corporation, or Extab, in 2015. The agreements were determined to have
a fair value of $3.1 million with an estimated useful life of 14 years.
78
The components of intangible assets were as follows:
December 31, 2024
December 31, 2023
Gross
Carrying
Accumulated
Net Carrying
Gross
Carrying
Accumulated
Net Carrying
Value
Amortization
Value
Value
Amortization
Value
License Agreements
$
3,117 $
(2,143 ) $
974 $
3,117 $
(1,920 ) $
1,197
For the years ended December 31, 2024 and 2023 we recorded license agreement amortization expense of $0.2 million and $0.2 million, respectively. The following table
outlines the estimated future amortization expense related to intangible assets held as of December 31, 2024:
Year Ending December 31,
2025
223
2026
223
2027
223
2028
223
2029
82
Total
$
974
We evaluate the carrying amount of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful life or that
indicate the asset may be impaired. We conducted an impairment analysis for long lived assets, including the license and supply agreements for the active pharmaceutical
ingredient cytisinicline, and concluded that there were no indicators of impairment identified as of December 31, 2024.
6. LICENSE AGREEMENTS
Sopharma License and Supply Agreements
We are party to a license agreement, or the Sopharma License Agreement, and a supply agreement, or the Sopharma Supply Agreement, with Sopharma, AD, or Sopharma.
Pursuant to the Sopharma License Agreement, we were granted access to all available manufacturing, efficacy and safety data related to cytisinicline, as well as a granted
patent in several European countries related to new oral dosage forms of cytisinicline providing enhanced stability. Additional rights granted under the Sopharma License
Agreement include the exclusive use of, and the right to sublicense, certain cytisinicline trademarks in all territories described in the Sopharma License Agreement. Under the
Sopharma License Agreement, we agreed to pay a nonrefundable license fee. In addition, we agreed to make certain royalty payments equal to a mid-single digit percentage of
all net sales of cytisinicline products in our territory during the term of the Sopharma License Agreement, including those sold by a third party pursuant to any sublicense which
may be granted by us. To date, any amounts paid to Sopharma pursuant to the Sopharma License Agreement have been immaterial.
Share Purchase Agreement
On May 14, 2015, we entered into a Share Purchase Agreement with Sopharma to acquire 75% of the outstanding shares of Extab for $2.0 million in cash and $2.0 million in a
deferred payment, contingent on regulatory approval of cytisinicline by the FDA or the European Medicines Agency. The fair value of the contingent consideration on the
acquisition date was nil. The contingent consideration liability is measured at fair value in our financial statements,.
As of December 31, 2024, the fair value of the contingent consideration was estimated to be $1.1 million (see Note 2 "Significant Accounting Policies, Sopharma Share
Purchase Agreement Contingent Consideration" in the accompanying consolidated Financial Statements). We recognized losses of $0.6 million and $0.5 million for the years
ended December 31, 2024 and 2023 respectively.
University of Bristol License Agreement
In July 2016, we entered into a license agreement with the University of Bristol, or the University of Bristol License Agreement. Under the University of Bristol License
Agreement, we received exclusive and nonexclusive licenses from the University of Bristol to certain patent and technology rights resulting from research activities into
cytisinicline and its derivatives, including a number of patent applications related to novel approaches to cytisinicline binding at the nicotinic receptor level.
In consideration of rights granted by the University of Bristol, we paid a nominal license fee and agreed to pay amounts of up to $3.2 million, in the aggregate, tied to a
financing milestone and to specific clinical development and commercialization milestones
79
resulting from activities covered by the University of Bristol License Agreement. Additionally, if we successfully commercialize any product candidates subject to the
University of Bristol License Agreement, we are responsible for royalty payments in the low-single digits and payments up to a percentage in the mid-teens of any sublicense
income, subject to specified exceptions, based upon net sales of such licensed products.
On January 22, 2018, we and the University of Bristol entered into an amendment to the University of Bristol License Agreement. Pursuant to the amended University of
Bristol License Agreement, we received exclusive rights for all human medicinal uses of cytisinicline across all therapeutic categories from the University of Bristol from
research activities into cytisinicline and its derivatives. In consideration of rights granted by the amended University of Bristol License Agreement, we agreed to pay an initial
amount of $37,500 upon the execution of the amended University of Bristol License Agreement, and additional amounts of up to $1.7 million, in the aggregate, tied to a
financing milestone and to specific clinical development and commercialization milestones resulting from activities covered by the amended University of Bristol License
Agreement, in addition to amounts under the original University of Bristol License Agreement of up to $3.2 million in the aggregate, tied to specific financing, development
and commercialization milestones. Additionally, if we successfully commercialize any product candidate subject to the amended University of Bristol License Agreement or to
the original University of Bristol License Agreement, we will be responsible, as provided in the original University of Bristol License Agreement, for royalty payments in the
low-single digits and payments up to a percentage in the mid-teens of any sublicense income, subject to specified exceptions, based upon net sales of such licensed products.
Up to December 31, 2024, we had paid the University of Bristol $125,000 pursuant to the University of Bristol License Agreement.
7. FAIR VALUE MEASUREMENTS
Assets and liabilities recorded at fair value in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value.
For certain of our financial instruments including amounts receivable and accounts payable the carrying values approximate fair value due to their short-term nature.
ASC 820 “Fair Value Measurements and Disclosures” specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or
unobservable. In accordance with ASC 820, these inputs are summarized in the three broad levels listed below:
•
Level 1 – Quoted prices in active markets for identical securities.
•
Level 2 – Other significant inputs that are observable through corroboration with market data (including quoted prices in active markets for similar securities).
•
Level 3 – Significant unobservable input that reflects management’s best estimate of what market participants would use in pricing the asset or liability.
As quoted prices in active markets are not readily available for certain financial instruments, we obtain estimates for the fair value of financial instruments through third-party
pricing service providers.
In determining the appropriate levels, we performed a detailed analysis of the assets and liabilities that are subject to ASC 820.
We invest our excess cash in accordance with investment guidelines that limit the credit exposure to any one financial institution other than securities issued by the U.S.
Government. These securities are not collateralized and mature within one year.
A description of the valuation techniques applied to our financial instruments measured at fair value on a recurring basis follows.
Financial Instruments
80
The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation
techniques we utilized to determine such fair value (in thousands):
December 31, 2024
Level 1
Level 2
Level 3
Total
Assets
Money market securities (cash equivalents)
$
12,135 $
— $
— $
12,135
Restricted cash
20
—
—
20
US government securities
—
9,473
—
9,473
Corporate bonds
—
12,134
—
12,134
Total assets
$
12,155 $
21,607 $
— $
33,762
Liabilities
Convertible debt
$
—
9,430 $
— $
9,430
Contingent consideration
—
—
1,149
1,149
Total liabilities
$
— $
9,430 $
1,149 $
10,579
December 31, 2023
Level 1
Level 2
Level 3
Total
Assets
Money market securities (cash equivalents)
$
14,252 $
— $
— $
14,252
Restricted cash
50
—
—
50
Total assets
$
14,302 $
— $
— $
14,302
Liabilities
Convertible debt
$
— $
16,652 $
— $
16,652
Contingent consideration
—
—
528
528
Total liabilities
$
— $
16,652 $
528 $
17,180
Money Market Securities
Money market securities are classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets for identical securities.
Cash and cash equivalents (in thousands):
Gross
Gross
Amortized
Unrealized
Unrealized
Estimated
December 31, 2024
Cost
Gains
Losses
Fair Value
Money market securities
12,135
—
—
12,135
Total cash and cash equivalents
$
12,135 $
— $
— $
12,135
Money market securities (restricted cash)
20
—
—
20
Total restricted cash
$
20 $
— $
— $
20
Gross
Gross
Amortized
Unrealized
Unrealized
Estimated
December 31, 2023
Cost
Gains
Losses
Fair Value
Money market securities
14,252
—
—
14,252
Total cash and cash equivalents
$
14,252 $
— $
— $
14,252
Money market securities (restricted cash)
50
—
—
50
Total restricted cash
$
50 $
— $
— $
50
We only invest in A (or equivalent) rated securities. All securities included in cash and cash equivalents had maturities of 90 days or less at the time of purchase.
Corporate and Other Debt Corporate Bonds and Commercial Paper
The fair value of corporate bonds and commercial paper is estimated using recently executed transactions, market price quotations (where observable), bond spreads or credit
default swap spreads adjusted for any basis difference between cash and derivative
81
instruments. The spread data used are for the same maturity as the bond. If the spread data does not reference the issuer, then data that reference a comparable issuer are used.
When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default swap spreads and
recovery rates based on collateral values as significant inputs. Corporate bonds and commercial paper are generally categorized in Level 2 of the fair value hierarchy; in
instances where prices, spreads or any of the other aforementioned key inputs are unobservable, they are categorized in Level 3 of the hierarchy.
Gross
Gross
Amortized
Unrealized
Unrealized
Estimated
December 31, 2024
Cost
Gains
Losses
Fair Value
US government securities
$
9,461 $
— $
12 $
9,473
Corporate bonds
12,119
—
15
12,134
Total marketable securities
$
21,580 $
— $
27 $
21,607
Fair Value of Long-Term Debt
Convertible Debt
The principal amount, carrying value and related estimated fair value of our convertible debt reported in the consolidated balance sheets as of December 31, 2024 and
December 31, 2023 was as follows (in thousands). The aggregate fair value of the principal amount of the convertible debt is a Level 2 fair value measurement.
December 31, 2024
December 31, 2023
Principal
Carrying
Fair
Principal
Carrying
Fair
Amount
Value
Value
Amount
Value
Value
2023 SVB Convertible Debt
$
— $
— $
— $
15,000 $
16,662 $
16,652
December 31, 2024
December 31, 2023
Principal
Carrying
Fair
Principal
Carrying
Fair
Amount
Value
Value
Amount
Value
Value
2024 SVB Convertible Debt
$
10,000 $
9,837 $
9,430 $
— $
— $
—
Fair Value of Sopharma Share Purchase Agreement Contingent Consideration
We determine the fair value of the contingent consideration using a probability based discounted cash flow model whereby we forecast the timing of the cash flow of the related
future payment based on cytisinicline's current clinical development phase and the remaining requirements for regulatory approval. We then discount the expected payment
amount to calculate the present value and then apply a probability of success in obtaining regulatory approval as of the valuation date. We evaluate the underlying projection
used in determining the fair value each period and make updates as necessary.
The significant assumptions we use to value the contingent consideration are the forecasted timing of the future payment, the risk-adjusted discount rate and the probability of
success which are all considered significant unobservable inputs, and as such, the liability is classified as a Level 3 measurement. The risk-adjusted discount rate is adjusted for
credit risk.
An increase in the discount rate and decrease in the probability of success will result in a decrease in the fair value of the contingent consideration. Conversely, a decrease in the
discount rate and increase in the probability of success will result in an increase in the fair value of the contingent consideration. At December 31, 2024 the risk adjusted
discount rate was 30.8% and the probability of success was 90.6%. Adjustments to the fair value of the contingent liabilities, other than payments, are recorded as a gain or loss
in the Consolidated Statements of Loss and Comprehensive Loss.
Opening
Balance at
Change in
Balance at
(in thousands)
December 31, 2023
Fair Value
December 31, 2024
Contingent consideration
$
528
$
621
$
1,149
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8. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
Accumulated
Net Book
Cost
Depreciation
Value
December 31, 2024
Computer equipment
$
114 $
108 $
6
Furniture and fixtures
28
28
—
Leasehold improvements
25
25
—
Computer software
77
75
2
Equipment under capital lease
12
12
—
Total property and equipment
$
256 $
248 $
8
9. CONVERTIBLE DEBT
On December 22, 2021, we entered into a $25.0 million contingent convertible debt agreement, or Original Debt Agreement, with SVB, and SVB Innovation Credit Fund VIII,
L.P., or, together with SVB, the Lenders. As part of the Original Debt Agreement, the Lenders funded $15.0 million in the form of convertible indebtedness, or Convertible
Debt, at closing. On April 26, 2022, we entered into (i) a loan and security agreement, or Loan Agreement, with SVB for the remaining $10.0 million remaining in the Original
Debt Agreement, pursuant to which SVB provided a commitment to extend term loans having an aggregate original principal amount of up to $10.0 million, or Term Loans,
and (ii) a first amendment to the Original Debt Agreement, or the Amendment. The availability of Term Loans under the Loan Agreement expired on April 30, 2023, with no
amounts drawn under the facility.
On May 15, 2023, we entered into a contingent convertible debt agreement, or Debt Agreement, with the Lenders, pursuant to which the Lenders provided term loans having an
aggregate original principal amount of $16.6 million, or the Convertible Term Loan. The Convertible Debt under the Original Debt Agreement was refinanced as the
Convertible Term Loan pursuant to the Debt Agreement. Our obligations under the Loan Agreement, Original Debt Agreement, Amendment and Convertible Debt were
satisfied in full and the Loan Agreement, Original Debt Agreement, Amendment and Convertible Debt were terminated in connection with the entrance into the Debt
Agreement and Convertible Term Loan.
On July 25, 2024, we entered into a contingent convertible debt agreement, or New Debt Agreement, with SVB, a division of FCB, in its capacity as administrative agent and
collateral agent, and FCB, as a lender, or Lender, pursuant to which the Lender provided term loans having an aggregate original principal amount of $10.0 million, with
additional term loans of up to $10.0 million available upon the occurrence of certain events as provided for in the New Debt Agreement and further described below, or New
Convertible Term Loan. Our obligations under the New Debt Agreement are secured by substantially all of our assets, other than intellectual property.
The New Debt Agreement refinanced the Debt Agreement. Our obligations under the Debt Agreement and Convertible Term Loan were satisfied in full and the Debt
Agreement and Convertible Term Loan were terminated in connection with the entrance into the New Debt Agreement and New Convertible Term Loan. The New Convertible
Term Loan matures on December 1, 2027, which maturity date may be extended to June 1, 2028 upon the occurrence of certain events as provided for in the New Debt
Agreement. The first tranche of the New Convertible Term Loan, which was advanced on July 25, 2024, has an aggregate original principal amount of $10.0 million. The
Lender will further make available to us, upon our request: (a) on or prior to October 31, 2025, a second tranche of the New Convertible Term Loan having an aggregate
principal amount of $5.0 million in the event that we receive written notice that the FDA has accepted for filing our NDA with respect to cytisinicline for a smoking cessation
indication, or the Additional Term Loan Event I, and (b) on or prior to December 31, 2025, a third tranche of the New Convertible Term Loan having an aggregate principal
amount of $5.0 million, subject to the Lender’s sole discretion. Interest is calculated on the outstanding principal amount of the New Convertible Term Loan at a floating rate
per annum equal to the greater of (i) 7.0% and (ii) the prime rate minus 1.0%, which interest shall be payable in cash monthly in arrears and shall be payable on the earlier to
occur of (x) the first day of the first month following any extension of credit by the Lender for our credit, (y) the date of any prepayment pursuant to the New Debt Agreement,
or (z) the maturity date. The New Convertible Term Loan will be “interest-only” until December 31, 2025, subject to extension as provided for in the New Debt Agreement.
The “interest-only” period may be extended to June 30, 2026, if (i) prior to December 31, 2025, we have received at least $40,000,000 in net cash proceeds from the issuance
equity interests and (ii) the conditions of Additional Term Loan Event I have been satisfied.
Subject to certain terms and conditions, the conversion feature grants the Lender or, pursuant to an assignment, any designee thereof, or Conversion Right Holders, (as defined
in the New Debt Agreement), the right to convert part or all of the outstanding aggregate original principal amount of the New Convertible Term Loan, plus accrued and unpaid
interest, into shares of our common stock at a conversion price equal to $7.00, subject to customary adjustment provisions. The Conversion Right Holders have the further right
to
83
convert part or all of the outstanding principal amount of the second and third tranches of the New Convertible Term Loan, plus accrued and unpaid interest, into shares of our
common stock at a conversion price equal to the greater of (i) $4.854, subject to customary adjustment provisions, and (ii) the lower of (a) 150% of the average of the closing
sale price of our common stock during the 10 trading days preceding the effective date of such tranche and (b) 150% of the closing sale price of our common stock on the
trading day immediately preceding the effective date of such tranche.
The conversion rights may be exercised at each Conversion Right Holder's option any time prior to repayment of the New Convertible Term Loan; provided, however, that the
Conversion Right Holders will not be permitted to convert part or all of the outstanding aggregate original principal amount of the New Convertible Term Loan without the
agreement of the relevant Conversion Right Holder and us if the sum of the amount of debt to be converted; and the aggregate amount of debt previously converted pursuant to
any such voluntary conversion, divided by the aggregate of all debt that is then outstanding or that has been repaid other than by conversion exceeds 50%.
Additionally, the outstanding principal of the New Convertible Term Loan, plus accrued and unpaid interest, will automatically be converted into shares of our common stock
at the applicable conversion price on such date if any, when the closing price per share of our common stock has been equal to or greater than (a) in the case of the outstanding
aggregate original principal amount of the New Convertible Term Loan, plus accrued and unpaid interest, $24.00 or, (b) in the case of the outstanding principal amount of the
second and third tranches of the New Convertible Term Loan, plus accrued and unpaid interest, three times the applicable conversion price, in each case for the thirty
consecutive trading days prior to such date, and the Liquidity Conditions (as defined in the New Debt Agreement) have been satisfied.
