August 11, 2022 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-35776

______________________________________

Acasti Pharma Inc.

(Exact name of registrant as specified in its charter)

______________________________________


Québec, Canada	98-1359336
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

3009 boul. de la Concorde East, Suite 102

Laval, Québec, Canada H7E 2B5

(Address of principal executive offices, including zip code)

450-686-4555

(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 each exchange on which registered
Common Shares, no par value per share	ACST	NASDAQ Stock Market

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 is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒

The number of outstanding common shares of the registrant, no par value per share, as of August 11, 2022, was 44,494,193.

ACASTI PHARMA INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended June 30, 2022

Table of Contents


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	36

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults upon Senior Securities	37

Item 4.	Mine Safety Disclosures	37

Item 5.	Other Information	37

Item 6.	Exhibits	38

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report contains information that may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and forward-looking information within the meaning of Canadian securities laws, both of which we refer to in this quarterly report as forward-looking statements. Forward-looking statements can be identified by the use of terms such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue” or other similar expressions concerning matters that are not statements about the present or historical facts. Forward-looking statements in this quarterly report include, among other things, information or statements about:

•

our ability to build a premier, late-stage specialty pharmaceutical company focused on rare and orphan disease and on developing and commercializing products that improve clinical outcomes using our novel drug delivery technologies;

•

our ability to apply new proprietary formulations to existing pharmaceutical compounds to achieve enhanced efficacy, faster onset of action, reduced side effects, and more convenient drug delivery that can result in increased patient compliance;

•

the potential for our drug candidates to receive orphan drug designation from the U.S. Food and Drug Administration (“FDA”) or regulatory approval under the Section 505(b)(2) regulatory pathway under the Federal Food, Drug and Cosmetic Act;

•

the future prospects of our GTX-104 drug candidate, including but not limited to GTX-104’s potential to be administered to improve the management of hypotension in patients with subarachnoid hemorrhage (“SAH”); GTX-104’s potential to reduce the incidence of vasospasm in SAH patients resulting in better outcomes; GTX-104’s potential to provide improved bioavailability and the potential for reduced use of rescue therapies, such as vasopressors in patients with SAH; and the timing and outcome of the Phase 3 safety study for GTX-104; our ability to ultimately file a new drug application (“NDA”) for GTX-104 under Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act; and the timing and ability to receive FDA approval for marketing GTX-104;

•

the future prospects of our GTX-101 drug candidate, including but not limited to GTX-101’s potential to be administered to postherpetic neuralgia (“PHN”) patients to treat the severe nerve pain associated with the disease; assumptions about the biphasic delivery mechanism of GTX-101, including its potential for rapid onset and continuous pain relief for up to eight hours; and the timing and outcomes of single ascending dose/multiple ascending dose PK bridging studies, and a Phase 2 and Phase 3 efficacy and safety studies; the timing of an NDA filing under Section 505(b)(2) for GTX-101; and the timing and ability to receive FDA approval for marketing GTX-101;

•

the future prospects of our GTX-102 drug candidate, including but not limited to GTX-102’s potential to provide clinical benefits to decrease symptoms associated with Ataxia Telangiectasia (“A-T”); GTX-102’s potential ease of drug administration; the timing and outcomes of a PK bridging study and a Phase 3 efficacy and safety study for GTX-102; the timing of an NDA filing under Section 505(b)(2) in connection with GTX-102; and the ability to receive FDA approval for marketing GTX-102;

•

the quality of our clinical data, the cost and size of our development programs, expectations and forecasts related to our target markets and the size of our target markets; the cost and size of our commercial infrastructure and manufacturing needs in the United States, European Union, and the rest of the world; and our expected use of a range of third-party contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”) at multiple locations;

•

expectations and forecasts related to our intellectual property portfolio, including but not limited to the probability of receiving orphan drug designation from the FDA for our leading pipeline products; our patent portfolio strategy; and outcomes of our patent protection filings;

•

our strategy, future operations, prospects and the plans of our management with a goal to enhance shareholder value following our recent merger with Grace Therapeutics Inc. (“Grace”);

•

our intellectual property position and duration of our patent rights;

•

the potential adverse effects that the COVID-19 pandemic may have on our business and operations;

•

our need for additional financing, and our estimates regarding our operating runway and timing for future financing and capital requirements;

•

our expectation regarding our financial performance, including our costs and expenses, liquidity, and capital resources;

•

our projected capital requirements to fund our anticipated expenses; and

•

our ability to establish strategic partnerships or commercial collaborations or obtain non-dilutive funding.

