OncoGenex Pharmaceuticals, Inc. — Q3 2014 Form 10-Q
Filing identity: The supplied filing is for OncoGenex Pharmaceuticals, Inc., not Achieve Life Sciences, Inc. It reports the quarter ended September 30, 2014; financial statements are unaudited. Amounts below are in U.S. dollars unless noted.
Business context and reporting period
OncoGenex is a clinical-stage biopharmaceutical company developing cancer therapies. Its candidates were custirsen, partnered with Teva; apatorsen; and OGX-225. It had no product-sales revenue; reported collaboration revenue primarily reflected Teva reimbursements and prior collaboration consideration.
Financial performance and liquidity
| Metric | Three months ended Sep. 30, 2014 | Three months ended Sep. 30, 2013 | Nine months ended Sep. 30, 2014 | Nine months ended Sep. 30, 2013 |
|---|---|---|---|---|
| Collaboration revenue | $4.8 million | $9.9 million | $21.5 million | $21.3 million |
| Research and development | $9.6 million | $18.0 million | $36.4 million | $42.1 million |
| General and administrative | $2.5 million | $2.5 million | $7.9 million | $7.4 million |
| Net loss | $4.9 million | $10.1 million | $20.6 million | $25.2 million |
| Basic and diluted loss per share | $0.23 | $0.68 | $1.21 | $1.72 |
| Operating cash used | Not provided for quarter | Not provided for quarter | $10.4 million | $28.4 million |
- At September 30, 2014, cash and cash equivalents were $49.0 million, short-term investments $5.1 million, and amounts receivable $4.8 million. Total current assets were $61.3 million against current liabilities of $20.9 million; the implied current ratio was approximately 2.9.
- Total liabilities were $23.8 million, including $4.0 million of long-term obligations ($1.1 million current and $2.9 million non-current) and a $4.0 million warrant liability. The filing also reports a $3.3 million excess-facility lease liability.
- Cash increased by $34.4 million in the first nine months, primarily reflecting $22.4 million net proceeds from a July registered offering and $2.9 million net proceeds from at-the-market share sales. Financing activities provided $25.2 million; investing activities provided $19.5 million, largely from investment maturities.
- Operating expenses exceeded collaboration revenue, so an operating margin is not meaningful; the filing does not present a gross margin measure.
Material changes versus prior comparable periods
- Q3 revenue fell 51% year over year, mainly because 2013 included higher reimbursable combination-drug purchases for the AFFINITY trial. Nine-month revenue was broadly flat, up about 1%.
- R&D expense declined 47% in Q3 and 14% for nine months, principally due to lower Borealis-1 trial costs as patients came off treatment and fewer AFFINITY combination-drug purchases.
- Net loss narrowed year over year in both periods. The 2014 results included a $2.9 million gain from revaluing liability-classified warrants; this noncash gain reduced reported losses.
- Cash and cash equivalents plus short-term investments rose to $54.0 million from $39.2 million at December 31, 2013. Total liabilities increased to $23.8 million from $18.5 million, primarily reflecting higher clinical-trial accruals.
Outlook, commentary, risks, and unusual items
- Management expected available capital, including Teva receivables, to fund currently planned operations into the third quarter of 2016. This estimate depends on assumptions; the filing warns funding could be needed sooner if trial costs, timing, or development plans change. Additional financing may be required and may not be available on acceptable terms.
- The Phase 3 SYNERGY trial of custirsen did not meet its primary overall-survival endpoint: median survival was 23.4 months with custirsen versus 22.2 months with control (hazard ratio 0.93; one-sided p=0.207). Post-hoc analyses suggested a possible effect in patients with poor-prognosis features, but those observations do not alter the failed primary endpoint.
- AFFINITY completed enrollment of 635 patients; its futility interim analysis was projected for Q1 2015 and final results for late 2015 or early 2016. ENSPIRIT continued after its first futility analysis, completed in August 2014. Borealis-1 results were expected by the end of Q1 2015.
- Teva had exclusive worldwide development and commercialization rights to custirsen and was funding development costs beyond OncoGenex’s completed $30 million contribution. OncoGenex had exercised its option to negotiate a U.S. and Canada co-promotion agreement; no product milestones or royalties were received in 2013 or the first nine months of 2014.
- Key risks include clinical failure, reliance on Teva, the absence of product revenue, potential need for further capital and dilution, trial and manufacturing delays, regulatory uncertainty, and intellectual-property and licensing exposures. OncoGenex also disclosed potential Isis payment obligations relating to Teva milestones; the precise amount is disputed or uncertain.
- Other notable items: July financing issued common shares and warrants, including liability-classified warrants; the warrant revaluation gain is sensitive to model assumptions. Management reported effective disclosure controls and no material subsequent event through the filing’s evaluation date.
Most important facts for investors to verify
- Confirm the issuer: this source is an OncoGenex 10-Q, despite the request metadata naming Achieve Life Sciences.
- Review the full SYNERGY data and subsequent outcomes of AFFINITY, ENSPIRIT, and the apatorsen trials, including any changes to trial plans or timelines.
- Assess the assumptions behind management’s stated runway into Q3 2016 and monitor operating cash use, Teva reimbursements, and potential financing needs.
- Check the dilution and potential share issuance from the July warrants and remaining at-the-market program capacity, as well as the valuation of the warrant liability.
- Review contractual terms and potential payments to Teva, Isis, and UBC, including the uncertain treatment of milestone receipts and the change-of-control obligation.