Achieve Life Sciences, Inc.

Greetings. Welcome to the Achieve Life Sciences fourth quarter and year-end 2023 earnings conference call and webcast. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would like to hand the call over to Nicole Jones, Investor Relations. Thank you. You may begin.

Thank you, Operator. Good afternoon, everyone, and thank you for joining us today. From Achieve Life Sciences, we are joined by John Bincich, Chief Executive Officer, Dr. Cindy Jacobs, President and Chief Medical Officer, and Jerry Wan, Principal Accounting Officer. Management will be available for a Q&A session following today's prepared remarks. I'd like to remind everyone that today's conference call contains forward-looking statements based on current expectations. These statements are only predictions, and actual results may vary materially from those projected. Please refer to Achieve documents available on our website and files with the SEC concerning factors that may affect the company. At this time, I will turn the call over to John.

Thank you, Nicole, and thank you for joining us as we discuss Achieve's financial results for the fourth quarter and year-ended 2023, along with providing key updates on the cytosinicline development program. 2023 was a transformative year for Achieve. marked by significant clinical, regulatory, and financial milestones. Our commitment to developing cytosinicline for smoking cessation and nicotine dependence has yielded remarkable progress, and we're excited for the year ahead. During 2023, we completed and announced results from the Phase III ORCA III and Phase II ORCA V1 trials, which have been instrumental in demonstrating cytosinicline's potential for treating nicotine dependence. The ORCA3 trial again confirmed the promise of cytosinicline for smoking cessation, with significant efficacy and tolerability benefits observed in treated patients. Furthermore, the ORCAV1 trial highlighted cytosinicline's effectiveness in treating nicotine dependence for vaping cessation, marking a pioneering step in helping to address this emerging public health challenge, in which currently over 11 million adults and an additional 2.1 million youth have reported vaping in the United States alone. Late last year, we conducted our pre-NDA meeting with FDA to review NDA submission requirements and timing. During the meeting, agreement was reached on many of the expected requirements, including that we have sufficient data sets from an efficacy perspective to proceed with submission. At that time, the FDA indicated that they would need additional safety exposure data beyond 12 weeks to assess the long-term exposure risk for patients receiving multiple courses of treatment over a lifetime due to the repetitive and chronic nature of smoking cessation attempts. In February this year, we reached agreement with the FDA that a single open-label study would meet the requirements for long-term cytosinicline exposure data, which clears the path for driving forward the cytosinicline program towards an NDA submission. I will now turn the call over to Cindy to go into further detail on our study design and planned initiation of this open-label safety study, which we are calling the ORCA-OL trial. Cindy?

Thanks, John. The ORCA-OL study will be a single-arm, open-label study that will administer cytosinicline treatment with our novel 3-milligram TID administration to subjects who have already participated in our phase two and phase three cytosiniclin trials, either for smoking or vaping cessation. The primary objective of the study will be to obtain longer-term cytosiniclin exposure safety data for cytosiniclin treatment for up to one year. FDA was clear that the long-term exposure safety data they require is cumulative exposure for the periods of six months and one year. Because this open-label study will enroll subjects who participated in our previous ORCA studies and two-thirds of them have already received up to six or 12 weeks cytosiniclin treatment, this will allow for faster collection of cumulative exposure data to support the NDA submission. Based on our discussions with FDA, we have agreed to include safety data on a minimum of 300 subjects exposed to cytosinicline for a cumulative period of six months at the time of NDA submission. And then, prior to approval of the NDA, that we will submit safety exposure data on at least 100 subjects with cumulative exposure for one year. This agreement follows the general ICH E1 guidance for products with chronic or repeated intermittent use for longer than six months and the treatment of non-life threatening diseases. We anticipate initiating the ORCA-OL trial in the second quarter of this year at approximately 30 clinical trial locations in the US, all of which participated in our prior ORCA studies. All of these clinical sites have now been engaged and are actively conducting outreach to potential participants. As we have previously stated, there were more than 1,700 subjects who participated in the prior ORCA studies, with over 1,100 that were previously treated with cytosinicline in those trials. We currently have enrollment in the protocol at up to 650 subjects to ensure that we have sufficient subjects to quickly meet the long-term exposure for six months and, importantly, one year. We will obviously be monitoring enrollment and discontinuation rates closely as the study progresses, to make a final determination on study enrollment. We have completed contracting and onboarding with our key contract partners and vendors to execute the ORCA-OL study as quickly and efficiently as possible. These include our CRO, data management, lab services, safety monitoring, and drug distribution partners, and we are on track to begin enrollment in the second quarter of this year. and based on our current expectations, believe we will be in a position to submit an NDA in the first half of 2025. Although the study objectives are specific to assessing for safety results, such as the incidence of serious adverse events over exposure time, we will also assess for cytosiniclin efficacy with longer term exposure. These assessments will be for observation purposes only, and are not an FDA requirement or an endpoint to determine success of the trial. In addition to finalizing NDA submission requirements for the smoking cessation indication, we will continue our discussions with FDA regarding cytosinicline's role as a treatment for e-cigarette cessation. We anticipate conducting our end of phase two meeting and finalizing a phase three protocol this year. We will be discussing the adequacy of a single Phase III trial for obtaining a label expansion for an e-cigarette cessation indication. Since the Phase II ORCA V1 trial received grant support from NIH and NIDA, we will continue to explore non-dilutive funding support as we continue to advance our Phase III planning. I will now turn the call back over to John. John?