Although the forward-looking statements in this quarterly report are based upon what we believe are reasonable assumptions, you should not place undue reliance on those forward-looking statements since actual results may vary materially from them. Important assumptions made by us when making forward-looking statements include, among other things, assumptions by us that:

•

we are able to attract and retain key management and skilled personnel;

•

third parties provide their services to us on a timely and effective basis;

•

we are able to take advantage of new business opportunities in the pharmaceutical industry;

•

we are able to secure and defend our intellectual property rights, and to avoid infringing upon the intellectual property rights of third parties;

•

the shareholder litigation relating to our merger with Grace is resolved in a manner favorable to us and we face no additional lawsuits or other proceedings, or any such matters, if they arise, are satisfactorily resolved;

•

there are no material adverse changes in relevant laws or regulations; and

•

we are able to obtain the additional capital and financing we require when we need it.

In addition, the forward-looking statements in this quarterly report are subject to a number of known and unknown risks, uncertainties and other factors many of which are beyond our control, that could cause our actual results and developments to differ materially from those that are disclosed in or implied by the forward-looking statements, including, among others:

•

We may not achieve our publicly announced milestones on time, or at all.

•

We are heavily dependent on the success of our lead drug candidates, GTX-104, GTX-102 and GTX-101.

•

Our future results will suffer if we do not effectively manage our expanded operations.

•

We may not be able to maintain our operations and advance our research and development and commercialization of our lead drug candidates without additional funding.

•

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

•

We may be subject to foreign exchange rate fluctuations.

•

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

•

Lawsuits have been filed against us and members of our board of directors challenging the Grace merger, and other lawsuits may be filed and any adverse ruling in any such lawsuit may result in an award of damages against us.

•

Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.

•

We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations and our ability to compete.

•

We may face future product liability, and if claims are brought against us, we may incur substantial liability.

•

We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively.

•

Even if our drug candidates receive regulatory approval in the United States, we may never obtain regulatory approval or successfully commercialize our products outside of the United States.

•

We are subject to uncertainty relating to healthcare reform measures and reimbursement policies which, if not favorable to our drug candidates, could hinder or prevent our drug candidates’ commercial success.

•

Our commercial success depends upon attaining significant market acceptance of our drug products and drug candidates, if approved, among physicians, nurses, pharmacists, patients and the medical community.

•

Guidelines and recommendations published by government agencies can reduce the use of our drug candidates and negatively impact our ability to gain market acceptance and market share.

•

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our drug products, if approved, we may be unable to generate any revenue.

•

If we obtain approval to commercialize any approved drug products outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

•

If we are unable to differentiate our drug products from branded reference drugs or existing generic therapies for similar treatments, or if the FDA or other applicable regulatory authorities approve products that compete with any of our drug products, our ability to successfully commercialize our drug products would be adversely affected.

•

We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

•

We could incur substantial costs and disruption to our business and delays in the launch of our drug products if our competitors and/or collaborators bring legal actions against us, which could harm our business and operating results.

•

The COVID-19 pandemic, or a similar pandemic, epidemic, or outbreak of an infectious disease, may materially and adversely affect our business and our financial results and could cause a disruption to the development of our drug candidates.

•

We are subject to numerous complex regulatory requirements and failure to comply with these regulations, or the cost of compliance with these regulations, may harm our business.

•

If the FDA does not conclude that our drug candidates satisfy the requirements for the 505(b)(2) regulatory approval pathway, or if the requirements for approval of any of our drug candidates under Section 505(b)(2) are not as we expect, the approval pathway for our drug candidates will likely take longer, cost more and we could encounter significantly greater complications and risks than anticipated, and in any case may not be successful.

