10-K
1
f10k_062221p.htm
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended March 31, 2021
or
For the transition period from
to
Commission file number: 001-35776
ACASTI PHARMA INC.
(Exact name of registrant as specified in its charter)
3009 boul. de la Concorde East, Suite 102, Laval,
Québec, Canada H7E 2B5
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: 450-687-2262
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Shares, no par value per share NASDAQ Stock Market
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
☒
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 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. ☐
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 aggregate market value of the voting and non-voting
common shares held by non-affiliates of the registrant, based on the closing sale price of the registrant’s common shares on the
last business day of its most recently completed second fiscal quarter, as reported on the NASDAQ Stock Market, was approximately $19,373,829.
The number of outstanding common shares of the registrant, no par value
per share, as of June 22, 2021, was 208,375,549.
ACASTI PHARMA INC.
FORM 10-K
For the Fiscal Year Ended March 31, 2021
Table of Contents
PART I
Item 1. Business 6
Item 1A. Risk Factors 9
Item 1B. Unresolved Staff Comments 19
Item 2. Properties 19
Item 3. Legal Proceedings 20
Item 4. Mine Safety Disclosures 20
PART II
Item 6. Selected Financial Data 66
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 82
Item 8. Financial Statements and Supplementary Data 83
Item 9A. Controls and Procedures 83
Item 9B. Other Information 83
PART III
Item 10. Directors, Executive Officers and Corporate Governance 84
Item 11. Executive Compensation 87
Item 14. Principal Accounting Fees and Services 100
PART IV
Item 15. Exhibits, Financial Statement Schedules 101
SIGNATURES
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains information that may be forward-looking
information within the meaning of Canadian securities laws and forward-looking statements within the meaning of U.S. federal securities
laws, both of which we refer to in this annual report as forward-looking information. Forward-looking information 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 information
in this annual report includes, among other things, information or statements about:
· our ability to establish collaborations or obtain additional funding;
· our intellectual property position and duration of our patent rights;
· our projected capital requirements to fund our anticipated expenses.
Although the forward-looking information in this annual report
is based upon what we believe are reasonable assumptions, you should not place undue reliance on that forward-looking information since
actual results may vary materially from it. Important assumptions made by us when making forward-looking statements include, among other
things, assumptions by us that:
· we are able to complete our proposed merger with Grace;
· 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;
· there are no material adverse changes in relevant laws or regulations; and
· we are able to continue as a going concern;
In addition, the forward-looking information in this annual report
is subject to a number of known and unknown risks, uncertainties and other factors, including those described in this annual report under
the heading “Item 1A. Risk 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 information, including, among others:
· we may be subject to foreign exchange rate fluctuations;
· it is difficult and costly to protect our intellectual property rights;
All of the forward-looking information in this annual report
is 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 information. Except as required
by applicable law, we do not undertake to update or amend any forward-looking information, whether as a result of new information, future
events or otherwise. All forward-looking information is made as of the date of this annual report.
We express all amounts in this annual report in U.S. dollars, except where
otherwise indicated. References to “$” and “US$” are to U.S. dollars and references to “C$” or “CAD$”
are to Canadian dollars.
Except as otherwise indicated, references in this annual report to “Acasti,”
“the Corporation,” “we,” “us” and “our” refer to Acasti Pharma Inc. and its consolidated
subsidiaries.
PART I
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.
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.
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.
Item 1A. Risk Factors
Any investment in our common Shares involves a high degree of risk.
The following risk factors and other information included in this Quarterly Report on Form 10-Q should be carefully considered. If any
of these risks actually occur, our business, financial condition, prospects, results of operations or cash flow could be materially and
adversely affected, and you could lose all or a part of the value of your investment. Additional risks or uncertainties not currently
known to us, or that we deem immaterial, may also negatively affect our business operations.
In addition, on May 7, 2021, Acasti entered into a merger agreement
with Grace, pursuant to which, subject to the approval of Acasti shareholders and the satisfaction or waiver of the conditions set forth
in the merger agreement, Grace would become a wholly-owned subsidiary of Acasti, referred to herein as the merger.
Risks Related to the Merger
The equity exchange ratio will not be adjusted in the event of any
change in Acasti's share price.