The New Convertible Term Loan may be repaid at our election and upon notice to the Agent (as defined in the New Debt Agreement) by paying the Lender an amount equal to
(i) a prepayment fee equal to (a) 3.0% of the aggregate outstanding principal balance if such prepayment occurs on or prior to the first anniversary of the New Convertible Term
Loan, (b) 2.0% of the aggregate outstanding principal balance if such prepayment occurs after the first anniversary, but on or prior to the second anniversary, of the New
Convertible Term Loan or (c) 1.0% of the aggregate outstanding principal balance if such prepayment occurs after the second anniversary of the New Convertible Term Loan
and before the maturity date; (ii) 4.0% of the original aggregate principal amount of the New Convertible Term Loan and (iii) all other sums due and payable under the New
Convertible Term Loan.
The New Debt Agreement contains customary affirmative and restrictive covenants, including covenants regarding the incurrence of additional indebtedness or liens,
investments, transactions with affiliates, delivery of financial statements, payment of taxes, maintenance of insurance, dispositions of property, mergers or acquisitions, among
other customary covenants. We are also restricted from paying dividends or making other distributions or payments on our capital stock, subject to limited exceptions. The New
Debt Agreement also includes customary representations and warranties, events of default and termination provisions. The Lender may not engage in any short sales of, or
other hedging transactions in, our common stock while any amounts are outstanding under the New Debt Agreement.
In connection with the New Debt Agreement, we entered into a Registration Rights Agreement, or RRA, with the Lender, pursuant to which we registered for resale shares of
our common stock issuable to the Conversion Right Holders upon the conversion of outstanding debt under the New Debt Agreement. Our obligations under the RRA will
terminate with respect to a holder of applicable registrable securities if, as of the date we would be required to provide written notice of such registration, (x) the aggregate
number of registrable securities then issued and issuable to such holder and to such holder’s affiliates, together with all other shares then held beneficially and/or of record by
such holder and its affiliates, does not exceed 7.0% of our then-total shares issued and outstanding (calculated including all such registrable securities and other shares), or (y)
we and such holder mutually reasonably agree that all registrable securities then issued and issuable to such holder and its affiliates may then be sold by such holder without the
requirement to be in compliance with Rule 144 promulgated under the Securities Act, or Rule 144, and otherwise without restriction or limitation pursuant to Rule 144.
Under ASU 2020-06 the embedded conversion feature was not required to be bifurcated and recognized separately, as a result the convertible debt including the conversion
feature has been recognized as a single unit of debt.
The debt refinancing under the New Debt Agreement was recognized as an extinguishment of debt under ASC 470-50, and the difference between the reacquisition price and
carrying value was recognized on the Consolidated Statement of Loss as a loss on extinguishment of debt. Associated third-party issuance costs have been recognized against
the single unit of debt and will be amortized into interest expense over the term of the loan.
84
As of December 31, 2024, the Convertible Term Loan and New Convertible Term Loan balances were comprised of the following:
Year Ended
December 31,
2024
2023
Convertible Term Loan Information
Principal
$
—
$
15,000
Transaction Costs
—
(5 )
Accrued paid-in-kind interest
—
2,311
Discount on modification of debt
—
(1,074 )
Accretion of discount on modification of debt
—
430
—
16,662
Year Ended
December 31,
2024
2023
New Convertible Term Loan Information
Principal
$
10,000
$
—
Transaction costs
(186)
—
Amortization of transaction costs
23
—
9,837
—
10. INCOME TAX
[a] We are a Delaware incorporated company subject to blended U.S. Federal and state statutory rates for December 31, 2024, 2023 and 2022 of 21%. For the purposes of
estimating the tax rate in effect at the time that deferred tax assets and liabilities are expected to reverse, management uses the furthest out available future tax rate in the
applicable jurisdictions.
U.S. and foreign components of income (loss) before income taxes were as follows (in thousands):
(In thousands)
2024
2023
2022
U.S.
$
(39,532)
$
(28,982)
$
(41,660)
Foreign
(295)
(833)
(690)
Income (loss) before income taxes
$
(39,827)
$
(29,815)
$
(42,350)
Income tax expense/(recovery) consisted of the following (in thousands):
(In thousands)
2024
2023
2022
Income tax recovery at statutory rates (at a rate of 21% for all years presented)
$
(8,364 ) $
(6,261 ) $
(8,894 )
Expenses not deducted for tax purposes
906
477
299
Effect of tax rate changes on deferred tax assets and liabilities
—
(169 )
(18)
Rate differential on foreign earnings
(14)
(36)
(26)
Research and development tax credits
(1,085 )
(883 )
(1,154 )
Change in valuation allowance
8,669
7,686
10,464
Reassessment of previously recognized net operating losses
—
—
9
Adjustment to prior year research and development tax credits
—
(760 )
(731 )
Other
(112 )
(54)
51
Income tax expense/(recovery)
$
— $
— $
—
85
[b] The tax effects of the temporary differences and carryforwards that give rise to deferred tax assets and liabilities are as follows (in thousands):
2024
2023
Deferred tax assets
Tax basis in excess of book value of assets
$
899 $
899
Net operating loss carryforwards
54,553
48,867
Research and development deductions and credits
11,800
10,716
Stock options
1,535
1,134
Capitalized R&D expenses
12,840
11,528
Other
533
434
Total deferred tax assets
82,160
73,578
Valuation allowance
(81,830 )
(73,232 )
Net deferred tax assets
330
346
Deferred tax liabilities
Right-of-use asset
(122 )
(91)
Other
(208 )
(255 )
Total deferred tax liabilities
(330 )
(346 )
Net deferred tax liabilities
—
—
86
A valuation allowance is recorded when it is more likely than not that all or some portion of the deferred tax assets, or DTAs, will not be realized. Management assesses the
need for a valuation allowance against the deferred tax assets when considering both positive and negative evidence related to whether it is more likely than not that the
deferred tax assets will be realized. In evaluating the ability to recover the deferred tax assets within the jurisdiction from which they arise, all available positive and negative
evidence is considered, including scheduled reversals of deferred tax liabilities, projected future growth, tax-planning strategies, and results of recent operations.
Due to the uncertainty surrounding the realization of deductible tax attributes in future tax returns, we have recorded a valuation allowance for deferred tax assets of $81.8
million to reduce the DTAs to zero as of December 31, 2024. The valuation allowance increased by approximately $8.6 million during the year ended December 31, 2024. The
amount of the DTA considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period increased or if objective negative
evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.
We have total net operating loss carryforwards for federal tax purposes of approximately $116.8 million ($90.2 million—2023) as of December 31, 2024, some of which will
begin to expire in 2029. Approximately $106.7 million of the federal net operating losses will carryforward indefinitely. Federal net operating losses generated after January 1,
2018 were originally available to offset 80% of taxable income for any given future tax year and will be carried forward indefinitely. We have research and development tax
credit carryforwards of approximately $5.1 million ($4.0 million—2023) as of December 31, 2024, which will begin to expire in 2037. The operating loss carryforwards and
research and development tax credits may be limited due to a change in control in our ownership as defined by the Internal Revenue Code, or IRC, Section 382. Sections 382
and 383 of the IRC limit the utilization of tax attribute carryforwards that arise prior to certain cumulative changes in a corporation's ownership. Our attribute carryforwards
may be limited due to a change of control in ownership as defined by Section 382. Due to the existence of the valuation allowance, future changes in our unrecognized tax
benefits will not impact our effective tax rate. Any future changes in our ownership may limit the use of such carryforward benefits.
Our effective income tax rate for the periods presented differ from the statutory rate of 21% primarily due to current year net losses and the full valuation allowance on the U.S.
deferred tax assets. We file income tax returns in the United States, Canada, and the United Kingdom, or U.K. At December 31, 2024, we have Canadian non-capital loss
carryforwards of $107.3 million ($107.0 million—2023) and research tax credits of $2.7 million ($2.7 million—2023), both of which will begin to expire in 2025. In addition,
we have unclaimed tax deductions of approximately $15.8 million related to scientific research and experimental development expenditures available to carry forward
indefinitely to reduce Canadian taxable income of future years. The U.K. net operating loss carryforwards of $4.2 million (2023—$4.0 million) will carry forward indefinitely.
As of December 31, 2024 and 2023, there are no tax penalties or accrued interest recorded in the financial statements.
[c] A reconciliation of the unrecognized tax benefits of uncertain tax positions for the year ended December 31, 2024 is as follows (in thousands):
Year ended
December 31,
2024
2023
2022
Gross unrecognzed tax benefits at January 1
$
761 $
761 $
761
Additions (reductions) from tax positions taken in prior years
—
—
—
Additions (reductions) from tax positions taken in the current year
—
—
—
Tax settlements
—
—
—
Gross unrecognzed tax benefits at December 31
$
761 $
761 $
761
As of December 31, 2024, unrecognized benefits of approximately $0.8 million, if recognized, would affect our effective tax rate, and would reduce our deferred tax assets.
Due to the existence of the valuation allowance, future changes in unrecognized tax benefits will have no impact on our effective tax rate. We do not anticipate that there will
be a substantial change in unrecognized tax benefits within the next 12 months.
Our accounting policy is to treat interest and penalties relating to unrecognized tax benefits as a component of income taxes. As of December 31, 2024 and December 31, 2023
we had no accrued interest and penalties related to income taxes.
We are subject to taxes in Canada, the U.K. and the United States until the applicable statute of limitations expires. However, in Canada and the United States, all tax years
remain subject to examination due to the carryforward of unutilized NOLs and tax credits.
87
Tax audits by their very nature are often complex and can require several years to complete. To our knowledge, we are not currently under examination by any taxing
authorities.
Tax
Years open to
Jurisdiction
examination
Canada
2020 to 2024
United Kingdom
2018 to 2024
US
2021 to 2024
11. COMMON STOCK
[a] Authorized
150,000,000 authorized common voting shares, par value of $0.001, and 5,000,000 preferred shares, par value of $0.001.
[b] Issued and outstanding shares
At-the-Market Sales Agreement
On December 21, 2021, we entered into an At-the-Market Offering Sales Agreement, or ATM, with Virtu Americas, LLC, as sales agent. The ATM was terminated on
February 29, 2024, and no further sales of our common stock will be made pursuant to the ATM.
Through the date of termination of the ATM, we offered and sold an aggregate of 200,000 shares of our common stock. These aggregate sales resulted in gross proceeds to us
of approximately $1.5 million. During the year ended December 31, 2024, we did not sell any shares of our common stock pursuant to the ATM.
November 2022 Private Placement
In November 2022, we entered into subscription agreements with certain accredited investors pursuant to which we sold to the purchasers in a private placement transaction
approximately 4,093,141 units at a purchase price of $4.625 per unit, with each unit consisting of two shares of common stock and a common stock purchase warrant to
purchase one share of common stock, or the November 2022 Warrants.
The November 2022 Warrants are exercisable at a price per share of common stock of $4.50, subject to adjustment. The November 2022 Warrants are exercisable beginning on
the six-month anniversary of the initial closing date of the private placement offering, May 18, 2023, or the Initial Exercise Date, and will expire on the seven year anniversary
of the initial closing date of the private placement offering, or November 18, 2029. The November 2022 Warrants cannot be exercised by a warrant holder if, after giving effect
thereto, such warrant holder would beneficially own more than 19.99% of our outstanding common stock. Additionally, subject to certain exceptions, if, after the Initial
Exercise Date, (i) the volume weighted average price of our common stock for each of 30 consecutive trading days, or the November 2022 Measurement Period, which
November 2022 Measurement Period commenced on November 18, 2022, exceeds 300% of the exercise price (subject to adjustments for stock splits, recapitalizations, stock
dividends and similar transactions), (ii) the average daily trading volume for such November 2022 Measurement Period exceeds $500,000 per trading day and (iii) certain other
equity conditions are met, and subject to a beneficial ownership limitation, then we may call for cancellation of all or any portion of the November 2022 Warrants then
outstanding.
We received approximately $17.9 million in net proceeds from the private placement after deducting placement agent expenses and commissions and offering expenses.
May 2023 Registered Direct Offering
In May 2023, we entered into a securities purchase agreement with certain purchasers, pursuant to which we sold 3,000,000 shares of common stock at a price of $5.50 per
share in a registered direct offering. The offering of the shares was made pursuant to our shelf registration statement on Form S-3, including the prospectus dated January 5,
2022 contained therein, and the prospectus supplement dated May 25, 2023.
The registered direct offering raised total gross proceeds of approximately $16.5 million, and after deducting approximately $1.2 million in placement agent fees and offering
expenses, we received net proceeds of approximately $15.3 million.
88
February 2024 Registered Direct Offering and Concurrent Private Placement
In February 2024, we entered into a securities purchase agreement with certain purchasers, pursuant to which we sold 13,086,151 shares of common stock at a price of $4.585
per share in a registered direct offering. The offering of the shares was made pursuant to our shelf registration statement on Form S-3, including the prospectus dated January 5,
2022 contained therein, and the prospectus supplement dated February 28, 2024.
In a concurrent private placement, we issued unregistered warrants to purchase up to 13,086,151 shares of common stock at an exercise price of $4.906 per share (provided,
however, that the purchaser may elect to exercise the warrants for pre-funded warrants in lieu of shares of common stock at an exercise price of $4.906, minus $0.001, the
exercise price of each pre-funded warrant). These warrants are immediately exercisable for shares of common stock or pre-funded warrants in lieu thereof, and will expire on
the earlier of (i) three and one-half years following the date of issuance and (ii) 30 days following our public disclosure of the acceptance of an NDA for cytisinicline by the
FDA in a Day 74 Letter or equivalent correspondence. The shares of common stock issuable upon exercise of the warrants (or pre-funded warrants, as applicable) were
subsequently registered pursuant to our registration statement on Form S-3, which was declared effective on May 6, 2024.
The registered direct offering raised total gross proceeds of approximately $60.0 million, and after deducting approximately $3.9 million in placement agent fees and offering
expenses, we received net proceeds of approximately $56.1 million.
Jefferies Open Market Sale Agreement
On September 27, 2024, we entered into an Open Market Sale Agreement, or Sale Agreement, with Jefferies LLC, or Jefferies, as sales agent, to establish an at-the-market
offering program through which we may sell shares of our common stock with an aggregate offering price of up to $50.0 million. During the year ended December 31, 2024,
we did not sell any shares under the Sale Agreement. As of December 31, 2024, we had $50.0 million available under the Sale Agreement.
Equity Award Issuances and Settlements
During the year ended December 31, 2024, we did not issue any shares of common stock to satisfy stock option exercises and we issued 113,125 shares of common stock to
satisfy restricted stock unit settlements. During the year ended December 31, 2023 we did not issue any shares of common to satisfy stock option exercises and we issued
139,750 shares of common stock to satisfy restricted stock unit settlements.
[c] Stock options
2024 Equity Inducement Plan
As of December 31, 2024, we had reserved, pursuant to the 2024 Equity Inducement Plan, 1,250,000 shares of common stock for issuance upon exercise of stock options and
settlement of restricted stock units by employees, of which 181,000 shares were reserved for options currently outstanding, 168,000 for restricted stock units currently
outstanding and 901,000 shares were available for future equity grants.
Under the 2024 Equity Inducement Plan, we may grant options to purchase shares of our common stock or restricted stock units as a material inducement to new employees for
entering into employment with us. The exercise price of the options is determined by our Board but will be at least equal to the fair value of the shares of common stock at the
grant date. The options vest in accordance with terms as determined by our Board. The expiry date for each option is set by our Board with a maximum expiry date of ten years
from the date of grant. In addition, the 2024 Equity Inducement Plan allows for accelerated vesting of outstanding equity awards in the event of a change in control.
2023 Non-Employee Director Equity Incentive Plan
As of December 31, 2024, we had reserved, pursuant to the 2023 Non-Employee Director Equity Incentive Plan, or the 2023 Non-Employee Director Plan, 300,000 shares of
common stock for issuance upon exercise of stock options by non-employee directors, of which 290,250 shares were reserved for options currently outstanding and 9,750
shares were available for future equity grants.
Under the 2023 Non-Employee Director Plan, we may grant options to purchase shares of our common stock or restricted stock units to our non-employee directors. The
exercise price of the options is determined by our Board but will be at least equal to the fair value of the shares of common stock at the grant date. The options vest in
accordance with terms as determined by our Board, typically over
89
one to three years. The expiry date for each option is set by our Board with a maximum expiry date of ten years from the date of grant. In addition, the 2023 Non-Employee
Director Plan allows for accelerated vesting of outstanding equity awards in the event of a change in control.
2018 Equity Incentive Plan
As of December 31, 2024, we had reserved, pursuant to the 2018 Equity Incentive Plan, or the 2018 Plan, 2,667,416 common shares for issuance upon exercise of stock options
and settlement of restricted stock units by employees, directors, officers and consultants of ours, of which 1,519,905 were reserved for options currently outstanding, 1,115,750
for restricted stock units currently outstanding, and 31,761 were available for future equity grants.
Under the 2018 Plan, we may grant options to purchase common shares or restricted stock units to our employees, directors, officers and consultants. The exercise price of the
options is determined by our board of directors, or Board, but will be at least equal to the fair value of the shares of common stock at the grant date. The options vest in
accordance with terms as determined by our Board, typically over three to four years for options issued to employees and consultants, and over one to three years for members
of our Board. The expiry date for each option is set by our Board with a maximum expiry date of ten years from the date of grant. In addition, the 2018 Plan allows for
accelerated vesting of outstanding equity awards in the event of a change in control. The terms for accelerated vesting, in the event of a change in control, is determined at our
discretion and defined under the employment agreements for our officers and certain of our employees.
New Employee Inducement Grants
We grant stock options as a material inducement to new employees for entering into employment agreements with us in accordance with Nasdaq Listing Rule 5635(c)(4). The
stock options approved under the inducement grant were issued pursuant to a stock option agreement on terms substantially similar to our 2018 Equity Incentive Plan. The
exercise price of the options is determined by our board of directors but will be at least equal to the fair value of the common shares at the grant date. The options vest in
accordance with terms as determined by our board of directors. The expiry date for each option is set by our board of directors with a maximum expiry date of ten years from
the date of grant. For the year ended December 31, 2024 we did not grant stock options to new employees under this plan. As of December 31, 2024, 135,000 stock options
granted as new employee inducement grants were outstanding.