Thanks, Cindy. In connection with the FDA clarity on NDA requirements, we bolstered our financial strength significantly in February, announcing an equity financing of up to $124.2 million in gross proceeds that includes initial upfront funding of $60 million and up to an additional $64.2 million upon exercise of milestone-driven warrants. This initial funding positions us to advance our clinical initiatives, including the ORCA-OL study and targeted NDA submission in the first half of 2025, all while ensuring a robust balance sheet as we continue strategic partnership discussions. I will now turn the call over to Jerry, who will provide additional details on the financing and an overview of our latest financial results.

Thank you, John. Good afternoon, everyone. I would like to first provide an update on our recent financing and cash position, and then review our fourth quarter results. As of December 31, 2023, the company's cash, cash equivalents, and restricted cash totaled $15.6 million, down from $24.8 million as of December 31, 2022. Subsequent to the end of the fourth quarter, we announced a registered direct offering of common stock and a concurrent private placement of warrants worth up to $124.2 million that closed earlier this month. This transaction included initial upfront gross proceeds of $60 million and up to an additional $64.2 million upon exercise of milestone-driven warrants. After giving effect to the February 2024 equity financing, the company's pro forma cash, cash equivalents, and restricted cash as of December 31, 2023, would have been approximately $71.8 million. This equity financing was key for the business, and we were pleased with the support of new and existing fundamental healthcare investors, such as Propel Bio, Nantahala, and Franklin Templeton, to name a few, as well as strategic investor, SoPharma. Proceeds from the offering will be used to fund the clinical development of cytosinicline, including the upcoming ORCA-OL clinical trial, which is expected to be initiated in the second quarter of this year. as well as the anticipated NDA submission in the first half of 2025. It will also be used to fund other Cytosine and Clean related research and clinical development activities, and for working capital and general corporate purposes. We expect that the initial net proceeds from the financing will fund us into the second half of 2025, including the potential repayment of our outstanding debt obligations under a contingent convertible term loan. If the milestone warrants issued as part of the recent financing are exercised in full, we would anticipate these proceeds to extend runway into 2026 and through potential approval of cytosinicline in the United States. With respect to our statement of operations, total operating expenses for the fourth quarter and year-ended December 31st, 2023 were $4.4 million and 27.3 million respectively. Net loss for the fourth quarter and year ended December 31st, 2023 was 5.5 million and 29.8 million respectively. That concludes my portion of the call. I'll now turn the call back over to John.