•

Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. Failure can occur at any stage of clinical development.

•

Delays in clinical trials are common and have many causes, and any delay could result in increased costs to us and could jeopardize or delay our ability to obtain regulatory approval and commence product sales. We may also find it difficult to enroll patients in our clinical trials, which could delay or prevent development of our drug candidates.

•

Our drug products or drug candidates may cause adverse effects or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance, or result in significant negative consequences following marketing approval, if any.

•

The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our drug candidates, our business will be substantially harmed.

•

An NDA submitted under Section 505(b)(2) subjects us to the risk that we may be subject to a patent infringement lawsuit that would delay or prevent the review or approval of our drug candidate. The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.

•

Our drug development strategy relies heavily upon the 505(b)(2) regulatory pathway, which requires us to certify that we do not infringe upon third-party patents covering approved drugs. Such certifications often result in third-party claims of intellectual property infringement, the defense of which can be costly and time consuming, and an unfavorable outcome in any such litigation may prevent or delay our development and commercialization efforts, which would harm our business.

•

Our business is subject to extensive regulatory requirements and our drug candidates that obtain regulatory approval will be subject to ongoing and continued regulatory review, which may result in significant expense and limit our ability to commercialize such products.

•

Our employees, independent contractors, principal investigators, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.

•

Any relationships with healthcare professionals, principal investigators, consultants, customers (actual and potential) and third-party payors are and will continue to be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, marketing expenditure tracking and disclosure, or sunshine laws, government price reporting and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face penalties, including, without limitation, civil, criminal, and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations.

•

We are required to obtain regulatory approval for each of our drug candidates in each jurisdiction in which we intend to market such drug products, and the inability to obtain such approvals would limit our ability to realize their full market potential.

•

If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in that litigation would have a material adverse effect on our business.

•

We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties.

•

Our success depends in part upon our ability to protect our intellectual property for our drug candidates, such as GTX-104, GTX-102 and GTX-101.

•

If we fail to comply with our obligations in the agreements under which we license rights to technology from third parties, or if the license agreements are terminated for other reasons, we could lose license rights that are important to our business.

•

We may be subject to claims challenging our inventorship or ownership of our patents and other intellectual property.

•

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

•

Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect any of our other future drug products and drug candidates.

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We may not be able to protect our intellectual property rights throughout the world.

•

If our estimates or judgments relating to our critical accounting policies for intangible assets prove to be incorrect, impairment charges could result.

•

We do not have internal manufacturing capabilities, and if we fail to develop and maintain supply relationships with various third-party manufacturers, we may be unable to develop or commercialize our drug candidates.

•

Our contract manufacturers may encounter manufacturing failures that could delay the clinical development or regulatory approval of our drug candidates, or their commercial production, if approved.

•

We rely on third parties to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our drug candidates and our business could be substantially harmed.

•

We rely on third parties to manufacture commercial and clinical supplies of our drug candidates, and we intend to rely on third parties to manufacture commercial supplies of any approved drug products. The commercialization of any of our drug products could be stopped, delayed, or made less profitable if those third parties fail to provide us with sufficient quantities of active pharmaceutical ingredients, excipients, or drug products, or fail to do so at acceptable quality levels or prices or fail to maintain or achieve satisfactory regulatory compliance.

•

The design, development, manufacture, supply, and distribution of our drug candidates are highly regulated and technically complex.

•

We may not be successful in establishing development and commercialization collaborations which could adversely affect, and potentially prevent, our ability to develop our drug candidates.

•

We may not be successful in maintaining development and commercialization collaborations, and any partner may not devote sufficient resources to the development or commercialization of our drug candidates or may otherwise fail in development or commercialization efforts, which could adversely affect our ability to develop certain of our drug candidates and our financial condition and operating results.

•

There is a significant risk that we may be classified as a PFIC for U.S. federal income tax purposes.

•

We may not be able to use our net operating loss carry forwards to offset future taxable income for Canadian or U.S. federal income tax purposes.

•

The IRS may not agree that we should be treated as a foreign corporation for U.S. federal tax purposes.