2017 Equity Incentive Plan
As of December 31, 2024, we had reserved, pursuant to the 2017 Equity Incentive Plan, or the 2017 Plan, 13,156 common shares for issuance upon exercise of stock options,
currently outstanding, by employees, directors and officers of ours. Upon the effectiveness of our 2018 Plan, we ceased granting equity awards under our 2017 Plan.
Under the 2017 Plan, we granted options to purchase shares of common stock or restricted stock units to our employees, directors, officers and consultants. The exercise price
of the options was determined by our Board but was at least equal to the fair value of the shares of common stock at the grant date. The options vest in accordance with terms as
determined by our Board, typically over three to four years for options issued to employees and consultants, and over one to three years for members of our Board. The expiry
date for each option was set by our Board with a maximum expiry date of ten years from the date of grant. In addition, the 2017 Plan allows for accelerated vesting of
outstanding equity awards in the event of a change in control. The terms for accelerated vesting, in the event of a change in control, is determined at our discretion and defined
under the employment agreements for our officers and certain of our employees.
2010 Performance Incentive Plan
As of December 31, 2024, we had reserved, pursuant to the 2010 Performance Incentive Plan, or the 2010 Plan, 103 common shares for issuance upon exercise of stock
options, currently outstanding, by employees, directors, officers and consultants of ours.
Under the 2010 Plan we granted options to purchase shares of common stock and restricted stock units to our employees, directors, officers and consultants. The exercise price
of the options was determined by our board of directors and was at least equal to the fair value of the shares of common stock at the grant date. The options vest in accordance
with terms as determined by our Board, typically over three to four years for options issued to employees and consultants, and over one to three years for members of our
Board. The expiry date for each option is set by our Board with a maximum expiry date of ten years from the date of grant. In addition, the 2010 Plan allows for accelerated
vesting of outstanding equity awards in the event of a change in control. The terms for accelerated vesting, in the event of a change in control, is determined at our discretion
and defined under the employment agreements for our officers and certain of our employees.
90
ASC 718 Compensation – Stock Compensation
We recognize expense related to the fair value of our stock-based compensation awards using the provisions of ASC 718. We use the Black-Scholes option pricing model as the
most appropriate fair value method for our stock options and recognize compensation expense for stock options on a straight-line basis over the requisite service period. In
valuing our stock options using the Black-Scholes option pricing model, we make assumptions about risk-free interest rates, dividend yields, volatility and weighted average
expected lives, including estimated forfeiture rates of the options.
The expected life was calculated based on the simplified method as permitted by the SEC’s Staff Accounting Bulletin 110, Share-Based Payment. We consider the use of the
simplified method appropriate because of the lack of sufficient historical exercise data following the 2017 Merger Agreement between Achieve Life Sciences, Inc. and
OncoGenex Pharmaceuticals. The computation of expected volatility was calculated based on the historical volatility of the shares of our common stock. The risk-free interest
rate is based on a U.S. Treasury instrument whose term is consistent with the expected life of the stock options. In addition to the assumptions above, as required under ASC
718, management made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest. Forfeiture rates are estimated
using historical actual forfeiture rates. These rates are adjusted on a quarterly basis and any change in compensation expense is recognized in the period of the change. We have
never paid or declared cash dividends on our common stock and do not expect to pay cash dividends in the foreseeable future.
The estimated fair value of stock options granted in the respective periods was determined using the Black-Scholes option pricing model using the following weighted average
assumptions:
2024
2023
Risk-free interest rates
4.00 %
3.60 %
Expected dividend yield
0 %
0 %
Expected life
5.74 years
5.75 years
Expected volatility
87.40 %
115.19 %
Forfeiture rate
0 %
0 %
The weighted average fair value of stock options granted during the year ended December 31, 2024 was $3.35.
The results for the periods set forth below included stock-based compensation expense in the following expense categories of the consolidated statements of loss (in thousands):
Year ended
December 31,
2024
2023
Research and development
$
1,736 $
1,122
General and administrative
3,589
2,317
Total stock-based compensation
$
5,325 $
3,439
Stock option transactions and the number of stock options outstanding are summarized below:
Number of
Weighted
Optioned
Average
Common
Exercise
Shares
Price
Balance, January 1, 2024
1,461,980 $
12.12
Granted
677,500
4.54
Expired
(66)
17,565.33
Balance, December 31, 2024
2,139,414 $
9.18
91
The following table summarizes information about stock options outstanding at December 31, 2024 regarding the number of ordinary shares issuable upon: (1) outstanding
options and (2) vested options.
(1) Number of common shares issuable upon exercise of outstanding options:
Weighted-
Average
Remaining
Weighted-
Contractual
Average
Life
Exercise Prices
Number of Options
Exercise Price
(in years)
$4.52 - $4.52
211,000 $
4.52
9.93
$4.53 - $4.54
25,000
4.53
8.20
$4.55 - $4.72
466,500
4.55
9.06
$4.73 - $4.99
409,750
4.90
8.07
$5.00 - $5.99
156,750
5.88
8.17
$6.00 - $7.89
167,200
6.68
7.52
$7.90 - $8.43
226,250
8.26
7.01
$8.44 - $11.65
189,630
10.61
5.57
$11.66 - $20.74
238,400
13.07
6.07
$20.75 - $4,158.00
48,934
110.49
3.71
2,139,414 $
9.18
7.78
(2) Number common shares issuable upon exercise of vested options:
Weighted-
Average
Remaining
Weighted-
Contractual
Average
Life
Exercise Prices
Number of Options
Exercise Price
(in years)
$4.52 - $4.52
— $
—
—
$4.53 - $4.54
10,937
4.53
8.20
$4.55 - $4.72
50,000
4.55
9.06
$4.73 - $4.99
295,499
4.90
8.07
$5.00 - $5.99
92,064
5.88
8.16
$6.00 - $7.89
148,734
6.62
7.59
$7.90 - $8.43
221,353
8.26
7.01
$8.44 - $11.65
189,630
10.61
5.57
$11.66 - $20.74
234,802
13.07
6.07
$20.75 - $4,158.00
48,934
110.49
3.71
1,291,953 $
12.05
6.98
As at December 31, 2024, and December 31, 2023, the total unrecognized compensation expense related to stock options granted was $2.4 million and $3.4 million,
respectively, each of which is expected to be recognized into expense over a period of approximately 1.99 years.
The aggregate intrinsic value of options exercised was calculated as the difference between the exercise price of the stock options and the fair value of the underlying common
stock as of the date of exercise. No options were exercised for the years ended December 31, 2024, 2023 and 2022. At December 31, 2024, the aggregate intrinsic value of the
outstanding options was zero and the aggregate intrinsic value of the exercisable options was zero.
[d] Restricted Stock Unit Awards
We grant restricted stock unit awards that generally vest and are expensed over a four-year period. We also grant restricted stock unit awards that vest in conjunction with
certain performance conditions to certain executive officers and key employees. At each reporting date, we are required to evaluate whether achievement of the performance
conditions is probable. Compensation expense is recorded over the appropriate service period based upon our assessment of accomplishing each performance provision. For the
years ended December 31, 2024, 2023 and 2022, $2.0 million, $0.9 million and $1.1 million, respectively, of stock based compensation expense was recognized related to these
awards.
92
The following table summarizes our restricted stock unit award activity during the year ended December 31, 2024:
Weighted
Number
Average
of
Grant Date
Shares
Fair Value
Balance, January 1, 2024
507,875 $
5.65
Granted
889,000
4.54
Released
(113,125 )
8.26
Balance, December 31, 2024
1,283,750 $
4.65
As of December 31, 2024, we had approximately $2.3 million in total unrecognized compensation expense related to our restricted stock unit awards which is to be recognized
over a weighted-average period of approximately 0.75 years.
[e] Employee Stock Purchase Plan
Our board of directors and stockholders approved the 2017 Employee Stock Purchase Plan, or ESPP, in August 2017. Contributions are made by eligible employees, subject to
certain limits defined in the ESPP. The number of shares available for future purchases under the ESPP is 507,627 shares. All shares purchased under the ESPP are new share
issuances. For the year ended December 31, 2024 we recorded a compensation expense of $0.2 million related to the current ESPP offering period. For the year ended
December 31, 2023, no compensation expense was recognized related to our ESPP as we did not have an active offering period.
[f] Non-employee options and restricted stock units
We recognize non-employee stock-based compensation expense over the period of expected service by the non-employee. As the service is performed, we are required to
update our valuation assumptions, re-measure unvested options and restricted stock units and record the stock-based compensation using the valuation as of the vesting date.
This differs from the accounting for employee awards where the fair value is determined at the grant date and is not subsequently adjusted. This re-measurement may result in
higher or lower stock-based compensation expense in the Consolidated Statements of Loss and Comprehensive Loss. As such, changes in the market price of our stock could
materially change the value of an option or restricted stock unit and the resulting stock-based compensation expense.
[g] Common Stock Warrants
The following is a summary of outstanding warrants to purchase common stock at December 31, 2024:
Total
Outstanding
Exercise
and
price per
Exercisable
Share
Expiration Date
(1) Warrants issued in May 2019 financing
60,000 $
90.0000
May 2025
(2) Warrants issued in April 2020 financing
182,461 $
7.2400
April 2025
(3) Warrants issued in April 2020 financing
24,375 $
7.3200
April 2025
(4) Warrants issued in April 2020 financing
25,270 $
7.5900
April 2025
(5) Pre-Funded Warrants issued in August 2020 financing
142,857 $
0.0010
*
(6) Warrants issued in December 2020 financing
50,000 $
8.7500
December 2025
(7) Warrants issued in November 2022 financing
4,093,141 $
4.5000
November 2029
(8) Warrants issued in February 2024 financing
13,086,151 $
4.9060
**
* The pre-funded warrants do not have an expiration date.
**The 2024 Warrants, will expire on the earlier of (i) three and one-half years following the date of issuance and (ii) 30 days following our public disclosure of the acceptance
of an NDA for cytisinicline by the FDA in a Day 74 Letter or equivalent correspondence.
The agreements governing the above warrants include the following terms:
•
certain warrants have exercise prices which are subject to adjustment for certain events, including the issuance of stock dividends on our common stock and, in
certain instances, the issuance of our common stock or instruments convertible into
93
our common stock at a price per share less than the exercise price of the respective warrants (specifically those issued under the December 2019 Public Offering and
November 2022 Private Placement);
•
warrant holders may exercise the warrants through a cashless exercise if, and only if, we do not have an effective registration statement then available for the
issuance of the shares of our common stock. If an effective registration statement is available for the issuance of our common stock a holder may only exercise the
warrants through a cash exercise;
•
the exercise price and the number and type of securities purchasable upon exercise of the warrants are subject to adjustment upon certain corporate events, including
certain combinations, consolidations, liquidations, mergers, recapitalizations, reclassifications, reorganizations, stock dividends and stock splits, a sale of all or
substantially all of our assets and certain other events; and
•
in the case of certain warrants, in the event of an “extraordinary transaction” or a “fundamental transaction” (as such terms are defined in the respective warrant
agreements), generally including any merger with or into another entity, sale of all or substantially all of the Company’s assets, tender offer or exchange offer, or
reclassification of its common stock, in which the successor entity (as defined in the respective warrant agreements) that assumes the successor entity is not a
publicly traded company, the Company or any successor entity will pay the warrant holder, at such holder’s option, exercisable at any time concurrently with or
within 30 days after the consummation of the extraordinary transaction or fundamental transaction, an amount of cash equal to the value of such holder’s warrants
as determined in accordance with the Black Scholes option pricing model and the terms of the respective warrant agreement. In some circumstances, we or
successor entity may be obligated to make such payments regardless of whether the successor entity that assumes the warrants is a publicly traded company; and
•
with respect to the 2024 Warrants, in the event we consummate a “fundamental transaction,” as described in the 2024 Warrants and generally including a merger or
consolidation with or into another entity or other reorganization event in which our common shares are converted or exchanged for securities, cash or other
property, we are not the surviving entity and in which our stockholders immediately prior to the merger or consolidation do not own, directly or indirectly, at least
50% of the voting power of the surviving entity immediately after such merger or consolidation (excluding any merger effected solely to change the company’s
name), or we sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of our assets or another entity acquires 50% or more of our
outstanding shares of common stock, then following such event, the holders of the 2024 Warrants will be entitled to receive upon exercise of such 2024 Warrants
the same kind and amount of securities, cash or property which the holders would have received had they exercised their 2024 Warrants immediately prior to such
fundamental transaction. Any successor to us or surviving entity shall assume the obligations under the 2024 Warrants. Additionally, as more fully described in the
2024 Warrants, in the event of certain fundamental transactions, the holders of the 2024 Warrants will be entitled to receive consideration in an amount equal to the
Black Scholes value of the 2024 Warrants on the date of consummation of such transaction.
For the year ended December 31, 2024, warrants to purchase 295,126 shares, issued in the December 2019 financing, were exercised at a per unit price of $2.31, for proceeds
of $0.7 million. For the year ended December 31, 2023, warrants to purchase 98,333 shares, issued in the December 2019 financing, were exercised at a per unit price of $2.31,
for proceeds of $0.2 million. As of December 31, 2024, all of our outstanding warrants are classified as equity.
[h] 401(k) Plan
We maintain a 401(k) plan. Our securities are not offered as an investment option. Our shares are prohibited for inclusion in our 401(k) plan, as well as any match of our shares
to employee contributions.
[i] Loss per common share
The following table presents the computation of basic and diluted net loss attributable to common stockholders per share (in thousands, except per share and share amounts):
Years ended December 31,
2024
2023
2022
Numerator
Net loss
$
(39,827 ) $
(29,815 ) $
(42,350 )
Denominator
Weighted average number of common shares outstanding
32,071,146
19,827,354
10,593,034
Basic and diluted net loss per common share
$
(1.24 ) $
(1.50 ) $
(4.00 )
As of December 31, 2024, a total of 21,087,419 million shares, consisting of warrants to purchase 17,664,255 shares, options exercisable for 2,139,414 shares and 1,283,750
restricted stock units have not been included in the calculation of potential common
94
shares as their effect on diluted per share amounts would have been anti-dilutive. Additionally, the outstanding Convertible Debt due December 2024 is included in the
calculation of diluted per share amounts only if its inclusion is dilutive for periods during which the notes were outstanding. As of December 31, 2024, the outstanding
Convertible Debt was not included in the calculation of diluted per share amounts as its effect would have been anti-dilutive.
12. COMMITMENTS AND CONTINGENCIES
The following table summarizes our contractual obligations as of December 31, 2024 (in thousands):
Total
Less than 1 year
1-3 years
3-5 years
More than 5
years
Vancouver office operating lease
$
131 $
63 $
68 $
— $
—
Total
$
131 $
63 $
68 $
— $
—
Leases
We have an operating lease for our corporate office.
Operating leases with a term of 12 months or longer are included in ROU assets, other current liabilities, and operating lease liabilities on our consolidated balance sheets.
Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities on our consolidated balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at
commencement date. As most of our leases do not provide an implicit rate, we use the incremental borrowing rate of comparable companies from a representative peer group
selected based on industry and market capitalization. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct
costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum
lease payments is recognized on a straight-line basis over the lease term.
Vancouver Lease Arrangements
On November 19, 2018, we entered into a lease agreement for new office space in Vancouver, British Columbia, which commenced on February 1, 2019, and has a four-year
term. Pursuant to this lease, we rent approximately 2,367 square feet of office space. On December 16, 2022, we entered into an agreement to extend the lease for another two-
year term, which commenced on February 1, 2023. On December 9, 2024, we extended the lease for a further two-year term, which commenced on February 1, 2025. Pursuant
to this lease, we rent approximately 2,367 square feet of office space. The annual rent is approximately $0.1 million.
The future minimum annual lease payments under the Vancouver lease are as follows (in thousands):
2025
63
2026
63
2027
5
Total
$
131
Consolidated rent and operating expense relating to the Vancouver, Canada office for years ended December 31, 2024, 2023 and 2022 was $0.1 million, $0.1 million and $0.1
million, respectively.
95
Other information related to leases was as follows:
Year Ended
December 31,
2024
2023
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
59
$
57
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
—
—
Weighted Average Remaining Lease Term
Operating leases
2.08 years
1.08 years
Weighted Average Discount Rate
Operating leases
8.98 %
8.98 %
Guarantees and Indemnifications
We indemnify our officers, directors and certain consultants for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at its
request in such capacity. The term of the indemnification period is equal to the officer’s or director’s lifetime.
The maximum amount of potential future indemnification is unlimited; however, we have obtained director and officer insurance that limits our exposure and may enable us to
recover a portion of any future amounts paid. We believe that the fair value of these indemnification obligations is minimal. Accordingly, we have not recognized any liabilities
relating to these obligations as of December 31, 2024.
We have certain agreements with certain organizations with which it does business that contain indemnification provisions pursuant to which it typically agrees to indemnify
the party against certain types of third-party claims. We accrue for known indemnification issues when a loss is probable and can be reasonably estimated. There were no
accruals for or expenses related to indemnification issues for any period presented.
96
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed or submitted under
the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are
also designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer,
of the effectiveness of the design and operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that
evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2024.
Changes in Internal Control Over Financial Reporting
We have not made any changes to our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended
December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.
Our internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. generally
accepted accounting principles.
