A subsidiary pharmaceutical company based in Laval, Que. may not be able to continue operating if spending on research outpaces its assets, according to interim financial statements released July 11.
Acasti Pharma Inc., specializes in developing and selling krill-based products, such as medical food and over-the-counter drugs, to treat cardiovascular disease.
The company acquired an intellectual property license to study and conduct clinical trials in 2008 by its parent company, Neptune Technologies and Bioressources.
As a subsidiary, Acasti is supposed to take on the heavy lifting when it comes to research and development.
But it may be taking on more than it can carry.
“It’s a pretty hard slog,” said associate professor at University of Toronto pharmacy school Dr. Paul Grootendorst. “They could be facing some setbacks.”
In its 2015 statements, Acasti stated that the corporation’s “expected level of expenses in the research and development phase of its drug candidate significantly exceed current assets.”
Signs of trouble found in 2015
The reason for the increase in research is due to trials and re-trials for a new drug candidate supposed to help treat plaque buildups in the arteries.
Acasti also re-categorized expenses into research that were previously under general and administrative expenses.
Acasti did this to “reflect more appropriately the way in which economic benefits are derived from these expenses,” according to its 2016 interim statements.
Of course, it’s common for subsidiaries to spend significantly for research and development.
“There is an increasing division of labour (between parent and subsidiary),” Grootendorst said. “You partner with a small company, and you acquire the assets.”
Part of Acasti’s problems is that it’s not taking in enough revenue and negative cash flow.
There was an 85 per cent decrease in revenue of sales from 2014 to 2015. Now in 2016, there was a 78 per cent decrease over the span of three months – from $5,154 in February to $2,888 in May.
As for its cash flow, the company itself says in its 2015 statements that it has “incurred significant operating losses and negative cash flows from operations since its inception.”
And even 2013
Acasti’s stocks took a huge plunge in 2013 around the time the company and its parent announced it would end agreements with many US pharmaceutical firms that also specialize in krill-based products.
Watch Acasti’s stock ticker in real time.
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Watch the video below to learn how subsidiary pharmaceutical companies work. Looking ahead
Still, the company has hopes that it will find the money it needs to remain in business.
“(Acasti) will establish strategic alliances and raise the necessary capital and make sales,” according to the 2016 statements.
Traditionally, raising more funds as a subsidiary would consist of more support from the parent company or funding from a venture capitalist.
Another larger company may take in the subsidiary and start dishing out milestone payments.
Milestone payments are paid by the parent company when the subsidiary reaches a critical goal in research.
The company also hopes to acquire approval for their products by the US Food and Drug Administration in addition to expanding to other markets.
Acasti and its parent Neptune formed a partnership with a US company in 2009 which ultimately resulted in a legal dispute over a patent that ended in Acasti and Neptune’s favour.
But internally, Acasti is trying to make some changes.
Two new members were elected to the board of directors at Acasti’s annual general meeting on July 15.
The new fiscal year will now end at the end of March instead of the end of February in order to be better aligned with industry standards.
Read the 2015 financial statements and the 2016 interim statements from Acasti below.