•

We do not expect to pay any cash dividends for the foreseeable future.

•

The price of our common shares may be volatile.

•

Raising additional capital in the future may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies or drug candidates.

•

The market price of our common shares could decline if our operating results fall below the expectations of investors or fluctuate.

•

There can be no assurance that an active market for our common shares will be sustained.

•

If we fail to meet applicable listing requirements, the NASDAQ Stock Market or the TSX Venture Exchange may delist our common shares from trading, in which case the liquidity and market price of our common shares could decline.

•

We may pursue opportunities or transactions that adversely affect our business and financial condition.

•

We are a “smaller reporting company” under the U.S. Securities and Exchange Commission’s (“SEC’s”) disclosure rules and have elected to comply with the reduced disclosure requirements applicable to smaller reporting companies.

•

As a non-accelerated filer, we are not required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act.

•

We are a Québec incorporated company headquartered in Canada, and U.S. investors may be unable to enforce certain judgments against us.

All of the forward-looking statements in this quarterly report are qualified by this cautionary statement. There can be no guarantee that the results or developments that we anticipate will be realized or, even if substantially realized, that they will have the consequences or effects on our business, financial condition, or results of operations that we anticipate. As a result, you should not place undue reliance on the forward-looking statements. Except as required by applicable law, we do not undertake to update or amend any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements are made as of the date of this quarterly report.

We express all amounts in this quarterly report in U.S. dollars, except where otherwise indicated. References to “$” and “U.S.$” are to U.S. dollars and references to “C$” or “CAD$” are to Canadian dollars.

Except as otherwise indicated, references in this quarterly report to “Acasti,” “the Corporation,” “we,” “us” and “our” refer to Acasti Pharma Inc. and its consolidated subsidiaries, including Acasti Pharma U.S., which is formerly Grace.

PART I. FINANCIAL INFORMATION

Item 1: Financial Information

Unaudited Condensed Consolidated Interim Financial Statements


Condensed Consolidated Interim Balance Sheets		9

Condensed Consolidated Interim Statements of Loss and Comprehensive Loss		10

Condensed Consolidated Interim Statements of Changes Shareholders’ Equity		11

Condensed Consolidated Interim Statements of Cash Flows		12

Notes to the Condensed Consolidated Interim Financial Statements		13

Condensed Consolidated Interim Financial Statements of
(Unaudited)

ACASTI PHARMA INC.

Three Months ended June 30, 2022 and 2021

ACASTI PHARMA INC.

Condensed Consolidated Interim Balance Sheet

(Unaudited)


		June 30, 2022			March 31, 2022
(Expressed in thousands of U.S. dollars except share data)	Notes	$			$
Assets

Current assets:
Cash and cash equivalents			38,377			30,339
Short-term investments	5		16			13,322
Receivables			964			548
Assets held for sale	6		352			352
Prepaid expenses			1,539			720
Total current assets			41,248			45,281

Right of use asset			819			315
Equipment			90			250
Intangible assets	4		69,810			69,810
Goodwill	4		12,964			12,964
Total assets			124,931			128,620

Liabilities and shareholders’ equity
Current liabilities:
Trade and other payables			3,062			3,156
Lease liability			645			104
Total current liabilities			3,707			3,260

Derivative warrant liabilities			—			10
Lease Liability			174			191
Deferred tax liability			16,647			16,889
Total liabilities			20,528			20,350

Shareholders’ equity:
Common shares	4,7(a)		258,185			257,990
Additional paid-in capital			12,618			12,154
Accumulated other comprehensive loss			(6,039	)		(6,037	)
Accumulated deficit			(160,361	)		(155,837	)
Total shareholder’s equity			104,403			108,270

Commitments and contingencies	12

Total liabilities and shareholders’ equity			124,931			128,620

See accompanying notes to unaudited Interim financial statements.

ACASTI PHARMA INC.