As of December 31, 2024, management assessed the effectiveness of our internal control over financial reporting based on the framework established in “Internal Control—
Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 Framework). Based on this evaluation,
management has determined that our internal control over financial reporting was effective as of December 31, 2024.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
ITEM 9B. OTHER INFORMATION
Insider Trading Arrangements
During the three months ended December 31, 2024, none of our directors or officers, as defined in Rule 16a-1(f), informed us of the adoption, modification or termination of a
“Rule 10b5-1 trading agreement” or “non-Rule 10b-51 trading agreement,” as those terms are defined in Regulations S-K, Item 408 .
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
97
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Certain information required by this Item is set forth in our 2025 Proxy Statement to be filed with the SEC within 120 days of December 31, 2024, and is incorporated by
reference into this Annual Report on Form 10-K.
Insider Trading Policy
We have adopted an Insider Trading Policy that governs the purchase, sale and/or other dispositions of our securities by directors, officers and employees. Our Insider Trading
Policy also provides that we will not transact in any of our own securities unless in compliance with U.S. securities laws. We believe that our Insider Trading Policy is
reasonably designed to promote compliance with insider trading laws, rules and regulations, and the Nasdaq listing standards applicable to us. A copy of our Insider Trading
Policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth in our 2025 Proxy Statement to be filed with the SEC within 120 days of December 31, 2024, and is incorporated by reference
into this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding our equity compensation plans as of December 31, 2024:
(a)
(b)
(c)
Number of securities
remaining available for
Number of securities to be
future issuance under
issued upon exercise of
Weighted-average
equity compensation
outstanding options,
exercise price of
plans (excluding
restricted stock units,
outstanding options,
securities reflected in
Plan category
warrants and rights
warrants and rights
column (a))
Equity compensation plans approved by security holders
2,939,164
$
1.25
41,511
Equity compensation plans not approved by security
holders
484,000
$
4.99
901,000
Total
3,423,164
$
11.97
942,511
(1)
As of December 31, 2024, we maintained the following equity compensation plans, which were approved by security holders: (a) the 2010 Performance Incentive
Plan, (b) the 2017 Equity Incentive Plan, (c) the 2018 Equity Incentive Plan and (d) the 2023 Non-Employee Director Equity Incentive Plan.
(2)
Stock options granted under our 2024 Equity Inducement Plan as inducements to new employees for entering into employment agreements with us in accordance
with Nasdaq Listing Rule 5635(c)(4).
The remaining information required by this Item is set forth in our 2025 Proxy Statement to be filed with the SEC within 120 days of December 31, 2024, and is incorporated
by reference into this Annual Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is set forth in our 2025 Proxy Statement to be filed with the SEC within 120 days of December 31, 2024, and is incorporated by reference
into this Annual Report on Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is set forth in our 2025 Proxy Statement to be filed with the SEC within 120 days of December 31, 2024, and is incorporated by reference
into this Annual Report on Form 10-K.
(1)
(1
)
(1)
(2)
98
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) Financial Statements
Report of Independent Registered Public Accounting Firm
66
Consolidated Balance Sheets as of December 31, 2024 and 2023
68
Consolidated Statements of Loss for the years ended December 31, 2024, 2023, and 2022
69
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2024, 2023, and 2022
70
Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023, and 2022
71
Notes to Consolidated Financial Statements
72
(2) All schedules are omitted because they are not required or the required information is included in the consolidated financial statements or notes thereto.
(3) Exhibits
Exhibit
Number
Description
Incorporated by Reference
Filed/
Furnished
Herewith
Form
File No.
Exhibit
Filing Date
3.1
Third Amended and Restated Certificate of
Incorporation, filed June 8, 2023
8-K
033-80623
3.1
June 9, 2023
3.2
Certificate of Designation of Preferences, Rights and
Limitations, with respect to the Series B Convertible
Preferred Stock, filed
8-K
033-80623
3.1
December 20, 2019
3.3
Sixth Amended and Restated Bylaws
8-K
033-80623
3.1
January 5, 2017
3.4
Amendment to Sixth Amended and Restated Bylaws
10-Q
033-80623
3.1
November 7, 2018
4.1
Description of Securities Registered Under Section 12
of the Securities Exchange Act of 1934
10-K
033-80623
4.12
March 13, 2020
4.2
Specimen Certificate of Common Stock
10-Q
000-21243
4.1
November 10, 2008
4.3
Form of Preferred Stock Certificate
8-K
033-80623
4.2
June 20, 2018
4.4
Form of Common Stock Purchase Warrant (October
2018 Private Placement)
8-K
033-80623
4.1
October 1, 2018
4.5
Form of Warrant (May 2019)
8-K
033-80623
4.1
June 3, 2019
4.6
Form of Common Stock Purchase Warrant (December
2019 Offering)
8-K
033-80623
4.1
December 20, 2019
4.7
Form of Common Stock Purchase Warrant (April 2020)
8-K
033-80623
4.1
April 30, 2020
4.8
Form of Pre-Funded Warrant (August 2020)
8-K
033-80623
4.1
August 4, 2020
4.9
Form of Underwriter’s Warrant
S-1
333-250074
4.11
November 30, 2020
4.10
Form of Common Stock Purchase Warrant (November
2022)
8-K
033-80623
4.1
November 18, 2022
99
Exhibit
Number
Description
Incorporated by Reference
Filed/
Furnished
Herewith
Form
File No.
Exhibit
Filing Date
4.11
Form of Common Stock Warrant (February 2024
Private Placement)
8-K
033-80623
4.1
February 29, 2024
4.12
Form of Registration Rights Agreement
8-K
033-80623
10.2
November 18, 2022
4.13
Registration Rights Agreement, dated July 25, 2024,
between Achieve Life Sciences, Inc., and Silicon
Valley Bank, a division of First-Citizens Bank & Trust
Company
8-K
033-80623
10.2
July 29, 2024
10.1
Form of OncoGenex Pharmaceuticals, Inc. 2010 Stock
Option Agreement††
8-K
033-80623
10.1
June 14, 2010
10.2
Form of OncoGenex Pharmaceuticals, Inc. 2010
Restricted Stock Unit Agreement††
10-Q
033-80623
10.2
November 3, 2011
10.3
OncoGenex Pharmaceuticals, Inc. 2010 Performance
Incentive Plan, as amended and restated††
DEF 14A
033-80623
Appendix A
April 16, 2015
10.4
Achieve Life Sciences 2017 Equity Incentive Plan††
DEF 14A
033-80623
Appendix A
September 21, 2017
10.5
Form of Achieve Life Sciences Stock Option
Agreement††
10-Q
033-80623
10.7b
March 1, 2018
10.6
Form of Achieve Life Sciences Restricted Stock Unit
Agreement††
10-Q
033-80623
10.7c
March 1, 2018
10.7
Achieve Life Sciences 2017 Employee Stock Purchase
Plan††
DEF 14A
033-80623
Appendix B
September 21, 2017
10.8
Achieve Life Sciences 2018 Equity Incentive Plan, as
amended, and forms of award agreements thereunder††
10-K
033-80623
10.8
March 16, 2023
10.9
Achieve Life Sciences, Inc. 2023 Non-Employee
Director Equity Incentive Plan, and forms of award
agreements thereunder
DEF 14A
033-80623
Appendix B
April 28, 2023
10.10
2024 Equity Inducement Plan and forms of award
agreements thereunder
S-8
333-283630
99.1
December 5, 2024
10.11
Form of Indemnification Agreement for Officers and
Directors of the Company
10-K
033-80623
10.10
March 28, 2024
10.12
Form of Indemnification Agreement between
OncoGenex Technologies Inc. and Cindy Jacobs††
F-1
333-139293
10.7
December 13, 2006
10.13
Employment Agreement between OncoGenex
Pharmaceuticals, Inc. and John Bencich††
10-Q
033-80623
10.1
November 10, 2016
10.14
Employment Agreement between the Company and
Richard Stewart, executed May 22, 2018 ††
8-K
033-80623
10.1
May 23, 2018
10.15
Amended and Restated Employment Agreement, dated
September 28, 2020, by
10-Q
033-80623
10.3
November 12, 2020
100
Exhibit
Number
Description
Incorporated by Reference
Filed/
Furnished
Herewith
Form
File No.
Exhibit
Filing Date
and between Achieve Life Sciences, Inc. and John
Bencich ††
10.16
Amended and Restated Employment Agreement, dated
September 27, 2022, by and between Achieve Life
Sciences, Inc. and Cindy Jacobs ††
10-K
033-80623
10.26
March 16, 2023
10.17
Separation and Release Agreement, dated August 26,
2024, between Achieve Life Sciences, Inc. and John
Bencich
10-Q
033-80623
10.3
November 7, 2024
10.18
Executive Employment Agreement, dated August 26,
2024, between Achieve Life Sciences, Inc. and Thomas
B. King
10-Q
033-80623
10.4
November 7, 2024
10.19
Executive Employment Agreement, dated December 5,
2024, between Achieve Life Sciences, Inc. and Mark
K. Oki
X
10.20
Exclusive License Agreement, by and between
Sopharma Joint Stock Company and Extab
Corporation, dated May 26, 2009*
S-4/A
333-216961
10.21
May 3, 2017
10.21
Commercial Agreement on Supply of Pharmaceutical
Products, by and between Sopharma AD and Extab
Corporation, dated February 1, 2010*
S-4/A
333-216961
10.23
May 3, 2017
10.22
Variation of Contract, by and between Sopharma AD
and Extab Corporation, dated May 14, 2015*
S-4/A
333-216961
10.22
May 3, 2017
10.23
Variation of Contract, by and between Sopharma AD
and Extab Corporation, dated May 14, 2015*
S-4/A
333-216961
10.24
May 3, 2017
10.24
Technical and Quality Agreement, by and between
Sopharma AD and Extab Corporation, dated May 14,
2015*
S-4/A
333-216961
10.25
May 3, 2017
10.25
Share Purchase Agreement, by and between Sopharma
AD and Achieve Life Sciences, Inc., dated May 14,
2015*
10-K
033-80623
10.21
March 28, 2024
10.26
License of Technology, by and between University of
Bristol and Achieve Life Science, Inc., dated July 13,
2016*
S-4/A
333-216961
10.27
May 3, 2017
10.27
Amendment One to License of Technology, dated
January 22, 2018, by and between Achieve Life
Science, Inc., and the University of Bristol*
10-Q/A
033-80623
10.1
May 23, 2018
10.28
Amended and Restated Commercial Agreement on
Supply of Pharmaceutical Products, dated July 28,
2017, by and
10-Q
033-80623
10.1
November 9, 2017
101
Exhibit
Number
Description
Incorporated by Reference
Filed/
Furnished
Herewith
Form
File No.
Exhibit
Filing Date
between Achieve Life Science, Inc., and Sopharma
AD*
10.29
Letter of Variation, dated September 28, 2020, by and
between Achieve Pharma UK Limited and Richard
Stewart††
10-Q
033-80623
10.1
November 12, 2020
10.30
Contingent Convertible Debt Agreement, dated July 25,
2024, between Achieve Life Sciences, Inc., and Silicon
Valley Bank, a division of First-Citizens Bank & Trust
Company
8-K
033-80623
10.1
July 29, 2024
10.31
Securities Purchase Agreement, dated as of February
28, 2024, by and among Achieve Life Sciences, Inc.
and the purchasers identified on the signature pages
thereto
8-K
033-80623
10.1
February 29, 2024
10.32
Open Market Sale Agreement SM, dated September 27,
2024, between Achieve Life Sciences, Inc. and Jefferies
LLC
8-K
033-80623
1.1
September 27, 2024
10.33
Office Lease by and between 0846869 B.C. Ltd. and
Achieve Life Sciences Technologies Inc., commencing
February 1, 2019
10-K
033-80623
10.25
March, 14, 2019
10.34
Lease Extension Agreement, dated December 16, 2022,
by and between 0846869 B.C. Ltd. and Achieve Life
Sciences Technologies Inc.
10-K
033-80623
10.22
March 16, 2023
10.35
Office Lease by and between Regus Management
Group, LLC and Achieve Life Sciences, Inc.,
commencing March 1, 2024
10-K
033-80623
10.32
March 28, 2024
10.36
Lease Extension Agreement by and between Regus
Management Group, LLC and Achieve Life Sciences,
Inc., commencing March 1, 2024
X
19.1
Insider Trading Policy
X
21.1
Subsidiaries of the Registrant
X
23.1
Consent of PricewaterhouseCoopers LLP
X
24.1
Power of Attorney (included on the signature page
hereto)
31.1
Certification of Chief Executive Officer (Principal
Executive Officer) pursuant to Rule 13a-14(a) or 15d-
14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
X
102
Exhibit
Number
Description
Incorporated by Reference
Filed/
Furnished
Herewith
Form
File No.
Exhibit
Filing Date
31.2
Certification of Chief Financial Officer (Principal
Financial Officer) pursuant to Rule 13a-14(a) or 15d-
14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
X
32.1
Certification of Chief Executive Officer (Principal
Executive Officer) pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002**
X
32.2
Certification of Chief Financial Officer (Principal
Financial Officer) pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002**
X
97.0
Compensation Recovery Policy
10-K
033-80623
97.0
March 28, 2024
101.INS
Inline XBRL Instance Document–the instance
document does not appear in the Interactive Data File as
its XBRL tags are embedded within the Inline XBRL
document
X
101.SCH
Inline XBRL Taxonomy Extension Schema With
Embedded Linkbase Documents
X
104
Cover page formatted as Inline XBRL and contained in
Exhibit 101
X
† Schedules and similar attachments to the Merger Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish supplementally a
copy of any omitted schedule or similar attachment to the SEC upon request.
†† Indicates management contract or compensatory plan or arrangement.
* The Company has omitted portions of the exhibit as permitted under Item 601(b)(10) of Regulation S-K.
** The certifications attached as Exhibits 32.1 and 32.2 accompany to this Annual Report on Form 10-K pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
103
ITEM 16. FORM 10-K SUMMARY
None.
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.
ACHIEVE LIFE SCIENCES, INC.
(Registrant)
Date: March 11, 2025
By: /s/ MARK OKI
Mark Oki
Chief Financial Officer (Principal Financial Officer)
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Mark Oki and Richard Stewart, jointly and
severally, as such person’s attorneys-in-fact, each with the power of substitution, for such person in any and all capacities, to sign any amendments to this Annual Report on
Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
104
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By: /s/ RICHARD STEWART
Chief Executive Officer and Director (Principal Executive Officer)
Date: March 11, 2025
Richard Stewart
By: /s/ MARK OKI
Chief Financial Officer (Principal Financial Officer)
Date: March 11, 2025
Mark Oki
By: /s/ JERRY WAN
Vice President, Finance (Principal Accounting Officer)
Date: March 11, 2025
Jerry Wan
By: /s/ CINDY JACOBS
President, Chief Medical Officer and Director
Date: March 11, 2025
Cindy Jacobs
By: /s/ THOMAS B. KING
Executive Chairman and Director
Date: March 11, 2025
Thomas B. King
By: /s/ BRIDGET MARTELL
Director
Date: March 11, 2025
Bridget Martell
By: /s/ STUART DUTY
Director
Date: March 11, 2025
Stuart Duty
By: /s/ THOMAS SELLIG
Director
Date: March 11, 2025
Thomas Sellig
By: /s/ KRISTIN SLAOUI
Director
Date: March 11, 2025
Kristin Slaoui
By: /s/ NANCY R. PHELAN
Director
Date: March 11, 2025
Nancy R. Phelan
EXHIBIT 10.19
Employment Agreement
THIS EMPLOYMENT AGREEMENT (the “Agreement”) is entered into by and between Mark K. Oki (the “Executive”) and Achieve Life Sciences, Inc., a Delaware
corporation (the “Employer” or the “Company”) as of December 5, 2024 (the “Effective Date”).
1.
Duties and Scope of Employment.
For the term of this Agreement (“Employment”), the Employer agrees to employ the Executive in the position of Chief Financial Officer. The Executive shall report directly to
the Chief Executive Officer (“CEO”) of the Company. The Executive shall have such duties, authority and responsibilities that are commensurate with his being a senior
executive officer of the Employer. During his employment, Executive will perform his duties faithfully and to the best of his ability and will, except as provided below, devote
his full business efforts and time to the Employer. For the duration of the Executive’s Employment term, Executive agrees not to actively engage in any other employment,
occupation or consulting activity for any direct or indirect remuneration without the prior written approval of the Chief Executive Officer, such approval not to be unreasonably
withheld. It is understood and agreed that Executive will not be precluded from serving on boards of directors and advisory boards, provided that such activities do not
materially adversely affect Executive’s ability to perform and discharge his duties to the Employer and such work is approved by the CEO. The Executive’s primary workplace
shall be remotely, from your home in Highlands Ranch, Colorado, with routine travel to the Company’s offices in Vancouver, British Columbia and in Bothell, Washington,
and any other business travel as may be required by the Company.
2.
Cash and Incentive Compensation.
(a) Salary. The Employer shall pay the Executive as compensation for his services a base salary at a gross annual rate of $450,000. Such salary shall be payable in
accordance with the Employer’s standard payroll procedures. The annual compensation specified in this Section 2(a), together with any increases in such compensation that the
Employer may grant from time to time, is referred to in this Agreement as “Base Compensation.”
(b) Incentive Bonuses. The Executive shall be eligible to receive a discretionary annual fiscal year incentive bonus (“Bonus”) that the Board of Directors of the
Company (the “Board”) or Compensation Committee of the Board (the “Committee”) shall determine and award in its sole discretion. Initially, the Executive shall be eligible
to receive a target Bonus of 40% of the Executive’s Base Compensation. Such percentage may be modified by the Board or the Committee in its discretion from time to time.