If the merger is completed, at the effective time of the merger, each issued
and outstanding share of Grace common stock will automatically be converted into the right to receive a number of Acasti common shares
per share of Grace common stock equal to the equity exchange ratio set forth in the merger agreement such that, immediately following
the consummation of the merger, existing Acasti shareholders are expected to own at least 55% and existing Grace stockholders are expected
to own at most 45% of the outstanding capital stock of the combined company on a fully-diluted basis. The equity exchange ratio is subject
to upward adjustment in favor of Acasti shareholders based on each company’s capitalization and net cash balance at the effective
time of the merger, as specified in the merger agreement. For more information on the equity exchange ratio, see the merger agreement
filed as exhibit 2.1 to this annual. The equity exchange ratio will not be adjusted for changes in the market price of Acasti common shares.
As a result, changes in the price of Acasti common shares prior to completion of the merger will affect the market value of the share
considerations that Grace stockholders will receive in the merger. Changes in the Acasti common share price may result from a variety
of factors (many of which are beyond Acasti’s control), including the following:
• market assessments of the likelihood that the merger will be completed; and
The price of Acasti common shares at the closing of the merger may vary
from the price on the date the merger agreement was executed, the date of this annual report and the date of the annual and special meeting
of Acasti shareholders. As a result, the market value of the merged entity will also vary. For example, based on the range of closing
prices of Acasti common shares during the period from May 6, 2021, which was the last trading day before the public announcement of the
execution of the merger agreement, through June 18, 2021, the estimated equity exchange ratio represented a market value ranging from
a low of approximately $2.47 to a high of approximately $3.07 for each share of Grace common stock.
Because the merger will be completed after the date of the Acasti
annual and special shareholders meeting and the Grace stockholder approval, you will not know, at the time of the Acasti annual and special
shareholder meeting or the Grace stockholder approval, the market value of the Acasti common shares that Grace stockholders will receive
upon completion of the merger.
If the price of Acasti common shares increases between the time of the
Acasti annual and special meeting or the Grace stockholder approval and the time at which Acasti common shares are distributed to Grace
stockholders following completion of the merger, Grace stockholders will receive Acasti common shares that have a market value that is
greater than the market value of such shares at the time of the Acasti annual and special meeting or the Grace stockholder approval. Conversely,
if the price of Acasti common shares decreases between the time of the Acasti annual and special meeting or Grace stockholder approval
and the time at which Acasti common shares are distributed to Grace stockholders following completion of the merger, Grace stockholders
will receive Acasti common shares that have a market value that is less than the market value of such shares at the time of the Acasti
annual and special meeting or the Grace stockholder approval. Therefore, Grace stockholders and Acasti shareholders will not have certainty
at the time of the Acasti annual and special meeting or the Grace stockholder approval of the market value of the consideration that will
be paid to Grace stockholders upon completion of the merger.
Failure to complete the merger could negatively impact the share
prices and the future business and financial results of Acasti.
If the merger is not completed, the ongoing businesses of Acasti may be
adversely affected. Additionally, if the merger is not completed and the merger agreement is terminated, in certain circumstances, either
Acasti or Grace may be required to pay to the other a termination fee of $1,000,000 including any reimbursement the other party’s
expenses up to a maximum of $500,000. Even if a termination fee or expenses of the other party are not payable in connection with a termination
of the merger agreement, Acasti has incurred significant transaction expenses in connection with the merger regardless of whether the
merger is completed. The foregoing risks, or other risks arising in connection with the failure of the merger, including the diversion
of management attention from conducting the business of Acasti and pursuing other opportunities during the pendency of the merger, may
have an adverse effect on the business, operations, and financial results of Acasti as well the price of Acasti common shares. In addition,
Acasti could be subject to litigation related to any failure to consummate the merger transaction or any related action that could be
brought to enforce a party’s obligations under the merger agreement.
The merger agreement contains provisions that could discourage a
potential competing acquirer of either Acasti or Grace.
The merger agreement contains “no shop” provisions that, subject
to limited exceptions, restrict Acasti’s and Grace’s ability to solicit, encourage, facilitate, or discuss competing third
party proposals to acquire shares or assets of Acasti or Grace. In specified circumstances, upon termination of the merger agreement,
Acasti or Grace will be required to pay the termination fee to the other party. In the event that either Acasti or Grace receives an alternative
acquisition proposal, the other party has the right to propose changes to the terms of the merger agreement before the Acasti or Grace
board of directors may withdraw or qualify its recommendation with respect to the merger and related transactions.
These provisions could discourage a potential competing acquirer that might
have an interest in acquiring all or a significant part of Acasti from considering or proposing that acquisition, even if it were prepared
to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the merger,
or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because
of the added expense of the termination fee that may become payable in specified circumstances. Acasti’s and Grace’s right
to match specified alternative acquisition proposals with respect to the other party could also discourage potential competing acquirers
from considering or proposing that acquisition.