Thank you, Jerry. It has certainly been an eventful and exciting start to the year. In addition to finalizing NDA plans with FDA and completing the financing, to ensure we have adequate resources to complete the development of cytosinicline, we were privileged to deliver three presentations at last week's Society for Research on Nicotine and Tobacco annual meeting. Data from our completed phase three and phase two trials were shared with the prestigious audience of nicotine treatment specialists and researchers who share our commitment and dedication to finding new solutions to address nicotine dependence. Cindy presented data highlighting our impressive results from the Phase III ORCA III trial, which was consistent and reinforced our findings from the Phase III ORCA II trial. Dr. Nancy Rigotti, an ORCA primary investigator and professor of medicine at Harvard Medical School, reviewed findings from the Phase II ORCA V1 trial for vaping cessation. Additionally, we delivered a presentation highlighting findings from our post-trial patient experience survey. which provided insights directly from a small sample of participants in the ORCA2 and ORCA3 trials, which showed high levels of reported smoking abstinence, reductions in both cigarettes consumed and cravings for smoking, and a strong willingness to recommend cytosinicline to other smokers looking to quit if approved by FDA. Importantly, almost three-quarters of respondents felt the side effects were manageable or that they experience very few side effects. We continue to believe this is one of the key differentiating benefits of cytosinicline. As we know, side effects remain the key reason that many smokers are not compliant with or are unwilling to take currently available medications. As I wrap up my remarks, I'd like to express my appreciation for your continued support and for the collaborative and ongoing efforts of our trial participants and their healthcare providers at our trial sites. So many of us have been personally touched by the devastating consequences of smoking and remain steadfast in our belief that cytosinicline can truly make a profound impact to help the millions of individuals who have not seen any treatment advances in almost two decades. Our priorities for the balance of this year remain clear. Complete the ORCA-OL study, continue NDA submission preparations, finalize the path forward for expansion into e-cigarette cessation, and continue productive dialogue with prospective commercial partners. Thank you again for joining us today, and we will now open the line for questions.

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, It may be necessary to pick up your handset before pressing the start key. And one moment while we poll for questions. And our first question comes from the line of Thomas Flatton with Lake Street Capital. Please proceed with your question.

Hey, thanks for taking the questions. Cindy, in your comments, there seemed to be an implication that you would not do anything on the vaping program in the absence of non-diluted funding. Was that a correct read?

While we're looking at getting additional non-dilutive funding, I don't think we're going to be able to complete the Phase 3 trial with only non-dilutive or grant funding. So we'll probably have to have a mixture of both. But it was very similar to what we had with the Phase 2. Half of it was paid with NIDA grant funding and half by us. So there would be some mixture of that.

Got it. And then just two quick ones on the OL study. Is there anything being done to monitor compliance of patients with the dosing instructions?

Oh, you mean as far as making sure they're compliant? We have the same compliance kind of tactics with the OL study as we did with our Phase 3. We will have text messaging and We will be giving out packets. They will need to bring them in. We'll review that the tablets were taken. So all of that is being applied. Similarly, that was done in the phase three with the OL study.

And then kind of related to that, what burden is being placed on the patients? How often do they have to come in for visits and follow-ups and things like that?

Well, that is the one nice thing. Instead of coming in weekly... which they did for the first 12 weeks and then monthly afterwards. They start out and they're only coming in monthly through the OL study.

Got it. I appreciate you taking the questions. Thank you.

Thank you. Our next question comes from the line of Francois Versosois with Oppenheimer and Company. Please proceed with your question.

All right. Thanks for the questions. Can you help us understand the timeline here from first half 25 NDA filing to potential approval and launch? Sure.

Thanks for the question, Frank. So right now, as Cindy indicated on the call, we're really driving forward towards initiating the ORCA OL trial in the second quarter of this year. We think, again, depending on enrollment of those subjects, that could put us in a position to have the requirements for NDA submission, at least completed in the clinic late this year or early next. And so that would put us in a position to get the NDA on file first half of 2025. Right now, this would be a standard review cycle. So two months to accept, 10 months for review, which would put approval first half of 2026. Okay, great. And in terms of the OL trial, why

the push on looking at efficacy here? What's the upside of doing that?

Yeah, so with respect to the FDA, they specifically told us they don't need efficacy out of this trial. This is solely for longer-term exposure safety data, which is fine for FDA, but from our perspective, we think efficacy is interesting. We think there's a lot of data points that could come out of this trial that could be leveraged for publication, for payers, for other future trial planning. For example, if a patient had quit in a previous study but relapsed, how likely are they to quit again going back onto treatment? As well as what happens with longer duration, does that get to more robust efficacy? That, again, could lead into a life cycle management play of extending dosing beyond 12 weeks at some point in the future. So I think from an efficacy perspective, there's some interesting learnings that we could get out of the ORCA-OL trial.

Thanks.

Thank you. Our next question comes from the line of Michael Higgins with Lattenberg-Dalman. Please proceed with your question.