The Bonus will be based upon the achievement of specific milestones that will be determined by the Board and/or the Committee and confirmed to the Executive no later than
ninety (90) days after the start of each fiscal year. Payment for each year’s Bonus, if awarded, shall be made to the Executive no later than the fifteenth day of the third month
after the later of the end of the calendar year or the Employer’s taxable year in which the Bonus payment is no longer subject to a substantial risk of forfeiture for purposes of
Section 409A of the Internal Revenue Code, as amended (“Section 409A”). The Board or the Committee may, in its sole discretion, determine not to award a Bonus or to award
a Bonus at less than maximum eligibility. The Executive acknowledges that a Bonus is neither required nor guaranteed by this Agreement.
(c) Equity Terms. During the Executive’s Employment, at the discretion of the Committee, the Executive shall be entitled to participate in the Company’s equity
compensation plans, as in effect from time to time, and the Executive shall be eligible to receive grants of Company equity (“Compensatory Equity”), as determined by the
Committee, in its discretion from time to time. As an inducement to join the Company, we will recommend to the Board or Committee that you be granted an option to
purchase up to 72,000 shares of Common Stock of the Company (the “Option”) under an equity inducement plan and form of option agreement to be adopted by the Company,
at the fair market value of the Company’s Common Stock, as determined by the Committee on the date the Committee approves such grant. The shares subject to the Option
will vest at the rate of 12/36th on the first annual anniversary of the vesting commencement date, and for an additional 1/36th per month thereafter, for so long as you remain
employed by the Company through each vesting date. In addition, as a further inducement to join the Company, we will recommend to the Board or Committee that you be
granted 168,000 performance-based restricted stock unit (the “PSUs”), with vesting similar to the PSUs granted to the other officers of the Company in calendar year 2024.
Further details on the Option and PSUs grants to you will be provided upon approval of such grants by the Board or Committee.
(d) Employee Benefits. During the Executive’s Employment, the Executive will be entitled to participate in the employee benefit plans of general applicability to
other employees of the Company, as in effect from time to time, including, without limitation, the Company’s group medical, dental, vision, disability, life insurance, director
and officer liability
2
insurance and flexible-spending account plans. The Company reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time.
(e) “Service” Definition. For purposes of Section 3(b) of this Agreement, “Service” shall mean service by the Executive as an employee and/or consultant of the
Employer (or any subsidiary or parent or affiliated entity of the Employer).
3.
Vacation and Indemnification.
(a) Vacation. The Executive will be eligible for paid vacation in accordance with the Employer’s vacation policy. Under the Employer’s current vacation policy,
the Executive is eligible for twenty-five (25) days per year of paid vacation. Unused vacation may not be carried over for more than twelve months after the completion of each
fiscal year.
(b) Indemnification. The Employer shall indemnify the Executive to the maximum extent permitted by applicable law and the Employer’s certificate of
incorporation and bylaws with respect to the Executive’s Service. During the Executive’s Employment, the Employer shall maintain officers’ liability insurance for the
Executive’s benefit on terms and conditions no less favorable than the terms and conditions generally applicable to the Employer’s other senior executive officers. The
Employer’s obligations under this Section 3(b) shall survive termination of the Executive’s Service and also termination or expiration of this Agreement.
4.
Business Expenses.
During his Employment, the Executive shall be authorized to incur necessary and reasonable travel, entertainment and other business expenses in connection with his duties
hereunder. The Employer shall promptly reimburse the Executive for such expenses upon presentation of appropriate supporting documentation, all in accordance with the
Employer’s generally applicable policies.
5.
Term of Employment.
(a) Employment-at-Will. The Employer and the Executive hereby acknowledge that the Executive’s Employment is at-will. The Employer may terminate the
Executive’s Employment with or without Cause, by giving the Executive thirty (30) days advance notice in writing. The Executive may terminate his Employment by giving
the Employer thirty (30) days advance notice in writing. The Executive’s Employment shall terminate automatically in the event of his death.
(b) Rights Upon Termination. Upon the termination of the Executive’s Employment for any reason (including death or Disability (as defined below)), the
Executive shall be entitled to the compensation, benefits and reimbursements described in this Agreement through the effective date of the termination (the “Termination
Date”), and the Employer shall make the following payments to the Executive (or his beneficiary) within 10 business days following the Termination Date: (i) all unpaid salary
and unpaid vacation accrued through the Termination Date, (ii) any accrued, unpaid bonuses (provided that any such bonus has been awarded by the Board or the Committee,
in accordance with the terms of any applicable plan, has been earned by the Executive and is not subject to any vesting or other similar requirement) for any fiscal year of the
Employer ended prior to the Termination Date and (iii) any unreimbursed business expenses provided that Executive has submitted appropriate documentary substantiation as
required by Company policy. The Executive may also be eligible for other post-Employment payments and benefits as provided in this Agreement or pursuant to other
agreements or plans with the Employer. Upon the Termination Date, the Executive shall have no further rights to receive compensation or benefits from the Employer except as
set forth in Section 6 and pursuant to the terms of any benefit plans (including without limitation any equity compensation plans) of the Company in which the Executive is a
participant.
6.
Termination Benefits.
(a) Severance Pay. If there is an Involuntary Termination (as defined below) of the Executive’s Employment, then, subject to the Executive’s execution, delivery
and non-revocation of a Release (defined below) within the time period described below, following the Executive’s “separation from service” within the meaning of Section
409A, the Employer shall pay the Executive a single lump sum of cash in an amount equal to the sum of twelve (12) months (the “Severance Period”) of the Executive’s annual
Base Compensation (not giving effect to any reduction in Base Compensation made in connection with such Involuntary Termination or giving rise to Good Reason). The cash
lump sum amount payable under this Section 6(a) shall
3
be made to the Executive on the first payroll date in the month following the month containing the Release Deadline. The Executive shall also receive the benefits provided in
Sections 6(b) and 6(c), and all such payments and benefits shall not be subject to mitigation or offset (except as specified in Section 6(b)). In order to be entitled to receive the
severance described in this Section 6(a) (including the benefits provided in Sections 6(b), 6(c) and, if applicable, 6(d)), the Executive must execute, deliver and not revoke the
Release within forty-five (45) calendar days following the Executive’s separation from service (the date that is forty-five (45) calendar days following the Executive’s
separation from service is the “Release Deadline”). The Employer shall furnish the Release to the Executive on the date of his Involuntary Termination. The “Release” shall be
a general release of all litigation and other claims against the Employer and all affiliates by the Executive and on Executive’s behalf in a form satisfactory to the Employer.
(b) Health Insurance. If the Executive is entitled to receive the severance payment in Section 6(a), and if the Executive elects to continue his (and his dependents’)
health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), then the Employer shall pay Executive a lump sum cash payment
that is equivalent to the value of Executive’s monthly premium under COBRA for the number of months in the Severance Period. The cash lump sum amount payable under
this Section 6(b) shall be made to the Executive on the first payroll date in the month following the month containing the Release Deadline.
(c) Equity Vesting. Notwithstanding the terms of any equity compensation plan of the Company or any agreement in connection with a grant of Compensatory
Equity, if the Executive is entitled to receive the payments in Section 6(a), then the time-based vesting restrictions (if any) shall immediately lapse on an additional number of
shares of Company common stock under all of the Executive’s outstanding Compensatory Equity that is equal to the number of shares that would have time-vested if the
Executive had continued in employment for the number of additional months following the Termination Date that is equal to the number of months in the Severance Period.
The Executive shall be entitled to exercise any of his Compensatory Equity to the extent vested pursuant to this Section 6(c) or otherwise for such period as set forth in the
terms of that Compensatory Equity.
(d) Effect of Change in Control. If the Company is subject to a Change in Control (as defined below) and there is an Involuntary Termination of the Executive’s
Employment within the period beginning three (3) months before and ending twelve (12) months after a Change in Control (or more than three (3) months prior to a Change in
Control but in connection with a Change in Control), then following the Executive’s separation from service, the Executive will be entitled to all benefits described in Sections
6(a), 6(b) and 6(c) of this Agreement subject to the same terms and conditions and payment dates described above, except that (x) the cash payment amount under Section 6(a)
shall be an amount equal to the sum of twenty-four (24) months of the Executive’s then annual Base Compensation (not giving effect to any reduction in Base Compensation
made in connection with such Involuntary Termination or giving rise to Good Reason), plus an amount equal to the sum of twenty-four (24) months of the Executive’s average
monthly Bonus earnings, where such average is calculated over the twenty-four (24) month period immediately preceding the Executive’s separation from service and based on
the Executive’s Bonus paid in such 24 month period, (y) the payment under Section 6(b) shall be equivalent to the amount of Executive’s monthly premiums under COBRA for
twenty-four (24) months and (z) notwithstanding the terms of any equity compensation plan of the Company or any agreement in connection with a grant of Compensatory
Equity, all vesting restrictions (if any) shall immediately lapse on all of the Executive’s Compensatory Equity effective as of the Executive’s separation from service. For
purposes of the preceding sentence, an Involuntary Termination shall be deemed to be in connection with a Change in Control if such termination (i) is required by the merger
agreement, purchase agreement or other instrument relating to such Change in Control or (ii) is made at the express request of the other party (or parties) to the transaction
constituting such Change in Control.
(i)
Parachute Payments. In the event that the payments and benefits provided for in this Agreement and the payments and/or benefits provided to,
or for the benefit of, the Executive under any other Employer plan or agreement (such payments or benefits are hereinafter collectively referred to as the “Benefits”) (i)
constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code and (ii) but for this Section 6(d), would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code (the “Excise Tax”), then the Benefits shall either be:
(ii)
delivered in full, or
(iii)
delivered as to such lesser extent which would result in no portion of such Benefits being subject to the Excise Tax (such reduced amount is
hereinafter referred to as the “Limited Amount”), whichever of the foregoing amounts,
4
taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by the Executive on an after-tax basis, of the greatest amount of
Benefits, notwithstanding that all or some portion of such Benefits may be subject to the Excise Tax. If applicable, in order to effectuate the Limited Amount, the Employer
shall first reduce those Benefits which are payable in cash and then reduce non-cash payments, in each case in reverse order beginning with Benefits which are to be paid the
farthest in time from the date of determination that the Benefits will be limited by (d)(ii) above. Any calculations and determinations required under this Section 6(d) shall be
made in writing by the Company’s independent auditor (the “Accountant”) whose determination shall be conclusive and binding. The Executive and the Company shall furnish
the Accountant such documentation as the Accountant may reasonably request in order to make a determination. The Employer shall pay for all costs that the Accountant may
reasonably incur in connection with performing any calculations contemplated by this Section 6(d).
(e) “Change in Control” Definition. For purposes of this Agreement, “Change in Control” shall mean the occurrence of any of the following events:
(i)
the consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if the
Company’s stockholders immediately prior to such merger, consolidation or reorganization cease to directly or indirectly own immediately after such merger, consolidation or
reorganization at least a majority of the combined voting power of the continuing or surviving entity’s securities (or, if the continuing or surviving entity is a wholly owned
subsidiary of another corporation immediately following such merger or consolidation, the ultimate parent corporation of such surviving or resulting corporation) outstanding
immediately after such merger, consolidation or other reorganization;
(ii)
the consummation of the sale, transfer or other disposition of all or substantially all of the Company’s assets (other than (1) to a corporation or
other entity of which at least a majority of its combined voting power is owned directly or indirectly by the Company, (2) to a corporation or other entity owned directly or
indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company or (3) to a continuing or surviving
entity described in subsection (i) in connection with a merger, consolidation or corporate reorganization which does not result in a Change in Control under subsection (i));
(iii)
a change in the composition of the Board, as a result of which fewer than one-half of the incumbent directors are directors who either (1) had
been directors of the Company on the date twenty-four (24) months prior to the date of the event that may constitute a Change in Control (the “original directors”) or (2) were
elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the aggregate of the original directors who were still in office at the time of
the election or nomination and the directors whose election or nomination was previously so approved;
(iv)
the consummation of any transaction as a result of which any person becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)), directly or indirectly, of securities of the Company representing at least thirty-five percent (35%) of the
total voting power represented by the Company’s then outstanding voting securities. For purposes of this subsection, the term “person” shall have the same meaning as when
used in sections 13(d) and 14(d) of the Exchange Act but shall exclude:
(1) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or an affiliate of the Company;
(2) a corporation or other entity owned directly or indirectly by the stockholders of the Company in substantially the same proportions as
their ownership of the common stock of the Company;
(3) the Company; and
(4) a corporation or other entity of which at least a majority of its combined voting power is owned directly or indirectly by the Company;
or
(v)
a complete winding up, liquidation or dissolution of the Company.
5
For purposes of this Section 6(e), a transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a
holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transactions.
(f) “Cause” Definition. For all purposes under this Agreement, “Cause” shall mean any of the following committed by the Executive:
(i)
Willful failure to follow the reasonable and lawful directions of the Chief Executive Officer;
(ii)
Conviction of a felony (or a plea of guilty or nolo contendere by the Executive to a felony) that materially harms the Company;
(iii)
Acts of fraud, dishonesty or misappropriation committed by the Executive;
(iv)
Willful misconduct by the Executive in the performance of the Executive’s material duties required by this Agreement; or
(v)
A material breach of this Agreement.
The foregoing is an exclusive list of the acts or omissions that shall be considered “Cause” for the termination of the Executive’s Employment by the Employer. With respect to
the acts or omissions set forth in clauses (i), (iii), (iv) and (v) above, (x) the CEO shall provide the Executive with one (1) month advance written notice detailing the basis for
the termination of Employment for Cause, (y) during the one-month period after the Executive has received such notice, the Executive shall have an opportunity to cure such
alleged Cause events before any termination for Cause is finalized and (z) the Executive shall continue to receive the compensation and benefits provided by this Agreement
during the one-month cure period. In addition, no act or failure to act of Executive shall be willful or intentional if performed in good faith with the reasonable belief that the
action or inaction was in the best interest of the Employer.
(g) “Involuntary Termination” Definition. For all purposes under this Agreement, “Involuntary Termination” shall mean any of the following: (i) termination of
the Executive’s Employment by the Employer without Cause; (ii) the Executive’s resignation of Employment for Good Reason; or (iii) termination of the Executive’s
Employment by the Employer for Disability.
(h) “Good Reason” Definition. For all purposes under this Agreement, “Good Reason” shall mean any of the following that occurs without the Executive’s prior
written consent:; (i) a material reduction of the Executive’s Base Compensation or Executive’s employee benefits; (ii) any material reduction or diminution of the Executive’s
duties, authority or responsibilities; (iii) the Employer’s material breach of this Agreement; or (iv) the failure of any successor of the Company to expressly in writing assume
the Company’s obligations under this Agreement, in each case, provided that the Executive shall have provided the Employer with thirty (30) days advance written notice and
an opportunity to cure such breach during such 30-day period.
(i) “Disability” Definition. For all purposes under this Agreement, “Disability” shall mean the Executive’s incapacity due to physical or mental illness to perform
his full-time duties with the Employer for a continuous period of three (3) months or an aggregate of six (6) months in any eighteen (18) month period.
7.
Non-Compete and Non-Disparagement.
(a) Non-Compete. During the period of Executive’s employment with the Company, Executive agrees to not engage in any employment, business or activity that
is in any way competitive with the business or proposed business of the Company. Executive will disclose to the Company in writing any other gainful employment, business
or activity that Executive is currently associated with or participate in that competes with the Company. Executive will not assist any other person or organization in competing
with the Company or in preparing to engage in competition with the business or proposed business of the Company.
6
(b) Confidential Information. Except as required in the good faith opinion of the Executive in connection with the performance of the Executive’s duties
hereunder or as specifically set forth in this Section 7(b), the Executive shall, in perpetuity, maintain in confidence and shall not directly, indirectly or otherwise, use,
disseminate, disclose or publish, or use for his benefit or the benefit of any person, firm, corporation or other entity any confidential or proprietary information or trade secrets
of or relating to the Company or any of its affiliates, including, without limitation, information with respect to the Company’s operations, processes, products, inventions,
business practices, finances, principals, vendors, suppliers, customers, potential customers, marketing methods, costs, prices, contractual relationships, regulatory status,
business plans, designs, marketing or other business strategies, compensation paid to employees or other terms of employment, or deliver to any person, firm, corporation or
other entity any document, record, notebook, computer program or similar repository of or containing any such confidential or proprietary information or trade secrets. The
Company and the Executive stipulate and agree that as between them the foregoing matters are important, material and confidential proprietary information and trade secrets
and affect the successful conduct of the businesses of the Company (and any successor or assignee of the Company). Upon termination of the Executive’s employment with the
Company for any reason, the Executive shall promptly deliver to the Company all correspondence, drawings, manuals, letters, notes, notebooks, reports, programs, plans,
proposals, financial documents, or any other documents concerning the Company’s customers, business plans, designs, marketing or other business strategies, products or
processes, provided that the Executive may retain his address book and similar information, whether or not the Company specifically requests it.
(c) Non-Disparagement. The Executive and the Company mutually agree not to disparage or defame, in writing or orally, the other party, and as applicable, its or
his services, products, subsidiaries and affiliates, and/or their respective directors, officers, employees, agents, family members, successors and assigns. This non-disparagement
provision shall not apply to statements made by non-management employees of the Company, so long as such statements did not originate from and were not induced or
encouraged (directly or indirectly) by an officer, director or management employee of the Company. Notwithstanding the foregoing, nothing in this Section 7(c) shall limit the
ability of the Company or the Executive, as applicable, to provide truthful testimony as required by law or any judicial or administrative process.