If the merger agreement is terminated and Acasti determines to seek another
transaction, it may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the merger.
The merger may be completed even though certain events occur prior
to the closing that materially and adversely affect Acasti or Grace.
The merger agreement provides that either Acasti or Grace can refuse to
complete the merger if there is a material adverse change affecting the other party prior to the closing. However, certain types of changes
do not permit either party to refuse to complete the merger, even if such change could be said to have a material adverse effect on Acasti
or Grace, including, among others:
· any natural disaster;
· changes or developments in or relating to currency exchange or interest rates;
· changes or developments affecting the pharmaceutical industry in general;
· a share consolidation of Acasti.
If an adverse change occurs and Acasti and Grace still complete the merger,
the business, operations or prospects of the combined company, or the market price of its common shares, may suffer. This in turn may
reduce the value received by the shareholders of Acasti in connection with the merger.
If the conditions to the merger are not satisfied or waived, the
merger may not occur. If the merger is consummated, it will result in substantial dilution to Acasti shareholders and may not deliver
the anticipated benefits Acasti expects.
Even if the merger is approved by the shareholders of Acasti and the stockholders
of Grace, specified other conditions must be satisfied or waived to complete the merger. These conditions are set forth in the merger
agreement filed as exhibit 2.1 to this annual report. Acasti cannot assure you that all of the conditions will be satisfied or waived.
Certain of the closing conditions are legally incapable of being waived. If the conditions are not satisfied or waived, the merger may
not occur or will be delayed, and Acasti may lose some or all of the intended benefits of the merger. If consummated, the merger will
result in dilution to Acasti’s shareholders and could result in other restrictions that may affect its business. Further, if completed,
the merger ultimately may not deliver the anticipated benefits or enhance shareholder value.
The combined company may become involved in securities class action
litigation that could divert management’s attention and harm the combined company’s business and insurance coverage may not
be sufficient to cover all costs and damages.
In the past, securities class action or shareholder derivative litigation
often follows certain significant business transactions, such as the sale of a business division or announcement of a merger. The combined
company may become involved in this type of litigation in the future. Litigation is often expensive and diverts management’s attention
and resources, which could adversely affect the combined company’s business.
Acasti has received notice from Nasdaq of non-compliance with the
Nasdaq Listing Rules.
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 securities were subject to delisting unless the Company timely requested 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 if needed
to evidence compliance with Nasdaq listing rules. Acasti expects to receive the Nasdaq Listing Panel’s decision 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.
We may be subject to foreign exchange rate fluctuations.
Our reporting currency is the U.S. dollar. However, many of our expenses
are denominated in foreign currencies, including Canadian dollars. As we previously completed financings in both Canadian and U.S. dollars,
both currencies are maintained and used to make required payments in the applicable currency. Though we plan to implement measures designed
to reduce our foreign exchange rate exposure, the U.S. dollar/Canadian dollar and U.S. dollar /European euro exchange rates have fluctuated
significantly in the recent past and may continue to do so, which could have a material adverse effect on our business, financial position
and results of operations.
Risks Related to Intellectual Property
We may not realize any additional value
in a strategic transaction for our intellectual property.
The market capitalization of our corporation is
or may be below the value of our cash, cash equivalents and marketable securities at the time of consummation of any strategic transaction.
Although the CaPre clinical trial failed to meet its primary endpoints, we believe that data from preclinical and other clinical studies
of CaPre may support potential further investigation and development activities. However, potential counterparties in a strategic transaction
involving our corporation may place minimal or no value on our assets, given the limited data regarding their potential application. Further,
the development and any potential commercialization of investigational CaPre will require substantial additional funding associated with
conducting the necessary clinical testing and obtaining regulatory approval. Consequently, any potential counterparty in a strategic transaction
involving our corporation may choose not to spend additional resources and continue development of CaPre and may attribute little or no
value, in such a transaction, to CaPre or our other intellectual property.
It is difficult and costly to protect our intellectual property rights.
It is possible that our patents and/or proprietary technologies in the
future could be circumvented through the adoption of competitive, though non-infringing, processes or products. The patent positions of
pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions for which important legal
principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws may diminish the value of our intellectual
property. We cannot predict the breadth of claims that may be allowable or enforceable in our patents, or of patents licensed to us.
