ACHIEVE LIFE SCIENCES, INC. quarterly report, Q1 FY2017

Business context and reporting period

OncoGenex Pharmaceuticals, Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2017. The filing is not a post-merger report from Achieve Life Sciences: OncoGenex was still the registrant, and its proposed all-stock merger with Achieve was pending. OncoGenex was a clinical-stage biopharmaceutical company with no product sales.

Key financial metrics

MetricQ1 2017 / March 31, 2017Comparable period / December 31, 2016
Revenue$0$2.94 million in Q1 2016
Operating expenses$3.35 million$7.37 million in Q1 2016
Net loss$3.27 million; $0.11 per share$3.71 million; $0.12 per share in Q1 2016
Operating cash flow-$9.00 million-$9.09 million in Q1 2016
Cash, cash equivalents and short-term investments$16.45 million$25.46 million at December 31, 2016
Total assets$17.90 million$27.47 million at December 31, 2016
Total liabilities$2.01 million$8.50 million at December 31, 2016
Stockholders’ equity$15.89 million$18.97 million at December 31, 2016

There were no product sales, so conventional product gross margins are not applicable. Collaboration revenue recognized in Q1 2016 came from the remaining deferred Teva reimbursement; that balance had been fully recognized by 2016. The filing reports no material interest-rate exposure; it estimates a 1% rate increase would reduce investment fair value by about $0.1 million. No off-balance-sheet financing arrangements were reported.

Material changes versus prior periods

  • R&D expense fell to $0.91 million from $4.64 million in Q1 2016, mainly as custirsen development ended and clinical activity and other costs declined.
  • G&A expense rose to $2.53 million from $2.30 million, largely due to legal costs for the proposed Achieve merger.
  • The company recorded a $0.10 million restructuring recovery, compared with $0.43 million of restructuring expense in Q1 2016. Prior workforce reductions eliminated 30 positions across 2016; the filing says 12 employees remained.
  • Cash and investments declined by about $9.0 million from year-end. Operating cash use was partly offset by $9.48 million of investment maturities.
  • Lower clinical accruals after discontinuing custirsen contributed to the decline in total liabilities.

Outlook, commentary, and risks

  • Management believed available cash, cash equivalents and short-term investments would fund currently planned operations for at least 12 months, while warning that assumptions could prove wrong and additional capital might be needed sooner.
  • The merger was targeted to close in mid-2017, subject to stockholder approval and other conditions. Achieve holders were expected to own about 75% of the combined company and OncoGenex holders about 25%. A May 3 amendment capped the contemplated reverse split at 20-for-1.
  • Custirsen development was discontinued after its Phase 3 trials did not meet primary endpoints. OGX-225 was also discontinued. OncoGenex was seeking a partner to fund and develop apatorsen and did not plan further company-funded studies at that time.
  • The final enrolled apatorsen Phase 2 Spruce-2 trial was expected to report results in the second half of 2017. Management cautioned that most apatorsen Phase 2 trials failed their predefined endpoints; a partner and further funding would be needed for additional development.
  • Existing stockholders were expected to receive non-transferable contingent value rights tied to possible apatorsen-related milestones for five years after the merger. The filing says their value was uncertain; if no third-party term sheet was obtained by the end of the defined six-month period beginning in February 2017, the combined company would no longer be required to pursue an apatorsen deal under the CVR terms.
  • Merger failure could result in termination fees and expenses, continued operating costs, or a possible board decision to liquidate. The company also disclosed NASDAQ’s minimum-bid-price deficiency and planned a reverse split if needed to regain compliance.
  • Other key risks include clinical and regulatory failure, inability to secure a development partner or financing, merger delays, employee attrition, manufacturing and intellectual-property risks, and potential dilution. Management reported disclosure controls were effective at quarter-end.

Investor verification priorities

  1. Confirm whether the merger closed, its final exchange ratio and reverse-split terms, and the resulting ownership and dilution.
  2. Track actual cash burn, available liquidity, and whether the stated 12-month funding runway remained valid after the quarter.
  3. Review subsequent apatorsen trial results, any partnership or term sheet, and the final CVR terms and milestone economics.
  4. Verify the status of NASDAQ listing compliance and any financing, termination fees, or liquidation-related actions.
  5. Assess remaining contractual, patent-abandonment, lease, severance and other contingent obligations following discontinued programs.