(d) Remedies. Without limiting the right of the Employer to pursue all other legal and equitable rights available to the Employer for violation of the provisions of
Section 7 of this Agreement by Executive, it is agreed that (a) other remedies cannot fully compensate the Employer for such a violation, (b) such a violation will cause the
Employer irreparable harm which may not be adequately compensated by money damages and (c) the Employer shall each be entitled to temporary, preliminary and permanent
injunctive or other equitable relief, without proving actual damages or posting a bond therefore, to prevent a violation, continuing violation or threatened violation of the
provisions of Section 7 of this Agreement.
8.
Inventions and Patents.
(a) For purposes of this Agreement, “Inventions” includes, without limitation, information, inventions, contributions, improvements, ideas, or discoveries, whether
protectable or not, and whether or not conceived or made during work hours. Executive agrees that all Inventions conceived or made by Executive during the period of
employment with Employer belong to Employer, provided they grow out of Executive’s work with Employer or are related in some manner to the Company Business,
including, without limitation, research and product development, and projected business of Employer or its affiliated companies. Accordingly, Executive will:
(i)
Make adequate written records of such Inventions, which records will be Employer’s property;
(ii)
Assign (and hereby does irrevocably assign and transfer) to Employer or its designee, at Employer’s request, any rights, title and interest
Executive may have to such Inventions for the U.S. and all foreign countries;
(iii)
Waive and agree not to assert any moral rights Executive may have or acquire in any Inventions and agree to provide written waivers from time
to time as requested by Employer; and
(iv)
Assist Employer (at Employer’s expense) in obtaining and maintaining patents or copyright registrations with respect to such Inventions.
(b) Executive understands and agrees that Employer or its designee will determine, in its sole and absolute discretion, whether an application for patent will be filed
on any Invention that is the exclusive property of Employer, as set
7
forth above, and whether such an application will be abandoned prior to issuance of a patent. Employer will pay to Executive, either during or after the term of this Agreement,
the following amounts if Executive is sole inventor, or Executive’s proportionate share if Executive is joint inventor: $750 upon filing of the initial application for patent on
such Invention; and $1,500 upon issuance of a patent resulting from such initial patent application, provided Executive is named as an inventor in the patent.
(c) Executive further agrees that Executive will promptly disclose in writing to Employer during the term of Executive’s employment and for one (1) year
thereafter, all Inventions whether developed during the time of such employment or thereafter (whether or not Employer has rights in such Inventions) so that Executive’s rights
and Employer’s rights in such Inventions can be determined. Except as set forth on the initialed Exhibit A (List of Inventions) to this Agreement, if any, Executive represents
and warrants that Executive has no Inventions, software, writings or other works of authorship useful to Employer in the normal course of the Company Business, which were
conceived, made or written prior to the date of this Agreement and which are excluded from the operation of this Agreement.
(d) NOTICE: In accordance with Washington law, this Section 8 does not apply to Inventions for which no equipment, supplies, facility, or trade secret information
of Employer was used and which was developed entirely on Executive’s own time, unless: (a) the Invention relates (i) directly to the business of Employer or (ii) to Employer’s
actual or demonstrably anticipated research or development, or (b) the Invention results from any work performed by Executive for Employer.
9.
Successors.
(a) Employer’s Successors. This Agreement shall be binding upon any successor (whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the Employer’s business and/or assets. For all purposes under this Agreement, the term “Employer” shall
include any successor to the Employer’s business and/or assets which becomes bound by this Agreement.
(b) Employee’s Successors. This Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal
or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
10.
Section 409A of the Internal Revenue Code.
In the event that the Employer determines that any of the benefits payable under this Agreement would violate Section 409A, then the Employer and the Executive shall, in
good faith, agree to implement adjustments needed to comply with Section 409A. Additionally, notwithstanding anything contained in this Agreement to the contrary, if
Executive is deemed by the Employer at the time of Executive’s “separation from service” to be a “specified employee,” each within the meaning of Section 409A, any
compensation or benefits to which Executive becomes entitled under this Agreement (or any agreement or plan referenced in this Agreement) in connection with such
separation that are subject to Section 409A shall not be made or commence until the date which is six (6) months after Executive’s “separation from service” (or, if earlier,
Executive’s death). Such deferral shall only be effected to the extent required to avoid adverse tax treatment to Executive, including (without limitation) the additional twenty
percent (20%) tax for which Executive would otherwise be liable under Section 409A(a)(1)(B) in the absence of such deferral. Upon the expiration of the applicable deferral
period, any compensation or benefits which would have otherwise been paid during that period (whether in a single lump sum or in installments) in the absence of this Section
10 shall be paid to Executive or Executive’s beneficiary in one lump sum. To the extent that any provision of this Agreement is ambiguous as to its exemption or compliance
with Section 409A, the provision will be read in such a manner so that such payments hereunder are exempt from Section 409A to the maximum permissible extent, and for any
payments where such construction is not tenable, that those payments comply with Section 409A to the maximum permissible extent. To the extent any nonqualified deferred
compensation subject to Section 409A payable to Executive hereunder could be paid in one or more taxable years depending upon Executive completing certain employment-
related actions (such as resigning after a failure to cure a Good Reason event and/or returning an effective release), then any such payments will commence or occur in the later
taxable year to the extent required by Section 409A.
11.
Repayment Provisions.
8
If the Company is required to prepare an accounting restatement due to its material noncompliance, as a result of the Executive’s misconduct, with any financial reporting
requirement under United States securities laws, then, and only if Section 304 of the Sarbanes-Oxley Act of 2002, or a successor provision, is then in effect, the Company may
require the Executive to reimburse the Employer for (i) any bonus or other incentive-based or equity-based compensation received by the Executive from the Employer during
the 12-month period following the first public issuance or filing with the Securities Exchange Commission (whichever first occurs) of the financial documents embodying such
financial reporting requirement and (ii) any profits realized from the sale of securities of Company during such 12-month period.
12.
Miscellaneous Provisions.
(a) Notice. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally
delivered or when mailed by overnight courier, U.S. registered or certified mail, return receipt requested and postage prepaid. In the case of the Executive, mailed notices shall
be addressed to him at the home address that he most recently communicated to the Employer in writing. In the case of the Employer, mailed notices shall be addressed to:
Attention:
Chief Executive Officer
c/o:
22722 29 Drive SE, Suite 100,
Bothell, Washington 98021
Telephone: 425-686-1500
Facsimile: 425-686-1600
(b) Modifications and Waivers. No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Executive and by an authorized officer of the Employer (other than the Executive). No waiver by either party of any breach of, or of compliance
with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at
another time.
(c) Whole Agreement. Except for those agreements or plans referenced herein (including without limitation any employee benefit plans of the Company in which
the Executive is a participant in as of the Effective Date), this Agreement contains the entire understanding of the parties with respect to the subject matter hereof and
supersedes any other agreements, representations or understandings (whether oral or written and whether express or implied) with respect to the subject matter hereof, including
without limitation the offer letter between the Executive and the Employer dated November 18, 2024. In the event of any conflict in terms between this Agreement and any
other agreement executed by and between the Executive and the Employer, the terms of this Agreement shall prevail and govern.
(d) Withholding Taxes. All payments made under this Agreement shall be subject to reduction to reflect taxes or other charges required to be withheld by law.
(e) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Washington (except
their provisions governing the choice of law).
(f) Severability; Blue-Penciling. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect. Furthermore, it is the intent, agreement and understanding of each party hereto that if, in any action
before any court or agency legally empowered to enforce this Agreement, any term, restriction, covenant or promise in this Agreement is found to be unreasonable and for that
or any other reason unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the minimum extent necessary to make it enforceable by such
court or agency; provided further that any such court
th
9
or agency shall have the power to modify such provision, to the extent necessary to make it enforceable (for the maximum duration and geographic scope permissible), and
such provision as so modified shall be enforced.
(g) Assignment. The Employer may assign its rights under this Agreement to any entity that expressly in writing assumes the Employer’s obligations hereunder in
connection with any sale or transfer of all or substantially all of the Company’s assets to such entity.
(h) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
ACHIEVE LIFE SCIENCES, INC.
By: /s/RICHARD STEWART
Name: Richard Stewart
Title: Chief Executive Officer
MARK K. OKI
Signed: /s/MARK OKI
CONFIRMATION NO : R-3111002
EXHIBIT 10.36
RENEWAL SERVICE
AGREEMENT
AGREEMENT DATE: OCTOBER 25, 2024
BUSINESS CENTER ADDRESS :
CLIENT ADDRESS (NOT A BUSINESS CENTER ADDRESS):
Regus
Company Name Achieve Life Sciences
WA, Bothell – Canyon Park West
Contact Name Kevin Nouwens
22722 29 Drive SE
Address*
520 Pike Street
Suite 100
Suite 2250
Bothell
Washington
City:
Seattle
98021
State/County/Province
Washington
Municipality/Governorate*
United States of America
Post Code * 98021
Country *
United States of America
Phone number * United States of America
206-920-7606
Email *
RENEWAL PAYMENT DETAILS (EXCLUDING TAX AND OPTIONAL SERVICES)
Office Number
Number of
People
Total Monthly
Office Price
Discount for Longer
Term
Totally Monthly
Discount
Discounted Monthly Renewal Price
173
1
$ 1,388.00
$69.00
$69.00
$1,319.00
TOTALS
1
$ 1,388.00
$69.00
$69.00
$1,319.00
4.97%
SERVICE PROVISION:
Start Date
March 1, 2025
End Date*
August 31, 2025
COMMENTS
* All agreements end on the last calendar day of the month.
•
Invoices/Fess are charged on a monthly basis which is calculated based on a 30-day month.
•
A refundable service retainer equivalent to 2 x monthly office fee will be payable
Promotion: Any promotion or discount is for the initial term of the agreement.
TERMS AND CONDITIONS
We are Regus Management Group,LLC, please click the link below for terms and conditions.
AGREEMENT TO ARBITRATE/CLASS ACTION WAIVER: YOU AND WE MUTALLY AGREE TO WAIVE OUR RESPECTIVE RIGHTS TO RESOLVE DISPUTES IN A
COURT OF LAW BY A JUDGE OR JURY AND AGREE TO RESOLVE ANY DISPUTE BETWEEN US BY BINDING ARBITRATION, except as expressly provided in
this paragraph. Any dispute or claim relating in any way or arising out of this Agreement shall be resolved by binding arbitration administered by the
American Arbitration Association in accord with Its Commercial Arbitration Rules (available at www.adr.org), except that You or We may assert dams in
small claims court
th
CONFIRMATION NO : R-3111002
and We may pursue court action to remove You, if You do not leave when this Agreement terminates (and You may pursue a court action to prevent
Your removal). The arbitrator, and not a court of law, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability,
enforceability, or formation of this agreement to arbitrate, and shall conduct the arbitration on an individual basis only and not as a class or
representative action. You and We acknowledge that this Agreement is governed by the Federal Arbitration Act and will survive after this Agreement
terminates or your relationship with Us ends.
CLASS ACTION WAIVER: YOU UNDERSTAND AND AGREE THAT YOU AND WE MAY EACH BRING CLAIMS AGAINST THE OTHER, WHETHER IN COURT OR
ARBITRATION, ONLY IN AN INDIVIDUAL CAPACITY AND NOT ON A CLASS, COLLECTIVE ACTION, OR REPRESENTATIVE BASIS, AND EXPRESSLY WAIVE THE
RIGHT TO PURSUE OR HAVE A DISPUTE RESOLVED AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS, COLLECTIVE OR REPRESENTATIVE
PROCEEDING.
These General Terms and Conditions apply to Office/Co-Working, Virtual Office, and Membership and Workplace Recovery agreements for services We
supply to You.
1.
General Agreement
1.1
Nature of an agreement: At all times, each Center remains in Our possession and control. YOU ACCEPT THAT AN AGREEMENT
CREATES NO TENANCY INTEREST, LEASEHOLD ESTATE, OR OTHER REAL PROPERTY INTEREST IN YOUR FAVOR WITH RESPECT TO THE
ACCOMMODATION.
1.2
House Rules: The House Rules, which are incorporated into these terms and conditions, are primarily in place and enforced to ensure
that all clients have a professional environment to work in.
1.3
Company and Contact Information: It is Your responsibility to keep the information and key contact information We use to
communicate with You up to date through the App or Online Account (or other customer portal as advised to you from time to time).
This includes but is not limited to email addresses, phone numbers, and company address, Tax/VAT, and registration details as locally
applicable. Your contact address details must be a legitimate business address or residential address of the primary contact; it must
not be an IWG Center address (or other business center address).
1.4
Availability at the start of an agreement: If for any unfortunate reason We cannot provide the Virtual Office services or Office/Co-
Working accommodation in the Center stated in an agreement by the start date, We will have no liability to You for any loss or
damage, but You may either move to one of Our other Centers (subject to availability), delay the start of the agreement, or cancel it.
1.5
AUTOMATIC RENEWAL: SO THAT WE CAN MANAGE YOUR SERVICES EFFECTIVELY AND TO ENSURE SEAMLESS CONTINUITY OF THOSE
SERVICES, ALL AGREEMENTS WILL RENEW AUTOMATICALLY FOR SUCCESSIVE PERIODS EQUAL TO THE CURRENT TERM UNTIL
BROUGHT TO AN END BY YOU OR US. ALL PERIODS SHALL RUN TO THE LAST DAY OF THE MONTH IN WHICH THEY WOULD
OTHERWISE EXPIRE. THE FEES ON ANY RENEWAL WILL BE AT THE THEN PREVAILING MARKET RATE. IF YOU DO NOT WISH FOR AN
AGREEMENT TO RENEW THEN YOU CAN CANCEL IT EASILY WITH EFFECT FROM THE END DATE STATED IN THE AGREEMENT, OR AT
THE END OF ANY EXTENSION OR RENEWAL PERIOD, BY GIVING US PRIOR NOTICE. NOTICE MUST BE GIVEN THROUGH YOUR ONLINE
ACCOUNT OR THROUGH THE APP. THE NOTICE PERIODS REQUIRED ARE AS FOLLOWS:
Term
Notice Period
Month-to-Month no less than 1 month's notice from the 1st day of any calendar month
3 months
no less than 2 months’ notice prior to the end of the term
More than 3 months no less than 3 months’ notice prior to the end of the term
1.6
We may elect not to renew an agreement. If so, We will inform You by email, through the App or Your online account, according to the
same notice periods specified above.
1.7
If the Center is no longer available: In the event that We are permanently unable to provide the services and accommodation at the
Center stated in an agreement, We will offer You accommodation in one of Our other centers. In the unlikely event We are unable to
find
a nearby alternative accommodation, Your agreement will end, and You will only have to pay monthly fees up to that date and for
any additional services You have used.
1.8
Ending an agreement immediately: We may terminate an agreement immediately by giving You notice if (a) You become insolvent or
bankrupt; or (b) You breach one of your obligations which cannot be put right, or which We have given You notice to put right and
which You have failed to put right within 14 days of that notice; or (c) Your conduct, or that of someone at the Center with Your
permission or invitation, is incompatible with ordinary office use and, (i) that conduct continues despite You having been given notice,
or (ii) that conduct is material enough (in Our reasonable opinion) to warrant immediate termination; or (d) You are in breach of the
“Compliance With Law” clause below. If We terminate an agreement for any of the reasons referred to in this clause You must,
within 30 days of the date of Our notice of termination, pay Us as a lump sum payment all sums that would otherwise have fallen due
and payable by you during the remainder of the period for which Your agreement would have lasted if We had not terminated it. You
agree that this payment reflects a reasonable estimate of the actual damages that We will sustain in the event of an early
termination.
1.9
When an Office agreement ends: When an agreement ends You must vacate Your accommodation immediately, leaving it in the same
state and condition as it was when You took it. If You leave any property in the Center, We may dispose of it at Your cost in any way
We choose without owing You any responsibility for it or any proceeds of sale. If You continue to use the accommodation when an
agreement has ended, You are responsible for any loss, claim or liability We may incur as a result of Your failure to vacate on time.
1.10.
Transferability: Subject to availability (which shall be determined in Our sole discretion) You may transfer Your agreement to
alternative accommodation in the IWG network of Centers provided that Your financial commitment remains the same (or increases)
and such transfer is not used to extend or renew an existing agreement. Such a transfer may require entry into a new agreement.
2.
Use of the Centers:
2.1.
Business Operations: You may not carry on a business that competes with Our business of providing serviced offices and flexible working.
You may not use Our name (or that of Our affiliates) in any way in connection with Your business. You are only permitted to use the
address of a Center as Your registered office address if it is permitted by both law and if We have given You prior written consent
(given the administration there is an additional fee chargeable for this service which can be found in the House Rules). You must only
use the accommodation for office business purposes. If We decide that a request for any particular service is excessive, We reserve
the right to charge an additional fee. In order to ensure that the Center provides a great working environment for all, We kindly ask
you to limit any excessive visits by members of the public.
2.2
Accommodation
2.2.1.
Alterations or Damage: You are liable for any damage caused by You or those in the Center with Your permission, whether
express or implied, including but not limited to all employees, contractors and/or agents.
2.2.2.
IT Installations: We take great pride in Our IT infrastructure and its upkeep and therefore You must not install any cabling, IT, or
telecom connections without Our consent, which We may refuse in our absolute discretion. As a condition
to Our consent, You must permit Us to oversee any installations (for example, IT or electrical systems) and to verify that
such installations do not interfere with the use of the accommodation by other clients or Us or any landlord of the building.
Fees for installation and de-installation will be at Your cost.
2.2.3.
Use of the Accommodation: An agreement will list the accommodation We initially allocate for Your use. You will have a non-
exclusive right to the rooms allocated to You. Where the accommodation is a Coworking desk, this can only be used by one
individual. It cannot be shared among multiple individuals. Occasionally to ensure the efficient running of the Centre, We
may need to allocate different accommodation to You, but it will be of reasonably equivalent size, and We will notify You
with respect to such different accommodation in advance.