Condensed Consolidated Interim Statements of Loss and Comprehensive Loss

(Unaudited)

Three Months ended June 30, 2022 and 2021


		Three-month ended
		June 30, 2022			June 30, 2021
(Expressed in thousands of U.S dollars, except per share data)	Notes	$			$

Operating expenses
Research and development expenses, net of government assistance	8		(2,590	)		(469	)
General and administrative expenses			(1,919	)		(2,676	)
Sales and marketing expenses			(221	)		—
Loss from operating activities			(4,730	)		(3,145	)
Financial income (expenses)	9		(36	)		27
Loss before income tax recovery			(4,766	)		(3,118	)

Income tax recovery			242			—

Net loss and total comprehensive loss			(4,524	)		(3,118	)

Basic and diluted loss per share			(0.10	)		(0.12	)

Weighted average number of shares outstanding			44,328,049			26,046,950

See accompanying notes to unaudited interim financial statements

ACASTI PARMA INC.

Condensed Consolidated Interim Statements of Changes in Shareholder’s Equity

(Unaudited)

Three Months ended June 30, 2022 and 2021


			Common Shares
(Expressed in thousands of U.S. dollars except share data)	Notes		Number		Dollar		Additional paid-in capital		Accumulated other comprehensive loss			Accumulated deficit			Total
					$		$		$			$			$
Balance, March 31, 2022		1		44,288,183		257,990		12,154		(6,037	)		(155,837	)		108,270
Net loss and total comprehensive loss for the period				—		—		—		—			(4,524	)		(4,524	)
Cumulative translation adjustment				—		—		—		(2	)		—			(2	)
Net proceeds from shares issued under the at-the-market (ATM) program				206,010		195		—		—			—			195
Stock based compensation		10		—		—		464		—			—			464
Balance at June 30, 2022				44,494,193		258,185		12,618		(6,039	)		(160,361	)		104,403


		Common Shares
(Expressed in thousands of US dollars except for share data)	Notes	Number		Dollar		Additional paid-in capital		Accumulated other comprehensive loss			Accumulated deficit			Total
				$		$		$			$			$
Balance, March 31, 2021			26,046,950		197,194		10,817		(6,333	)		(146,018	)		55,660
Net loss and total comprehensive loss for the period			—		—		—		—			(3,118	)		(3,118	)
Cumulative translation adjustment			—		—		—		762			—			762
Stock based compensation	10		—		—		153		—			—			153
Balance at June 30, 2021			26,046,950		197,194		10,970		(5,571	)		(149,136	)		53,457

ACASTI PHARMA INC.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited)

Three Months ended June 30, 2022 and 2021


		Three Months ended
		June 30, 2022			June 30, 2021
(thousands of U.S. dollars)	Notes	$			$
Cash flows used in operating activities:
Net loss for the period			(4,524	)		(3,118	)
Adjustments:
Depreciation of equipment			167			—
Stock-based compensation	10		464			153
Change in fair value of warrant liabilities			(10	)		(643	)
Income tax recovery			(242	)		—
Unrealized foreign exchange (gain) loss			(10	)		740
Changes in non-cash working capital items	11		(1,271	)		(533	)
Net cash used in operating activities			(5,426	)		(3,401	)

Cash flows from (used in) investing activities:
Acquisition of equipment			(7	)		—
Acquisition of short-term investments			(16	)		(8,301	)
Maturity of short-term investment			13,281			1,374
Net cash from (used in) investing activities			13,258			(6,927	)

Cash flows from (used in) financing activities:
Net proceeds from issuance of common shares under the at-the-market (ATM)	(7a)		195			—
Net cash from (used in) financing activities			195			—

Effect of exchange rate fluctuations on cash and cash equivalents			(40	)		(511	)
Translations effects on cash and cash equivalents related to reporting currency			51			872

Net increase (decrease) in cash and cash equivalents			8,038			(9,967	)
Cash and cash equivalents, beginning of period			30,339			50,942
Cash and cash equivalents, end of period			38,377			40,975

Cash and cash equivalents are comprised of:
Cash			38,377			40,975
Cash equivalents			—			—

See accompanying notes to unaudited interim financial statements.

ACASTI PHARMA INC.