We face risks that:
· our trade secrets could be learned independently by our competitors;
Further, patents have a limited lifespan. In the United States, a patent
generally expires 20 years after it is filed (or 20 years after the filing date of the first non-provisional U.S. patent application to
which it claims priority). While extensions may be available, the life of a patent, and the protection it affords, is limited. Further,
the extensive period of time between patent filing and regulatory approval for a product candidate limits the time during which we can
market that product candidate under patent protection. Patents owned by third parties could have priority over patent applications filed
or in-licensed by us, or we or our licensors could become involved in interference, opposition or invalidity proceedings before U.S.,
Canadian or foreign patent offices. The cost of defending and enforcing our patent rights against infringement charges by other patent
holders may be significant and could limit our operations.
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 patents or the patents of our licensors. To
counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. If
we or our licensors were to initiate legal proceedings against a third party to enforce a patent our technology, the defendant could counterclaim
that our or our licensor’s patent is invalid or unenforceable. In patent litigation, defendant counterclaims alleging invalidity
or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements;
for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone
connected with prosecution of the patent withheld relevant information from the patent office, such as the USPTO, or made a misleading
statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable.
With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we or our licensors
and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability,
we would lose at least part, and perhaps all, of the patent protection or certain aspects of our platform technology. Such a loss of patent
protection could have a material adverse impact on our business. Patents and other intellectual property rights also will not protect
our technology if competitors design around our protected technology without legally infringing our patents or other intellectual property
rights.
In addition, in an infringement proceeding, a court may 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 or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable,
or interpreted narrowly and could put our patent applications at risk of not issuing. 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.
Interference proceedings provoked by third parties or brought by the USPTO
may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors.
An unfavorable outcome could result in a loss of our current patent rights and could require us to cease using the related technology
or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us
a license on commercially reasonable terms, or at all. Litigation or interference proceedings may result in a decision adverse to our
interests and, even if we are successful, may result in substantial costs and distract our management and other employees. We may not
be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential information, particularly in countries
where the laws may not protect those rights as fully as in the United States and Canada. 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. In addition, there could be public announcements of the results of hearings,
motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could
have a substantial adverse effect on the price of our common shares.
Obtaining and maintaining our patent protection depends on compliance with
various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection
could be reduced or eliminated for non-compliance with these requirements.
Changes in patent law could diminish the value of patents in general,
thereby impairing our ability to protect product candidates.
Numerous recent changes to the patent laws and proposed changes to the
rules of the various patent offices around the world may have a significant impact on our ability to protect our technology and enforce
our intellectual property rights. These changes may lead to increasing uncertainty with regard to the scope and value of our issued patents
and to our ability to obtain patents in the future.
Once granted, patents may remain open to opposition, re-examination, post-grant
review, inter partes review, nullification derivation and opposition proceedings in court or before patent offices or
similar proceedings for a given period after allowance or grant, during which time third parties can raise objections against the initial
grant. In the course of any such proceedings, which may continue for a protracted period of time, the patent owner may be compelled to
limit the scope of the allowed or granted claims attacked or may lose the allowed or granted claims altogether. Depending on decisions
by authorities in various jurisdictions, the laws and regulations governing patents could change in unpredictable ways that may weaken
our and our licensors’ ability to obtain new patents or to enforce existing patents we and our licensors or partners may obtain
in the future.
We may not be able to protect our intellectual property rights throughout
the world.
Many companies have encountered significant problems in protecting and
defending intellectual property rights in foreign jurisdictions. The legal systems of some countries, particularly certain developing
countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, which could make it difficult
for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights 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 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 Relating to Our Common Shares
The price of our common shares may be volatile.
Market prices for pharmaceutical companies can fluctuate significantly.
Factors such as the announcement to the public or in various scientific or industry forums of technological innovations; new commercial
products; patents or exclusive rights obtained by us or others; disputes or other developments relating to proprietary rights, including
patents, litigation matters and our ability to obtain patent protection for our technologies; the commencement, enrollment or announcement
of results of clinical trials we conduct, or changes in the development status of our product candidates; results or delays of pre-clinical
and clinical studies by us or others; any delay in our regulatory filings for our product candidates and any adverse development or perceived
adverse development with respect to the applicable regulatory authority’s review of such filings; a change of regulations; additions
or departures of key scientific or management personnel; overall performance of the equity markets; general political and economic conditions;
publications; failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;
research reports or positive or negative recommendations or withdrawal of research coverage by securities analysts; actual or anticipated
variations in quarterly operating results; announcements of significant acquisitions, strategic partnerships, joint ventures or capital
commitments by us or our competitors; public concerns over the risks of pharmaceutical products and dietary supplements; unanticipated
serious safety concerns related to the use of our product candidates; the ability to finance, future sales of securities by us or our
shareholders; and many other factors, many of which are beyond our control, could have considerable effects on the price of our common
shares. The price of our common shares has fluctuated significantly in the past and there can be no assurance that the market price of
our common shares will not experience significant fluctuations in the future.