2.2.4.
Access to the Accommodation: To maintain a high level of service, We may need to enter Your accommodation and may do so
at any time, including and without limitation, in an emergency, for cleaning and inspection or in order to resell the space if
You have given notice to terminate. We will always endeavor to respect any of Your reasonable security procedures to
protect the confidentiality of Your business.
2.2.5.
Hybrid Working: You may use Your designated office for hybrid working (excluding Coworking desks). Hybrid working is defined
as having more individuals registered with access to Your office than the specified maximum allowable occupants for that
office at any one time. The management of individuals accessing your office is Your responsibility and should be managed
through Your online account. At no time may the number of individuals working in Your accommodation exceed the
maximum number of occupants allowed. A hybrid supplemental monthly fee will be payable by You for each individual
registered above the maximum occupants allowed. This fee can be found in the House Rules.
2.3
Membership:
2.3.1.
If You have subscribed to a Membership Agreement, You will have access to all participating centers worldwide during standard
business working hours and subject to availability. If You would like to stay after hours, please speak to the Community
Team for instructions on, and availability of, after hours use.
2.3.2
Membership Usage: Usage is measured in whole days and unused days cannot be carried over to the following month. A
membership is not intended to be a replacement for a full-time workspace and all workspaces must be cleared at the end of
each day. You are solely responsible for Your belongings at the center at all times. We are not responsible for any property
that is left unattended. Should You use more than Your membership entitlement, We will charge You an additional usage
fee. You may bring in 1 guest free of charge (subject to fair usage). Any additional guests will be required to purchase a day
pass.
2.3.3.
As a Member, You may not use any Center as Your business address without an accompanying office or virtual office agreement
in place. Any use of the Center address in such a way will result in an automatic enrollment in the Virtual Office product for
the same term as Your membership and You will be invoiced accordingly.
2.4.
Workplace Recovery: The Workplace Recovery services are governed by these terms and conditions including, without limitation, Our
liability to You and insurance. This service is detailed further in the Workplace Recovery Services Guide which is available upon
request.
2.5
Compliance with Law: You must comply with all relevant laws and regulations in the conduct of Your business. You must not do anything
that may interfere with the use of the Center by Us or by others (including but not limited to political campaigning or immoral
activity), cause any nuisance or annoyance, or cause loss or damage to Us (including damage to reputation) or to the owner of any
interest in the building. If We have been advised by any government authority or other legislative body that it has reasonable
suspicion that You are conducting criminal activities from the Center, or You are or will become subject to any government sanctions,
then We shall be entitled to terminate any and all of Your agreements with immediate effect. You acknowledge that any breach by
You of this clause shall constitute a material default, entitling Us to terminate Your agreement without further notice.
2.6.
Ethical Trading: Both We and You shall comply at all times with all relevant anti-slavery, anti-bribery, and anti- corruption laws.
2.7.
Data Protection:
2.7.1.
Each party shall comply with all applicable data protection legislation. The basis on which we will process Your personal data is
set out in our privacy policies (available on our website at www.iwgplc.com/clientprivacypolicy.)
2.7.2.
You acknowledge and accept that we may collect and process personal data concerning You and/or your personnel in the
course of our agreement for services with you. Such personal data will be processed in accordance with our privacy policy.
Where you provide this data to us, you will ensure that you have the necessary consents and notices in place to allow for
this.
2.8.
Employees: We will both have invested a great deal in training Our staff. Therefore, neither of us may knowingly solicit or offer
employment to the other’s staff employed in any Center (or for 3 months after they have left their employment). To recompense the
other for staff training and investment costs, if either of us breaches this clause the breaching party will pay upon demand the other
the equivalent of 6 months’ salary of any employee concerned.
2.9.
Confidentiality: The terms of an agreement are confidential. Neither of us may disclose them without the other’s consent unless required
to do so by law or an official authority. This obligation continues for a period of 3 years after an agreement ends.
2.10.
Assignment: An agreement is personal to You and cannot be transferred to anyone else without prior consent from Us unless such
transfer is required by law. However, We will not unreasonably withhold our consent to assignment to an affiliate provided that You
execute our standard form of assignment. We may transfer any agreement and any and all amounts payable by You under an
agreement to any other member of Our group.
2.11.
Applicable law: An agreement is interpreted and enforced in accordance with the law of the place where the Center is located other
than in a few specific jurisdictions which are detailed in the House Rules. We and You both accept the exclusive jurisdiction of the
courts of that jurisdiction. If any provision of these terms and conditions is held void or unenforceable under the applicable law, the
other provisions shall remain in force.
3.
Our liability to You and Insurance
3.1.
The extent of Our liability: To the maximum extent permitted by applicable law, We are not liable to You in respect of any loss or damage
You suffer in connection with an agreement, including without limitation any loss or damage arising as a result of our failure to
provide a service as a result of mechanical breakdown, strike, or other event outside of Our reasonable control otherwise, unless We
have acted deliberately or have been negligent. In no event shall We be liable for any loss or damage until You provide written notice
and give Us a reasonable time to put it right. If We are liable for failing to provide You with any service under an agreement, then,
subject to the exclusions and limits set out immediately below, We will pay any actual and reasonable additional expense You have
incurred in obtaining the same or similar service from elsewhere.
3.2.
Your Insurance: It is Your responsibility to arrange insurance for property which You bring in to the Center, for any mail You send or
receive and for Your own liability to your employees and to third parties. We strongly recommend that You put such insurance in
place.
3.3.
IT Services and Obligations: Whilst We have security internet protocols in place and strive to provide seamless internet connectivity, WE
DO NOT MAKE ANY REPRESENTATION AND CANNOT GUARANTEE ANY MAINTAINED LEVEL OF CONNECTIVITY TO OUR NETWORK OR
TO THE INTERNET, NOR THE LEVEL OF SECURITY OF IT INFORMATION AND DATA THAT YOU PLACE ON IT. You should adopt whatever
security measures (such as encryption) You believe are appropriate to Your business. Your sole and exclusive remedy in relation to
issues of reduced connectivity which are within Our reasonable control shall be for Us to rectify the issue within a reasonable time
following notice from You to Us.
3.4.
EXCLUSION OF CONSEQUENTIAL LOSSES: WE WILL NOT IN ANY CIRCUMSTANCES HAVE ANY LIABILITY TO YOU FOR LOSS OF BUSINESS,
LOSS OF PROFITS, LOSS OF ANTICIPATED SAVINGS, LOSS OF OR DAMAGE TO DATA, THIRD PARTY CLAIMS OR ANY CONSEQUENTIAL
LOSS. WE STRONGLY RECOMMEND THAT YOU INSURE AGAINST ALL SUCH POTENTIAL LOSS, DAMAGE, EXPENSE OR LIABILITY.
3.5.
Financial limits to our liability: In all cases, our liability to You is subject to the following limits:
3.5.1
without limit for personal injury or death;
3.5.2.
up to a maximum of GBP 1 million (or USD 1.5 million or EUR 1 million or other local equivalent) for any one event or series of
connected events for damage to Your personal property; and
3.5.3.
in respect of any other loss or damage, up to a maximum equal to 125% of the total fees paid between the date services under
an agreement commenced and the date on which the claim in question arises; or if higher, for office agreements only, GBP
50,000 / USD 100,000 / EUR 66,000 (or local equivalent).
4.
Fees
4.1.
Service Retainer/Deposit: Your service retainer / deposit will be held by Us without generating interest as security for performance of all
Your obligations under an agreement. All requests for the return must be made through Your online account or App after which the
service retainer/deposit or any balance will be returned within 30 days to You once your agreement has ended and when You have
settled Your account. We will deduct any outstanding fees and other costs due to Us before returning the balance to You. We will
require You to pay an increased retainer if the monthly office or virtual office fee increases upon renewal, outstanding fees exceed
the service retainer/deposit held, and/or You frequently fail to pay invoices when due.
4.2.
Taxes and duty charges: You agree to pay promptly (i) all sales, use, excise, consumption and any other taxes and license fees which You
are required to pay to any governmental authority (and, at Our request, You will provide to Us evidence of such payment) and (ii) any
taxes paid by Us to any governmental authority that are attributable to Your accommodation, where applicable, including, without
limitation, any gross receipts, rent and occupancy taxes, tangible personal property taxes, duties or other documentary taxes and
fees.
4.3.
Payment: We are continually striving to reduce our environmental impact and support You in doing the same. Therefore, We will send all
invoices electronically and You will make payments via an automated method such as Direct Debit or Credit Card (wherever local
banking systems permit). If You do not set up an automatic form of payment, You will be charged a refundable payment retainer
equal to one time your monthly product fee. Invoices are due and payable on the due date stated in them.
4.4.
Late payment: If You do not pay fees when due, a fee will be charged on all overdue balances. This fee will differ by country and is listed in
the House Rules. If any part of an invoice is legitimately disputed, You shall give immediate written notice to Us, follow the
requirements of the Disputes clause in the House Rules, and pay the amount not in dispute by the due date or be subject to late fees.
We also reserve the right to withhold services (including for the avoidance of doubt, denying You access to the Center where
applicable) while there are any outstanding fees and/or interest or You are in breach of an agreement.
4.5.
Insufficient Funds: Due to the additional administration We incur, You will pay a fee for any returned or declined payments due to
insufficient funds. This fee will differ by country and is listed in the House Rules.
4.6.
Activation: An activation fee is payable in respect of each agreement You have with Us (including any new agreements entered into under
clause 1.10 above). This fee covers the administrative cost of the client onboarding process and account setup. This fee is set out in
each Local Services Agreement and is charged on a per occupant basis for Serviced Office and Coworking (dedicated desk), on a per
location basis for Virtual Office, and on a per person basis for Membership. Further information is set out in the House Rules.
4.7.
Indexation: If an agreement, including month to month agreements, continues for more than 12 months, We will increase the monthly
fee on each anniversary of the start date in line with the relevant inflation rate detailed in the House Rules current at the time. If a
country experiences high levels of inflation, indexation could be applied more frequently and is detailed in the House Rules current at
the time.
4.8.
Office Restoration: Upon Your departure or if You choose to relocate to a different room within a Center, We will charge a fixed office
restoration service fee to cover normal cleaning and any costs incurred to return the accommodation to its original condition and
state. This fee will differ by country and is listed in the House Rules. We reserve the right to charge additional reasonable fees for any
repairs needed above and beyond normal wear and tear.
4.9.
Standard services: Monthly fees, plus applicable taxes, and any recurring services requested by You are payable monthly in advance.
Where a daily rate applies, the charge for
any such month will be 30 times the daily fee. For a period of less than one month, the fee will be applied on a daily basis.
4.10.
Pay-as-you-use and Additional Variable Services: Fees for pay-as-you-use services, plus applicable taxes, are payable monthly in
arrears at our standard rates which may change from time to time and are available on request.
4.11.
Additional Fees: If Your use of the accommodation or treatment of the accommodation requires Us to incur additional costs for the
provision of nonstandard service(s), including but not limited to deep cleaning, unusual trash removal, pest remediation, or additional
security, We reserve the right to charge You for the cost of these services plus an additional 30% administration fee.
4.12.
Discounts, Promotions and Offers: If You benefited from a special discount, promotion or offer, We will discontinue that discount,
promotion or offer without notice if You materially breach Your agreement.
Global Terms March 2024
EXHIBIT 19.1
INSIDER TRADING POLICY
THIS POLICY WAS APPROVED BY THE BOARD ON AUGUST 15, 2023
PURPOSE
Achieve Life Sciences, Inc. (the “Company,” “we,” “us” or “our”) is committed to promoting high standards of honest and ethical business
conduct and compliance with laws, rules and regulations. Because stock is an important part of the Company’s compensation program, our Board
of Directors (“Board”) has adopted this Insider Trading Policy (“Policy”) governing the purchase, sale and other dispositions of the Company’s
securities by the individuals and entities covered by this policy to promote compliance with insider trading laws, rules and regulations, as well as
applicable stock exchange listing standards.
Insider trading happens when someone who is in possession of material nonpublic information (“MNPI”) trades securities on the basis of that
information or discloses MNPI to someone else who trades on the basis of that information.
If you are considering trading our stock or other securities, please keep these three key points in mind:
•
Never buy or sell our securities when in possession of MNPI;
•
Keep all MNPI confidential, including from your family and friends; and
•
When in doubt about whether you have MNPI, ask before trading.
You are responsible for understanding and following this Policy and for the consequences of any actions you may take. Our insider trading
compliance officer, as designated by the Board, a committee thereof or an executive officer of the Company (the “Compliance Officer”), will
assist with implementing, interpreting and enforcing this Policy, pre-clearing trading activities of certain people, and pre-approving any 10b5-1
Plans (as discussed more fully later in this Policy).
Persons Covered By This Policy
This Policy applies to our employees, contractors, consultants and Board members, as well as to their immediate family members, people sharing
their households and anyone subject to their influence or control. It applies as well to entities such as venture capital funds, partnerships, trusts
and corporations which are associated or affiliated with our employees, contractors, consultants and Board members. An “immediate family
member” under this Policy means any child, stepchild, parent, stepparent, spouse, domestic partner, sibling, mother-in-law, father-in-law, son-in-
law, daughter-in-law, brother-in-law, or sister-in-law of a person security holder, and includes any person (other than a tenant or employee)
sharing the household of that person. We will refer
Achieve Life Sciences, Inc.
Insider Trading Policy 2
to all of these individuals and entities to whom this Policy applies individually as “you” and “Insider” and collectively as “Insiders.”
Additional trading restrictions in this Policy apply to our officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) and directors (together with the officers, the “Section 16 Insiders”) and to the individuals listed on Exhibit A (“Designated
Insiders”) who are not Section 16 Insiders but who have regular access to MNPI in the normal course of their job. The list of Designated Insiders
may be modified by our Compliance Officer.
If you are aware of MNPI when your employment or service relationship with the Company ends, you still may not trade our securities until that
MNPI has become public or is no longer material.
What This Policy Covers
The primary purpose of this Policy is to prevent people who are in possession of MNPI from trading in our stock or other securities on the basis of
that MNPI or disclosing MNPI to someone else who trades on the basis of that information.
“Material information” is information about the Company, positive or negative, that a reasonable stockholder would consider important in
making a decision to purchase or sell the Company’s securities. Material information can be positive or negative and can relate to virtually any
aspect of the Company’s business or its securities.
Examples of material information may include:
•
financial information (especially cash balance, burn and runway), including projections of future earnings or losses, or other guidance
based on financial results;
•
significant regulatory communications or receipt of, or any delay in receipt or failure to receive significant governmental approvals;
•
timing and achievement of major development milestones;
•
significant developments in or results of studies and trials;
•
entry into a new commercial agreement or termination of an existing commercial agreement;
•
mergers or acquisitions;
•
important pipeline expansion;
•
significant cybersecurity incidents or data breaches;
•
significant new litigation or regulatory inquires or developments in existing litigation or inquires;
•
significant developments in borrowings, or financings or capital investments;
Achieve Life Sciences, Inc.
Insider Trading Policy 3
•
significant changes in corporate strategy;
•
restatements of historical financial statements;
•
stock offerings or stock splits; and
•
changes in senior executive management or our Board.
This list is illustrative only and is not intended to provide a comprehensive list of circumstances that could result in material information.
Determination of what may constitute material information will depend upon the facts and circumstances in each particular situation.
“Nonpublic” means that the confidential information has not yet been shared broadly outside the Company. Please remember as well that we may
possess confidential information relating to or belonging to our collaborators, partners or other third parties and that it is equally important that we
treat this information with the same care with which we treat our own information. If you are not sure whether information is considered public,
you should either consult with our Compliance Officer or assume that the information is nonpublic and treat it as confidential.
This Policy applies to all transactions involving our securities, including common stock, restricted stock units (“RSUs”), options and warrants to
purchase common stock and any other debt or equity securities the Company may issue from time to time, such as bonds, preferred stock,
convertible notes, as well as to derivative securities relating to the Company’s securities, whether or not issued by the Company, such as
exchange-traded options.
PROHIBITED ACTIVITIES AND OTHER RESTRICTIONS
Insider Restrictions
The following is a list of prohibited activities for all Insiders:
•
Trade our securities while in possession of MNPI (other than pursuant to a 10b5-1 Plan or a non-Rule 10b5-1 trading arrangement (as
defined below) entered into in accordance with this Policy).
•
Trade our securities outside of a Trading Window or during a Blackout Period designated by our Compliance Officer (other than
pursuant to a 10b5-1 Plan or a non-Rule 10b5-1 trading arrangement entered into in accordance with this Policy). See the definition of
“Trading Window” and “Blackout Period” below.
•
Unless approved in advance by our Compliance Officer, make a gift, charitable contribution or other transfer without consideration of
our securities during a period when the Insider cannot trade.
•
Share MNPI with any outside person, unless required by your job and such person is under NDA, or as authorized by our Compliance
Officer.
•
Give trading advice about the Company, unless the advice is to tell someone not to trade our securities because the trade would violate
this Policy or the law.
Achieve Life Sciences, Inc.
Insider Trading Policy 4
•
Other than the exercise of equity awards issued by us, engage in transactions involving options or other derivative securities on our
stock, such as puts and calls, whether on an exchange or in any other market.
•
Engage in hedging or monetization transactions involving our securities, such as zero cost collars and forward sale contracts, or
contribute our securities to exchange funds in a manner that could be interpreted as hedging in our stock.
•
Engage in short sales of our securities, meaning a sale of securities that you do not own, including short sales “against the box.”