Thanks, Harper. Thanks, guys, for taking the questions. Congrats again on the agreement with the FDA. Cynthia, John, if you could give us some feedback as to how the patients are responding so far. It sounds like the sites have begun their outreach. You mentioned 30 U.S. sites. If you could give us some feedback as to how many are opening, how many are reaching out, and what the patients are responding like so far.

John, you want me to get that?

Yeah, that'd be great, Cindy.

Yeah. So the 30 sites, they've all started to reach out this month to the participants, and they are getting a lot of enthusiasm for coming back into an open-label study. I guess we were not surprised by this because we did do surveys of the Phase 3s afterwards, and that's some of the data that was presented at the SR&T meeting last week. that they were very satisfied and they thought the treatment was very helpful and so with that positive survey probably indicates that yes, we are getting positive responses for participating in this open label study.

That's great. Yeah, we saw that presentation last week and so I'm not surprised to hear that. I'm curious if you've had a chance since the news from the FDA last December to have discussions with payers in light of that news and how that may guide what you're doing here in the open label trial. What kinds of efficacy information, which apparently FDA is not looking for, but certainly may help with your reimbursement scenarios post-approval. Anything that you can share with us from the discussions as to what you may be looking for in terms of efficacy from this trial?

Sure. Thanks, Michael. Yeah, on the payer front, you know, we've had a number of discussions with payers over the last two or three years, and I think one thing to keep in mind is that the Affordable Care Act does mandate that all FDA-approved smoking cessation medications be covered. So, you know, from an access perspective, this is one of the better categories out there. You know, with that being said, you know, the open label trial, I think, you know, will have the ability, like I mentioned before, to look at what happens with repeat administration. So, you know, both success initially and then, you know, retreatment again, or perhaps, you know, lack of success in an initial treatment and having success a second time around. All those sorts of data points can be used with payers as we have those discussions leading up to and on the other side of approval of this product. So, I think those are probably the most important pieces, but I think as we kind of dig in further with the data sets that we get, there could be other interesting learnings that we could leverage with the payer community.

That makes sense. Thanks for that feedback. One quick follow-up, if I could, is the monthly visits. If you find, because it's different than the weeklies before, that patients just aren't as compliant as they were in the previous trials, are you able to adjust along the way in seeing that and try to reach out to them more often?

Oh, absolutely, yes, and that's one of the things we will be monitoring in that regard.

Very good. Appreciate it. Thanks, and congrats again.

Thanks, Michael.

Thank you.

Our next question comes from the line of John Van Dermosten with Zach. Please proceed with your question.

Great. Thank you, and hello, John, Cindy, and Jerry. Good afternoon. How many, you know, since there's a delay relative to the first expectations on the trial, how does this affect the work with SOFARMA preparing for the FDA inspection and all the other work that you were planning to do with them?

Yeah. Hi, John. Thanks for the question. So, as we've spoken about further, you know, one of the key areas of focus for us will be and continue to be working with SO Pharma to ensure FDA inspection readiness. So that will continue. This gives us, you know, effectively another 12 months of preparation timing with respect to that. One of the items that we are working with SO Pharma on is looking at additional CDMOs that could be side by side with SO Pharma, groups from both a drug substance and drug product perspective. that have already been FDA approved historically, you know, that could continue to minimize, you know, any risk from an inspection perspective. So that's something that we're working with in addition to the continued work at SoPharma and their site.

Great. And then, you know, we saw, I guess, an explosion of generic options for varenicline recently. And I don't know if you had seen any of the news on that or had any update for us. I know you're keeping an eye on that. on the generic side and how that's progressing. Any new observations over the last several months?

Yeah, with respect to generic varenicline, I believe there are six generics on the market now. So over the last 12 months, that has expanded beyond Endo, who was the first to market. So something we continue to monitor as we proceed. And we have seen some data points. I believe there's some recent IQ via data that was suggesting the generic market for Verena Clean was on an annual run rate of roughly $450 million. And from what we're seeing in the marketplace, you know, that's somewhere north of a 30% discount to where Chantix, the brand, left off.

Okay, great. Thank you, John. Appreciate it.

Thank you. Our next question comes from the line of Ilya Zuko with Freedom Broker. Please proceed with your question.

Good afternoon. Thank you for taking my question. Notable event a week ago, SR&T annual meeting. Could you share any feedback received from the professional community on the presented results of FORCA program and have there any concerns about potential chronic use of the drug?