Notes to Condensed Consolidated Interim Financial Statements

(Unaudited)

(Expressed in thousands of U.S. dollars except share data)

Three Months ended June 30, 2022 and 2021

1. Nature of operation

Acasti Pharma Inc. (“Acasti” or the “Corporation”) is incorporated under the Business Corporations Act (Québec) (formerly Part 1A of the Companies Act (Québec)). The Corporation is domiciled in Canada and its registered office is located at 3009 boul. de la Concorde East, Suite 102, Laval, Québec, Canada H7E 2B5.

In August 2021, the Corporation completed the acquisition via a share-for-share merger of Grace Therapeutics, Inc. (“Grace”), a privately held emerging biopharmaceutical company focused on developing innovative drug delivery technologies for the treatment of rare and orphan diseases. The post-merger Corporation is focused on building a late-stage specialty pharmaceutical company specializing in rare and orphan diseases and developing and commercializing products that improve clinical outcomes using our novel drug delivery technologies. The Corporation seeks to apply new proprietary formulations to existing pharmaceutical compounds to achieve enhanced efficacy, faster onset of action, reduced side effects, more convenient delivery and increased patient compliance; all of which could result in improved patient outcomes. The active pharmaceutical ingredients chosen by the Corporation for further development may be already approved in the target indication or could be repurposed for use in new indications.

The Corporation has incurred operating losses and negative cash flows from operations in each year since its inception. The Corporation expects to incur significant expenses and continued operating losses for the foreseeable future. The Corporation expects its expenses will increase substantially in connection with its ongoing activities, particularly as it advances clinical development for the first three drug candidates in the Corporation’s pipeline; continues to engage contract manufacturing organizations (“CMOs”) to manufacture its clinical study materials and to ultimately develop large-scale manufacturing capabilities in preparation for commercial launch; seeks regulatory approval for its drug candidates; and adds personnel to support its drug product development and future drug product launch and commercialization.

The Corporation does not expect to generate revenue from product sales unless and until it successfully completes drug development and obtains regulatory approval, which the Corporation expects will take several years and is subject to significant uncertainty. To date, the Corporation has financed its operations primarily through public offerings and private placements of its common shares, warrants and convertible debt and the proceeds from research tax credits. Until such time that the Corporation can generate significant revenue from drug product sales, if ever, it will require additional financing, which is expected to be sourced from a combination of public or private equity or debt financings or other non-dilutive sources, which may include fees, milestone payments and royalties from collaborations with third parties. Arrangements with collaborators or others may require the Corporation to relinquish certain rights related to its technologies or drug product candidates. Adequate additional financing may not be available to the Corporation on acceptable terms, or at all. The Corporation’s inability to raise capital as and when needed would have a negative impact on its financial condition and its ability to pursue its business strategy.

The Corporation remains subject to risks similar to other development stage companies in the biopharmaceutical industry, including compliance with government regulations, protection of proprietary technology, dependence on third party contractors and consultants and potential product liability, among others.

Reverse stock split

On August 26, 2021, the shareholders of the Corporation approved a resolution to undertake a reverse split of the common stock within a range of 1-6 to 1-8 with such specific ratio to be approved by the Acasti Board. All references in these financial statements to number of common shares, warrants and options, price per share and weighted average number of shares outstanding prior to the reverse split have been adjusted to reflect the approved reverse stock split of 1-8, which was made effective on August 31, 2021, on a retroactive basis as of the earliest period presented.

2. Summary of significant accounting policies:

Basis of presentation

These unaudited Consolidated Interim Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and on a basis consistent with those accounting principles followed by the Corporation and disclosed in note 2 of its most recent Annual Consolidated Financial Statements, except as disclosed in note 3 – Recent accounting pronouncements and policies and should be read in conjunction with such statements and notes thereto.

Functional currency

On April 1, 2022, the Corporation’s functional currency was changed from the Canadian dollar to the US dollar. This change is reflected prospectively in the Corporation’s financial statements.