In addition, pharmaceutical companies often experience extreme price and
volume fluctuations that are unrelated or disproportionate to the operating performance of those companies. Broad market and industry
factors may negatively affect the market price of our common shares, regardless of our actual operating performance. In the past, securities
class action litigation has often been instituted against pharmaceutical companies following periods of volatility in the market price
of their securities. This type of litigation, if instituted against us, could result in substantial costs and a diversion of management’s
attention and resources, which would harm our business, operating results or financial condition.
Raising additional capital may cause dilution to our existing shareholders,
restrict our operations or require us to relinquish rights to our technologies or product candidates.
We may need to raise additional capital in order to execute on our business
plan. We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships
and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt
securities, the ownership interests of our shareholders will be diluted, and the terms may include liquidation or other preferences that
adversely affect the rights of our shareholders. The incurrence of indebtedness by us would result in increased fixed payment obligations
and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability
to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct
our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties,
we may have to relinquish valuable rights to our technologies or product candidates or grant licenses on terms unfavorable to us.
The market price of our common shares could decline as a result of
operating results falling below the expectations of investors or fluctuations in operating results each quarter.
Our net losses and expenses may fluctuate significantly and any failure
to meet financial or clinical expectations may disappoint securities analysts or investors and result in a decline in the price of our
common shares. Our net losses and expenses have fluctuated in the past and are likely to do so in the future. The market price of our
common shares has fluctuated significantly in the past and may continue to do so. Some of the factors that could cause the market price
for our common shares to fluctuate include the following:
· the fluctuations in valuation of our derivative warrant liabilities;
· the outcome of any litigation;
· changes in foreign currency fluctuations;
· competition;
· additions and departures of key personnel;
· changes in general market and economic conditions.
If our quarterly operating results fall below the expectations of investors
or securities analysts, the market price of our common shares could decline substantially. Furthermore, any quarterly fluctuations in
our operating results may, in turn, cause the market price of our common shares to fluctuate substantially. We believe that quarterly
comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
There can be no assurance that an active market for our common shares
will be sustained.
There can be no assurance that an active market for our common shares will
be sustained. Holders of common shares may be unable to sell their investments on satisfactory terms. As a result of any risk factor discussed
herein, the market price of our common shares at any given point in time may not accurately reflect our long-term value. Furthermore,
responding to these risk factors could result in substantial costs and divert management’s attention and resources. Substantial
and potentially permanent declines in the value of our common shares may adversely affect the liquidity of the market for our common shares.
Other factors unrelated to our performance that may have an effect on the
price and liquidity of our common shares include: positive or negative industry or competitor news; extent of analyst coverage; lessening
in trading volume and general market interest in our common shares; the size of our public float; and any event resulting in a delisting
of our common shares.
A large number of common shares may be issued and subsequently sold
upon the exercise of existing warrants. The sale or availability for sale of existing warrants or other securities convertible into common
shares may depress the price of our common shares.
As of March 31, 2021, there were 15.6 million common shares issuable under
outstanding warrants at various exercise prices. To the extent that holders of existing warrants sell common shares issued upon the exercise
of warrants, the market price of our common shares may decrease due to the additional selling pressure in the market. The risk of dilution
from issuances of common shares underlying existing warrants may cause shareholders to sell their common shares, which could further contribute
to any decline in our common share market price.
Any downward pressure on the price of our common shares caused by the sale
of common shares issued upon the exercise of existing warrants could encourage short sales by third parties. In a short sale, a prospective
seller borrows common shares from a shareholder or broker and sells the borrowed common shares. The prospective seller anticipates that
the common share price will decline, at which time the seller can purchase common shares at a lower price for delivery back to the lender.
The seller profits when the common share price declines because it is purchasing common shares at a price lower than the sale price of
the borrowed common shares. Such short sales of common shares could place downward pressure on the price of our common shares by increasing
the number of common shares being sold, which could lead to a decline in the market price of our common shares.