•
Use or pledge our securities as collateral in a margin account or as collateral for a loan unless the pledge has been approved by our
Compliance Officer and is conducted in accordance with any applicable policy or guidelines of the Company regarding pledging.
•
Distribute our securities to limited partners, general partners or stockholders of any entity outside of a Trading Window or during a
Blackout Period, unless those limited partners, general partners or stockholders have agreed in writing to hold the securities until the
next open Trading Window.
•
Engage in any of the above activities for securities you own in any other company if you have MNPI about that company obtained in the
course of your service to the Company.
Additional Restrictions Applicable to Section 16 Insiders and Designated Insiders
In addition to the restrictions noted above and elsewhere in this Policy, if you are a Section 16 Insider or a Designated Insider, prior to trading our
securities other than pursuant to a 10b5-1 Plan or a non-Rule 10b5-1 trading arrangement, you must obtain pre-approval from our Compliance
Officer (or in the case of the Compliance Officer, by a different Section 16 Insider) by: (a) providing written notification of the amount and nature
of the proposed trade, (b) certifying no earlier than two business days prior to the proposed trade that you have no MNPI and, to your knowledge,
you will have no MNPI as of the proposed trade date, and (c) receiving email confirmation from our Compliance Officer approving the trade,
which approval can be granted or denied at his or her discretion. You may satisfy (a) and (b) by emailing the required information and
certification to our Compliance Officer and must notify the Compliance Officer promptly via email of any changes to the certification in (b) prior
to the proposed trade.
We recommend Section 16 Insiders trade in our securities pursuant to a 10b5-1 Plan entered into in accordance with this Policy.
Exceptions to Prohibited Activities
The trading restrictions of this Policy do not apply to the following:
•
401(k) Plan. Investing 401(k) plan contributions in a company stock fund in accordance with the terms of our 401(k) plan. However,
any changes in your investment election regarding the Company’s securities are subject to trading restrictions under this Policy.
Achieve Life Sciences, Inc.
Insider Trading Policy 5
•
ESPP. Purchasing our stock through periodic, automatic payroll contributions, or making election changes, under our Employee Stock
Purchase Plan. However, any sales of stock acquired under the ESPP are subject to trading restrictions under this Policy.
•
Options. Exercising stock options granted under our equity incentive plans for cash or by delivering to the Company previously owned
Company stock or through a net exercise of a stock option that is permitted by the Company’s equity incentive plans and that does not
involve a sale of shares in the open market. Payment of taxes in connection with exercising stock options granted under our equity
incentive plans pursuant to net withholding arrangements approved by the Company for the payment of taxes upon the exercise of stock
options and that does not involve a sale of shares in the open market. However, the sale of any shares issued on the exercise of
Company-granted stock options, as well as any cashless exercise of Company-granted stock options in which stock is sold on the open
market to pay the exercise price or taxes (i.e., “same-day sales”) are subject to trading restrictions under this Policy.
•
RSUs. The settlement of RSUs pursuant to a net settlement or a “sale to cover” for non-discretionary, automatic tax withholdings
initiated and approved by the Company for the payment of taxes upon the vesting of RSUs.
Other Legal Restrictions
The trading prohibitions of this Policy are not the only stock-trading rules and regulations you need to follow. You should be aware of additional
prohibitions and restrictions set by contract or by federal and state securities laws and regulations (e.g., contractual restrictions on the resale of
securities, rules on short swing trading by Section 16 Insiders, compliance with Rule 144 under the Securities Act of 1933, as amended, and
others). Any Insider who is uncertain whether other prohibitions or restrictions apply should ask our Compliance Officer.
We will not transact in our securities unless in compliance with U.S. securities laws.
WHEN TRADING IS ALLOWED
To promote compliance with insider trading laws, we have designated periods where Insiders can trade in our securities, which are described
below:
Trading Windows and Blackout Periods
•
You Can Only Trade in a Trading Window. Other than pursuant to a 10b5-1 Plan or a non-Rule 10b5-1 trading arrangement, Insiders
are allowed to trade our securities only during a trading window period, which opens after the close of trading on the second full trading
day following the widespread public release of our quarterly or year‑end operating results, and closes at the close of trading on the last
day of the last month of the Company’s fiscal quarter (the “Trading Window”). For example, if we publicly announce our quarterly
financial results after close of trading on a Monday (or before trading begins on a Tuesday), then the first time an Insider can trade our
securities is after the close of market on Wednesday (effectively at the opening of the market on Thursday for regular trading). However,
if we announce quarterly financial results after trading begins on that
Achieve Life Sciences, Inc.
Insider Trading Policy 6
Wednesday, then the first time the Insider can trade is after the close of market on Friday (effectively at the opening of the market on
Monday for regular trading).
•
Even During a Trading Window, You Are Not Allowed to Trade While in Possession of MNPI. Even during a Trading Window, you still
may not trade our securities if you possess MNPI at that time. An Insider who possesses MNPI during a Trading Window may only
trade our securities after the close of trading on the next full trading day following our widespread public release of that MNPI.
•
You Cannot Trade During a Blackout Period. Even during a Trading Window, our Compliance Officer, at his or her discretion, may
designate special trading restrictions (“Blackout Period”) that apply to specific individuals or groups of people (including all Insiders)
for as long as our Compliance Officer determines. No Insider subject to a Blackout Period may trade our securities during any such
Blackout Period. Additionally, no Insider subject to a Blackout Period is permitted to tell anyone not subject to the Blackout Period that
a Blackout Period has been designated or that one previously was in place because that also is confidential information that cannot be
disclosed internally or externally.
Permitted Trades Under 10b5‑1 Plans
We allow Insiders to trade in our securities while in possession of MNPI, outside of a Trading Window or during a Blackout Period, pursuant to a
“10b5-1 Plan.”
What Is a 10b5-1 Plan? A “10b5-1 Plan” is a written plan for selling or purchasing a predetermined number of shares that is entered into while an
Insider is not in possession of MNPI as contemplated in Rule 10b5-1.
How Do I Adopt a 10b5-1 Plan? We will engage a broker to administer our 10b5-1 Plans, and any 10b5-1 Plan that you adopt must be adopted
through that broker unless otherwise approved by our Compliance Officer. If you are interested in setting up a 10b5-1 Plan, you should consult
with our Compliance Officer and make sure that:
•
The 10b5-1 Plan complies with the requirements of Rule 10b5-1 under the Exchange Act and this Policy.
•
You have certified to our Compliance Officer in writing, no earlier than two business days prior to the date that the 10b5‑1 Plan is
formally adopted (and shall not have withdrawn such certification prior to such adoption), that as of such date and as of the adoption
date of the 10b5-1 Plan, (i) you are not and, to your knowledge, will not be, aware of MNPI, (ii) all trades to be made pursuant to the
10b5‑1 Plan will be in accordance with applicable SEC rules, (iii) you are adopting the 10b5‑1 Plan in good faith and not as part of a
plan or scheme to evade the prohibitions of Section 10(b) of the Exchange Act and Rule 10b-5 of the Exchange Act, and (iv) you will act
in good faith with respect to the 10b5-1 Plan throughout its duration. This certification may be made in an email to our Compliance
Officer. You must notify the Compliance Officer promptly via email and withdraw the certification if any changes of circumstances
prior to the adoption date of the 10b5-1 Plan have or will render such certification to be inaccurate as of that time.
Achieve Life Sciences, Inc.
Insider Trading Policy 7
•
The first trade under the 10b5-1 Plan does not occur (i) for a Section 16 Insider: until the later of (A) ninety (90) days after adoption of
the 10b5-1 Plan and (B) two (2) business days following the disclosure of the Company’s financial results in a Form 10-Q or Form 10-K
for the completed fiscal quarter in which the 10b5-1 Plan was adopted that discloses the Company’s financial results (but not to exceed
120 days following the adoption of the 10b5-1 Plan); and (ii) for persons other than Section 16 Insiders: thirty (30) days after adoption
of the 10b5-1 Plan, in each case, following our Compliance Officer’s approval of the 10b5-1 Plan. These waiting periods are collectively
referred to as the “Cooling-Off Period.”
•
The 10b5-1 Plan is not a single-trade 10b5-1 Plan adopted during the 12-month period immediately following the person’s adoption of
another single-trade 10b5-1 Plan, subject to the exceptions noted in Rule 10b5-1, which are provided for you in the Appendix.
•
The 10b5-1 Plan is adopted during a Trading Window and not during any Blackout Period.
•
A person may have no more than one 10b5-1 Plan adopted at any point in time (i.e., multiple concurrent or overlapping plans are
prohibited), subject to the exceptions noted in Rule 10b5-1, which are provided for you in the Appendix. One of these exceptions is for
plans authorizing certain “sell-to-cover” transactions.
Approval of a 10b5-1 Plan by our Compliance Officer and/or an acknowledgment of a 10b5-1 Plan by the Company shall not be considered a
determination by us, our Compliance Officer, or the Company that the 10b5-1 Plan satisfies the requirements of Rule 10b5-1.
How Do I Modify a 10b5-1 Plan? Once you have an approved 10b5-1 Plan in place, you will need approval from our Compliance Officer to make
certain changes to it. Modifying or changing the amount, price, or timing of the purchase or sale of our securities underlying the 10b5-1 Plan (or a
modification or change to a written formula or algorithm, or computer program that affects the amount, price, or timing of the purchase or sale of
such securities) (any such modification or change, a “Plan Modification”) will be deemed to be the same as terminating your existing 10b5-1 Plan
and entering into a new 10b5-1 Plan. As a result, the approval process for a Plan Modification is the same as the approval process for initially
adopting a 10b5-1 Plan, including being subject to a new Cooling-Off Period. We discourage you from making multiple Plan Modifications, as
that may give the appearance that you are trading on MNPI under the guise of that plan. Plan Modifications can only be made during a Trading
Window and not during any Blackout Period and only when you are not in possession of MNPI. For other modifications to a 10b5-1 Plan, you
must notify the Compliance Officer of such modification in writing at least two business days prior to the modification and such modification
must be approved by the Compliance Officer.
How Do I Terminate a 10b5-1 Plan? Once you have an approved 10b5-1 Plan in place, you will need approval from our Compliance Officer to
terminate it.
Other Trading Arrangements
Achieve Life Sciences, Inc.
Insider Trading Policy 8
Insiders are not allowed to enter into “non-Rule 10b5-1 trading arrangements” (as defined in Regulation S-K Item 408(c)) unless otherwise
approved in advance by the Compliance Officer.
THERE ARE SIGNIFICANT CONSEQUENCES
FOR VIOLATING INSIDER TRADING LAWS
The consequences of violating the insider trading laws can be severe. People who violate insider trading laws may be required to disgorge profits
made or losses avoided by trading, pay the loss suffered by the persons who purchased securities from or sold securities to the insider tippee, pay
civil fines of up to three times the profit made or loss avoided, pay a criminal penalty of up to $5 million for individuals and $25 million for
entities and serve a prison term of up to 20 years. In addition, individual directors, officers and other supervisory personnel may also be required
to pay major civil or criminal penalties for failure to take appropriate steps to prevent insider trading by those under their supervision, influence or
control.
CONSEQUENCES OF VIOLATING THIS POLICY
We may impose discipline on anyone violating this Policy, up to and including termination of employment, and we may issue stop transfer orders
to our transfer agent to prevent any attempted trades that would violate this Policy.
ADMINISTRATION
The Compliance Officer will administer and interpret this Policy and enforce compliance as needed. The Compliance Officer may consult with
the Company’s outside legal counsel as needed. The Compliance Officer may designate other individuals to perform the Compliance Officer’s
duties under this Policy.
Neither the Company nor the Compliance Officer will be liable for any act made under this Policy. Neither the Company nor the Compliance
Officer is responsible for any failure to approve a trade or for imposing any Blackout Period.
REPORTING VIOLATIONS
Any Insider who violates this Policy or any federal or state laws governing insider trading or tipping, or who knows of any such violation by any
other Insider, must report the violation immediately to our Compliance Officer. To anonymously submit a concern or complaint regarding a
possible violation of this Policy, you should follow the procedures outlined in our Whistleblower Policy. Anyone who violates this Policy may be
subject to disciplinary measures, which may include termination of employment.
CHANGES TO THIS POLICY
Our Board reserves the right in its sole discretion to modify or grant waivers to this Policy. Any amendments or waiver may be publicly disclosed
if required by applicable laws, rules and regulations. For the avoidance of doubt, unless explicitly stated by the Board, any waiver, amendment or
modification of the Policy by the Board shall not be considered a waiver of the Company’s Code of Conduct & Ethics.
Achieve Life Sciences, Inc.
Insider Trading Policy 9
EFFECTIVE DATE
The effective date of this Policy is August 15, 2023. The amendments to this Policy would not apply to any existing 10b5-1 Plan that was entered
into prior to February 27, 2023, except to the extent that a Plan Modification is made to such plan after February 27, 2023.
Achieve Life Sciences, Inc.
Insider Trading Policy A-1
EXHIBIT A
Designated Insiders
All Vice President level employees and above
All members of the Clinical Department
All members of the Regulatory Affairs and Biometrics Departments
All members of the CMC and QA Departments
All members of the Administration, IT, Legal, Finance and Accounting Departments
Appendix
Exceptions to the Multiple, Overlapping 10b5-1 Plan Restriction
Such exceptions are:
•
An eligible “sell-to-cover” 10b5-1 Plan where such plan authorizes an agent to sell only such securities as are necessary to satisfy tax
withholding obligations arising exclusively from the vesting of a compensatory award, such as restricted stock or stock appreciation
rights, and the Insider does not otherwise exercise control over the timing of such sales. For the avoidance of doubt, this exception does
not extend to sales incident to the exercise of option awards.
•
A series of separate contracts with different broker-dealers or other agents acting on behalf of the person (other than the Company) to
execute trades thereunder may be treated as a single 10b5-1 Plan, provided that the individual constituent contracts with each broker-
dealer or other agent, when taken together as a whole, meet all of the applicable conditions of and remain collectively subject to the
provisions of Rule 10b5-1, including that a modification of any individual contract acts as modification of the whole 10b5-1 Plan, as
defined in Rule 10b5-1(c)(1)(iv). The substitution of a broker-dealer or other agent acting on behalf of the person (other than the
Company) for another broker-dealer that is executing trades pursuant to a 10b5-1 Plan shall not be a “Plan Modification” as long as the
purchase or sales instructions applicable to the substitute and substituted broker are identical with respect to the prices of securities to be
purchased or sold, dates of the purchases or sales to be executed, and amount of securities to be purchased or sold.
•
One later-commencing 10b5-1 Plan for purchases or sales of any securities of the Company on the open market under which trading is
not authorized to begin until after all trades under the earlier-commencing 10b5-1 Plan are completed or expired without execution.
However, the first trade under such later-commencing 10b5-1 Plan must be scheduled after the “Effective Cooling-Off Period,” or the
Cooling-Off Period that would be applicable to the later-commencing 10b5-1 Plan if the date of adoption of the later-commencing 10b5-
1 Plan were deemed to be the date of termination of the earlier-commencing 10b5-1 Plan.
Exceptions to the Single-Trade 10b5-1 Plan Restriction
There is an exception for eligible “sell-to-cover” 10b5-1 Plans where the plan authorizes an agent to sell only such securities as are necessary to
satisfy tax withholding obligations arising exclusively from the vesting of a compensatory award, such as restricted stock or stock appreciation
rights, and the Insider does not otherwise exercise control over the timing of such sales.
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Achieve Life Sciences Technologies Inc., incorporated under the federal laws of Canada
Achieve Life Science Inc., a Delaware Corporation
Extab Corporation, a Delaware Corporation
Achieve Pharma UK Limited, a Limited Company in the United Kingdom
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-168820, 333-190480, 333-197937, 333-206569,
333- 221473, 333-228253, 333-231520, 333-236059, 333-238505, 333-254156, 333-263421, 333-270625, 333-278335, 333-283630 and 333-284208), Form S-
1 (File Nos. 333-228596, 333-232817, 333-234530, 333-238970, 333-250074 and 333-251088) and Form S-3 (File Nos. 333-261811, 333-269059, 333-278961,
333-280585 and 333-283070) of Achieve Life Sciences, Inc. of our report dated March 11, 2025 relating to the financial statements, which appears in this Form
10-K.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, Canada
March 11, 2025
Exhibit 31.1
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
I, Richard Stewart, certify that:
1. I have reviewed this annual report on Form 10-K of Achieve Life Sciences, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 11, 2025
/s/ RICHARD STEWART
Richard Stewart
Chief Executive Officer (Principal Executive Officer)
Exhibit 31.2
Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
I, Mark Oki, certify that:
1. I have reviewed this annual report on Form 10-K of Achieve Life Sciences, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over
financial reporting.
Date: March 11,2025
/s/ MARK OKI
Mark Oki
Chief Financial Officer (Principal Financial Officer)
Exhibit 32.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Richard Stewart, Chief Executive Officer and Principal Executive Officer of Achieve Life Sciences, Inc. (the “Company”), certify, pursuant to Rule 13a-14(b) or
Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, that:
(1) the Annual Report on Form 10-K of the Company for the year ended December 31, 2024 (the “Report”) fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 780(d)); and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 11, 2025
/s/ RICHARD STEWART
Richard Stewart
Chief Executive Officer (Principal Executive Officer)
Exhibit 32.2
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Mark Oki, Chief Financial Officer and Principal Financial Officer of Achieve Life Sciences, Inc. (the “Company”), certify, pursuant to Rule 13a-14(b) or Rule 15d-
14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, that:
(1) the Annual Report on Form 10-K of the Company for the year ended December 31, 2024 (the “Report”) fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 780(d)); and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 11, 2025
/s/ MARK OKI
Mark Oki
Chief Financial Officer (Principal Financial Officer)