Yeah, thanks Ilya for the question. So, you know, as we talked a bit on the call, We did have a very strong reception at the SR&T meeting last week. We were able to present three different data sets, two from the phase three program, and then the ORCID V1 trial results presented by Dr. Nancy Rigotti from Harvard Mass General. I would say overall very well received, and I think we continue to see cytosinicline as the lead compound driving to market. There's really not much else going on behind it that's anywhere near the phase of development that we have with our product candidate here. So I think that's refreshing. I think overall the perspective is that this is a viable treatment option and a very needed treatment option in a category that hasn't seen any new options in nearly two decades. So I think overall, a great, very warm reception from a lot of the folks that we look to for input as we've developed this program over the last several years.

Thank you. And one more from me, please. Could you elaborate on the safety endpoints requested by FDA for open lab trial? Have any changes to the protocol been made in safety parameters compared to the previous studies?

Sure. We have kind of a primary one of looking at just serious adverse events, and then after that it would be any related serious adverse events, just general treatment emergent adverse events, related treatment emergent adverse events, any clinically significant laboratory abnormalities, and pretty much anything After that, looking at any problematic vital signs. I mean, most of these we haven't seen in the Phase 3s, but we have all of those objectives or endpoints in the open label as similarly as we did in the Phase 3 studies.

Thank you. Thanks, Ilya.

Thank you. And our next question comes again from Michael Higgins with Landenburg. Donovan, please proceed with your question.

Thanks again, guys, for taking a few more follow-ups here. Can you help us with your conversations with the FDA and NIH on vaping, what that may look like throughout this year? I know you want to get that going. You've had your hands full with OLE and all that's been happening there, but just trying to get a better sense for the timing with the vaping program and your discussions. Thanks.

Yeah, so the focus on the vaping indication really is going to be the end of phase two meeting with the agency. So now that we've got the ORCA V1 trial complete, we're able to share that with the agency. Again, under the guise of an end of phase two meeting to get clarity on the path forward. As we've indicated before, our belief is that a single phase three trial is what will be required to open up the label and expand into nicotine e-cigarette cessation. But we need clarity on that. So that is a high priority for us this year and something, you know, we'd hope to get clarity on in the second half of this year.

Okay. Sounds good. We'll sit tight for that. Thanks for that. And then the second one here being manufacturing. It sounds like the sites are open and so forth. Do you have enough supply at this point? Is that still coming on board in the summer months and into the fall? Just trying to understand if the manufacturing is ready to go for early. Thanks.

Yeah, thanks, Michael. On the manufacturing side of things, this probably is the gating item to initiating centers and getting folks back into the clinic for the ORCA-OL trial. The tablets have all been made and we're in the process of here in the coming weeks to get that blister packed and ready for the clinic. So everything's on track to move that forward here in the coming weeks so we can initiate the ORCA-OL trial.

Awesome. Okay. Sounds good. And then finally, I noticed the OPEX in Q4 was later than we had expected. Congrats on that. And then we look ahead to and trying to get an assessment or some sort of a gauge as to how the cost may be compared to ORCA 2 and 3. It's longer but less frequent visits, just trying to get a sense in comparison to the trials how this cost may come out. Thanks.

Yeah, thanks, Michael. With respect to the costs for ORCA-OL, we've currently estimated this as a roughly $20 million trial that will come in basically over the course of 2024 and 2025. So while the visits are less frequent, the overall number of visits is similar to what we've seen in our previous studies, just over a longer period of time. And Cindy articulated the what we're doing at those visits is very consistent. And the bulk of the cost of these studies is the patient recruitment cost. So the bulk of the expense will come in as the patients are enrolled and complete their therapy. So we'll see some of that cost kick off here in Q1 and then drive the bulk of it through the first part of next year. So hopefully that's helpful in kind of modeling out the URL expenses.

That certainly is. Appreciate all the feedback. Thanks, guys. Congrats again.

Thank you. And we have reached the end of the question and answer session. I'll now turn the call back over to John Bancich for closing remarks.

Thanks, operator, and thanks, everyone, for joining us today. Appreciate all the continued support. We've made a huge amount of progress here. recently to get clarity from FDA and really move forward quickly with the ORCA-OL trial. And we look forward to providing additional updates as we proceed and look forward to continue to stay in contact. Thanks again, everyone.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.