Item 1. Business
Item 1.
Business
Overview
We are a biopharmaceutical
innovator that has historically focused on the research, development and commercialization of cardiometabolic prescription drugs using
omega-3, or OM3 fatty acids delivered both as free fatty acids and bound-to-phospholipid esters, derived from krill oil. OM3 fatty acids
have extensive clinical evidence of safety and efficacy in lowering triglycerides in patients with hypertriglyceridemia, or HTG. Our lead
product candidate was CaPre, an OM3 phospholipid therapeutic. As a result of disappointing results from our two TRILOGY phase 3 trials,
we publicly disclosed that our board had commenced a formal process to explore and evaluate a range of strategic alternatives to enhance
shareholder value, and that it had engaged Oppenheimer & Co. as its financial advisor to assist in that process. Since that announcement,
we continue to maintain an active pharmaceutical development business, including retaining key research and development, finance and administrative
personnel. We have completed a pooled analysis of the TRILOGY data and we have prepared a manuscript for publication, which has been submitted
to a major journal. We continue to manage ongoing regulatory filing obligations with the Federal Drug Administration, or the FDA, and,
evaluate potential strategic partnerships for the continued clinical development of CaPre. We also continue to maintain and further develop
valuable CaPre assets including additional patent filings and ongoing prosecutions, and maintenance of our commercial manufacturing equipment.
Since September 2020, we increased our available cash by approximately $54.4 million through financing activities, which has served to
strengthen Acasti’s balance sheet while providing additional flexibility and leverage while we worked through our strategic evaluation
process and advancement of a potential commercial partnership for CaPre. On May 7, 2021, we announced our intent to acquire Grace through
an acquisition. Grace is a New Jersey-based life sciences company focused on novel and innovative drug delivery technologies designed
to improve clinical outcomes in rare and orphan disease treatments. Grace’s scientific and product development efforts are focused
in cardiovascular, central nervous system and gastrointestinal disorders.
Recent Developments
TRILOGY 1 & 2 Topline Results
Our two Phase 3 clinical trials, designated as
TRILOGY 1 & 2 randomized a total of 242 and 278 patients respectively, and were designed to evaluate the efficacy, safety and tolerability
of CaPre in patients with severe hypertriglyceridemia. The top-line results were announced on January 13, 2020, and August 31, 2020 respectively,
and neither TRILOGY 1 nor TRILOGY 2 met their primary endpoint for lowering triglycerides at 12 weeks. CaPre was well tolerated in TRILOGY,
with a safety profile similar to placebo, and consistent with our previously conducted Phase 2 and 3 studies. Given the outcome of the
TRILOGY studies we will not file a New Drug Application (NDA) with the U.S. Food and Drug Administration (FDA) for patients with severe
hypertriglyceridemia, and we do not plan to conduct additional clinical trials for CaPre. Instead, we plan to continue to advance discussions
with third parties who are interested in pursuing clinical development and regulatory approval for CaPre.
Engaged Oppenheimer & Co. Inc. to Assist in Strategic Review
On September 29, 2020, we announced that we had commenced a formal process
to explore and evaluate strategic alternatives to enhance shareholder value. Towards this end, we engaged Oppenheimer & Co., Inc.
as our financial advisor to assist in the process. We have devoted significant time and resources to identifying and evaluating strategic
alternatives, which led to the announced pending transaction with Grace. However, there can be no assurance that our proposed merger with
Grace will close, or of the timing of any such outcome. We have also devoted significant time and resources to identify and evaluate potential
strategic partnerships for CaPre; however, there can be no assurance that such activities will result in any agreements or transactions
that will enhance shareholder value. We do not intend to make any further disclosures regarding the strategic process for CaPre unless
and until a specific course of action is approved by our board of directors.
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Definitive Agreement to Acquire Grace Therapeutics, Inc .
On May 7, 2021, we announced a definitive agreement
to acquire Grace. Subject to the completion of the Proposed Transaction, we will acquire Grace’s pipeline of drug candidates addressing
critical unmet medical needs for the treatment of rare and orphan diseases. The Proposed Transaction has been approved by the boards of
directors of both companies and is supported by a majority of Grace stockholders through voting and lock-up agreements with Acasti. The
transaction remains subject to approval of our shareholders, as well as applicable stock exchanges.
In connection with the Proposed Transaction, we
will acquire 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 more than 40 granted and pending patents in various jurisdictions worldwide.
Grace’s product candidates aim to improve clinical outcomes by applying proprietary formulation and drug delivery technologies to
existing pharmaceutical compounds to achieve improvements over the current standard of care, or to provide treatment for diseases with
no currently approved therapy. Grace’s three lead programs have all received Orphan Drug Designation from the FDA, which could
provide up to seven years of marketing exclusivity in the United States upon the FDA’s approval of the NDA, provided that certain
conditions are met.
Management and Operations
Subject to shareholder approval of the Proposed
Transaction, the combined companies will be led by Jan D’Alvise as President and Chief Executive Officer (“CEO”) and
will continue to maintain our corporate headquarters in Laval, Quebec, Canada. It is expected that all Grace employees will transition
to Acasti and they will continue to maintain an R&D laboratory and commercial presence in North Brunswick, New Jersey. The new board
of directors of the combined company will be composed of 4 representatives from Acasti and 3 representatives from Grace.