We do not currently intend to pay any cash dividends on our common
shares in the foreseeable future.
We have never paid any cash dividends on our common shares and we do not
anticipate paying any cash dividends on our common shares in the foreseeable future because, among other reasons, we currently intend
to retain any future earnings to finance our business. The future payment of cash dividends will be dependent on factors such as cash
on hand and achieving profitability, the financial requirements to fund growth, our general financial condition and other factors our
board of directors may consider appropriate in the circumstances. Until we pay cash dividends, which we may never do, our shareholders
will not be able to receive a return on their common shares unless they sell them.
If we fail to meet applicable listing requirements, the NASDAQ Stock
Market or the TSXV may delist our common shares from trading, in which case the liquidity and market price of our common shares could
decline.
Our common shares are currently listed on the NASDAQ Stock Market and the
TSXV, but we cannot assure you that our securities will continue to be listed on the NASDAQ Stock Market and the TSXV in the future. In
the past, we have received notices from the NASDAQ Stock Market that we have not been in compliance with its continued listing standards,
and we have taken responsive actions and regained compliance.
On February 28, 2020, we received written notification from the NASDAQ
Listing Qualifications Department for failing to maintain a minimum bid price of $1.00 per share for the preceding 30 consecutive business
days, as required by NASDAQ Listing Rule 5550(a)(2) – bid price (the “Minimum Bid Price Rule”). Under NASDAQ Listing
Rule 5810(c)(3)(A) – compliance period, we initially had 180 calendar days to regain compliance.
On April 17, 2020, we were informed that NASDAQ had granted temporary regulatory
relief related to its minimum bid price requirement due to the COVID-19 pandemic for all NASDAQ-listed companies and therefore extended
the deadline for us to regain compliance to November 9, 2020.
On November 11, 2020, we were further informed that NASDAQ had granted
an additional 180 calendar days, or until May 10, 2021, for us to regain compliance.
On May 11, 2021, we received notice from the Nasdaq Listing Qualifications
Department indicating that, based upon our non-compliance with the $1.00 bid price requirement set forth in (the Minimum Bid Price Rule)
as of May 10, 2021, our common shares were subject to delisting unless we timely requested a hearing before the Nasdaq Hearings Panel
(the “Panel”).
We requested and were granted a hearing on June 17, 2021, which will stay
any further action by Nasdaq pending the conclusion of the hearing process.
At the hearing, we presented a detailed plan of compliance for the Panel’s
consideration, which included our commitment to implement a share consolidation if needed to evidence compliance with the Minimum Bid
Price Rule. Should we determine that a share consolidation is necessary or otherwise advisable to regain compliance with the Minimum Bid
Price Rule, we would likely take such action concurrently with the completion of our proposed acquisition of Grace.
If we fail to comply with listing standards and the NASDAQ Stock Market
or TSXV delists our common shares, we and our shareholders could face significant material adverse consequences, including:
· a limited availability of market quotations for our common shares;
· reduced liquidity for our common shares;
· a limited amount of news about us and analyst coverage of us; and
We may pursue opportunities or transactions that adversely affect
our business and financial condition.
Our management, in the ordinary course of our business, regularly explores
potential strategic opportunities and transactions. These opportunities and transactions may include strategic joint venture relationships,
significant debt or equity investments in us by third parties, the acquisition or disposition of material assets, the licensing, acquisition
or disposition of material intellectual property, the development of new drug candidates, significant distribution arrangements, the sale
of our common shares and other similar opportunities and transactions. The public announcement of any of these or similar strategic opportunities
or transactions might have a significant effect on the price of our common shares. Our policy is to not publicly disclose the pursuit
of a potential strategic opportunity or transaction unless we are required to do so by applicable law, including applicable securities
laws relating to periodic disclosure obligations. There can be no assurance that investors who buy or sell common shares are doing so
at a time when we are not pursuing a particular strategic opportunity or transaction that, when announced, would have a significant effect
on the price of our common shares.
In addition, any such future corporate development may be accompanied by
certain risks, including exposure to unknown liabilities relating to the strategic opportunities and transactions, higher than anticipated
transaction costs and expenses, the difficulty and expense of integrating operations and personnel of any acquired companies, disruption
of our ongoing business, diversion of management’s time and attention, and possible dilution to shareholders. We may not be able
to successfully overcome these risks and other problems associated with any future acquisitions and this may adversely affect our business
and financial condition.
We are a “smaller reporting company” under the SEC’s