FASB ASC Topic 830, “Functional Currency Matters,” requires a change in functional currency to be reported as of the date it is determined there has been a change, and it is generally accepted practice that the change is made at the start of the most recent period that approximates the date of the change. Management determined it would enact this change effective on April 1, 2022. While the change was based on a factual assessment, the determination of the date of the change required management’s judgement given the change in the Corporations primary economic and business environment, which has evolved over time. As part of management’s functional currency assessment, changes in economic facts and circumstances were considered. This included analysis of changes in: impact of the merger with Grace Therapeutics, management of operations, and in the composition of cash and short term investment

balances. Additionally, budgeting is in USD, whereas this was previously performed in CAD. The Corporations cash outflows consist primarily of USD cash balances and less of CAD, as also reflected in the budget.

Use of estimates

The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income, and expenses. Actual results may differ from these estimates.

Estimates are based on management’s best knowledge of current events and actions that management may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Estimates and assumptions include the measurement of derivative warrant liabilities (note 7), stock-based compensation (note 10), assets held for sale (note 6), supply agreement (note 12), valuation of intangibles (note 4). Estimates and assumptions are also involved in measuring the accrual of services rendered with respect to research and development expenditures at each reporting date, including whether contingencies should be accrued for, as well as in determining which research and development expenses qualify for investment tax credits and in what amounts. The Corporation recognizes the tax credits once it has reasonable assurance that they will be realized. Recorded tax credits are subject to review and approval by tax authorities and, therefore, could be different from the amounts recorded.

3. Recent accounting pronouncements

The Corporation has considered recent accounting pronouncements and concluded that they are either not applicable to the business or that the effect is not expected to be material to the consolidated financial statements as a result of future adoption.

4. Intangible assets

On August 27, 2021, the Corporation completed its acquisition of all outstanding equity interests in Grace Therapeutics Inc, via a merger. Grace, based in New Jersey and organized under the laws of Delaware, was a rare and orphan disease specialty pharmaceutical company.

In connection with the share-for-share noncash transaction, Grace was merged with a new wholly owned subsidiary of Acasti and became a subsidiary of Acasti. As a result, Acasti acquired Grace’s entire therapeutic pipeline consisting of three unique clinical stage and multiple pre-clinical stage assets supported by an intellectual property portfolio consisting of various granted and pending patents in various jurisdictions worldwide. Under the terms of the acquisition, each issued and outstanding share of Grace common stock was automatically converted into the right to receive Acasti common shares equal to the equity exchange ratio set forth in the merger agreement.

Intangible assets of $69,810 relate to the value of IPR&D, related to Grace’s therapeutic pipeline, consisting of three unique clinical stage programs/assets supported by intellectual property, the value of which has been attributed as follows:


	$
Intangible assets – in-process research and development
GTX-104		27,595
GTX-102		31,908
GTX-101		10,307
Total		69,810

5. Short-term investments

The Corporation holds various marketable securities, with maturities greater than 3 months at the time of purchase, as follows:


	June 30, 2022		March 31, 2022
	$		$
Term deposits issued in US currency earning interest at 0.20% and maturing on April 1, 2022		—		11,893
Term deposits issued in CAD currency earning interest at ranges between 0.50% and 0.58% and maturing on various dates from April 1, 2022 to March 30, 2023		16		1,429
Total short-term investments		16		13,322

6. Assets held for sale

During the period, the Corporation determined to actively market for sale Other assets and Production equipment and has met the criteria for classification of assets held for sale:


	June 30, 2022		March 31, 2022
			Reclassed as explained below
	$		$
Other assets (a)		195		195
Production equipment (b)		157		157
		352		352

a. Other assets

Other assets represent krill oil (“RKO”) held by the Corporation that was expected to be used in commercial inventory scale up related to the development and commercialization of the CaPre drug candidate. Given that the development of CaPre will no longer be pursued by Acasti, the Corporation is expected to sell this reserve. The other asset is being recorded at the fair value less cost to sell. Management’s estimate of the fair value of the RKO less cost to sell is based primarily on estimated market prices obtained from an appraiser specializing in the krill oil market. These projections are based on Level 3 inputs of the fair value hierarchy and reflect management’s best estimate of market participants’ pricing of the assets as well as the general condition of the asset.

b. Production equipment

June 30, 2022

Cost, net of
impairment

Accumulated
depreciation

Net book
value

$

$

Form: 10-Q

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