About the Proposed Transaction
Pending approval by our shareholders as well as
applicable stock exchange approvals, Grace will merge with a new wholly owned subsidiary of Acasti. Grace stockholders will receive newly
issued Acasti common shares pursuant to an equity exchange ratio formula set forth in the merger agreement. Under the terms of the definitive
agreement, immediately following the consummation of the Proposed Transaction, Acasti’s shareholders on a pro forma basis would
own approximately 55% of the combined company’s common shares, and Grace’s stockholders would own approximately 45% of the
combined company’s common shares, in each case calculated on a fully-diluted basis, subject to upward adjustments in favor of Acasti
shareholders based on each company’s capitalization and net cash balance as set forth in the merger agreement. For illustrative
purposes, assuming no adjustments for each company’s capitalization and net cash balance and based on 208,375,549 Acasti common
shares currently issued and outstanding, an aggregate of up to 170,489,086 Acasti common would be issued to Grace stockholders as consideration
for the Proposed Transaction.
In connection with the entering into the merger
agreement, all significant stockholders of Grace have entered into voting and lock-up agreements with Acasti pursuant to which they have
agreed, amongst other things to (i) vote their shares of Grace in favor of the Proposed Transaction, (ii) be subject to lock-up provisions
for a period of 12 months (subject to certain exceptions), and (iii) support the election of board nominees specified in the voting and
lock-up agreements through to the 2023 annual general meeting of shareholders.
The Proposed Transaction is expected to close
in calendar the third quarter of 2021, immediately following approval by the Acasti shareholders, subject to any applicable U.S. Securities
and Exchange Commission (“SEC”) review and stock exchange approvals, as well as satisfaction of other closing conditions by
each company specified in the definitive agreement.
Oppenheimer & Co. is acting as the Acasti’s
financial advisor for the Proposed Transaction and Osler, Hoskin & Harcourt, LLP is serving as its legal counsel. William Blair &
Company, LLC is serving as financial advisor to Grace, with Reed Smith, LLP serving as its legal counsel.
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The Proposed Transaction is an arm’s length
transaction in accordance with the policies of the TSX Venture Exchange.
Nasdaq Update
On May 11, 2021, Acasti received written notice
from the Nasdaq Listing Qualifications Department notifying Acasti that based upon Acasti’s non-compliance with the $1.00 bid price
requirement set forth in Nasdaq Listing Rule 5550(a) as of May 10, 2021, Acasti common shares were subject to delisting unless Acasti
timely requests a hearing before the Nasdaq Hearings Panel. Acasti requested a hearing, which stayed any further action by Nasdaq pending
the conclusion of the hearing process.
At the hearing on June 17, 2021, Acasti presented
a detailed plan of compliance for the Nasdaq Listing Panel’s consideration, which included Acasti’s commitment to implement
a share consolidation in connection with the Proposed Transaction. Acasti expects to receive the Nasdaq Listing Panel’s decision
within 30 days after the hearing date. There can be no assurance that Nasdaq will accept Acasti’s plan or that Acasti will be able
to regain compliance with Nasdaq’s listing rules or maintain compliance with any other Nasdaq requirement in the future. The approval
by Nasdaq of (i) the continued listing of Acasti’s common shares on Nasdaq following the effective time and (ii) the listing of
the Acasti common shares being issued in connection with the merger on Nasdaq at or prior to the effective time are conditions to the
closing of the merger.
COVID-19 Update
To date, the ongoing COVID-19 pandemic has not caused significant disruptions
to our business operations and research and development activities.
The extent to which the COVID-19 pandemic impacts our business and prospects
will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning
the severity of the COVID-19 pandemic and the actions to contain the COVID-19 pandemic or treat its impact, among others.
Corporate Structure
Acasti was incorporated on February 1, 2002 under Part 1A of the Companies
Act (Québec) under the name “9113-0310 Québec Inc.” On February 14, 2011, the Business Corporations
Act (Québec), or QBCA, came into effect and replaced the Companies Act (Québec). We are now governed by the QBCA.
On August 7, 2008, pursuant to a Certificate of Amendment, we changed our name to “Acasti Pharma Inc.”, our share capital
description, the provisions regarding the restriction on securities transfers and our borrowing powers. On November 7, 2008, pursuant
to a Certificate of Amendment, we changed the provisions regarding our borrowing powers. We became a reporting issuer in the Province
of Québec on November 17, 2008. On December 18, 2019, we incorporated a new wholly owned subsidiary named Acasti Innovation
AG, or AIAG, under the laws of Switzerland for the purpose of future development of our intellectual property and for global distribution
of our products. AIAG currently does not have any operations.
Available Information
This annual report on Form 10-K, our quarterly reports on Form 10-Q, our
current reports on Form 8-K, and any amendments to these reports are filed, or will be filed, as applicable, with the SEC, and the Canadian
Securities Administrators, or CSA. These reports are available free of charge on our website, www.acastipharma.com, as soon as reasonably
practicable after we electronically file such reports with or furnish such reports to the SEC and the CSA. Information contained on, or
accessible through, our website is not a part of this annual report, and the inclusion of our website address in this document is an inactive
textual reference.
Additionally, our filings with the SEC may be accessed through the SEC’s
website at www.sec.gov and our filings with the CSA may be accessed through the CSA’s System for Electronic Document Analysis and
Retrieval at www.sedar.com.
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