Business context and reporting period
This is OncoGenex Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2013, filed November 7, 2013. The request metadata names Achieve Life Sciences, Inc.; that does not match the registrant identified in the filing. OncoGenex was a clinical-stage biopharmaceutical company developing cancer therapies and had no product-sale revenue.
Revenue was collaboration revenue from Teva, principally reimbursements for custirsen development costs. The filing describes three Phase 3 custirsen trials and a portfolio of apatorsen trials; OGX-225 remained in preclinical development.
Financial performance and liquidity
Amounts below are in millions of U.S. dollars, except per-share amounts and where noted.
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Collaboration revenue | $9.9 | $6.6 | $21.3 | $10.3 |
| Research and development expense | $18.0 | $12.9 | $42.1 | $24.3 |
| General and administrative expense | $2.5 | $2.0 | $7.4 | $5.7 |
| Operating loss, calculated as revenue less operating expenses | $10.6 | $8.3 | $28.3 | $19.7 |
| Net loss | $10.1 | $5.9 | $25.2 | $17.0 |
| Basic and diluted net loss per share | $0.68 | $0.40 | $1.72 | $1.29 |
Operating margins are not a meaningful indicator for this development-stage company; the filing reports no product sales. Higher collaboration reimbursements did not offset the increase in research and development spending.
- Cash and cash equivalents were $13.0 million and short-term investments were $33.8 million at September 30, 2013, totaling $46.8 million, down from $75.4 million at December 31, 2012.
- Amounts receivable, primarily unbilled Teva expense reimbursements, increased to $9.9 million from $0.7 million. The company identified this as a significant concentration of credit risk.
- For the first nine months, operating cash use was $28.4 million versus $34.0 million in 2012. Investing activities provided $23.2 million, mainly from investment maturities; financing provided $0.01 million, compared with $54.2 million in 2012, largely from a public share offering.
- Total assets were $61.6 million, total liabilities $18.1 million, and stockholders’ equity $43.5 million. Accumulated deficit was $127.0 million.
- Current and long-term obligations totaled $4.8 million. The filing principally describes lease-related obligations, including a $4.1 million excess-facility lease liability; it does not provide a clear amount for conventional borrowings.
- Accrued liabilities rose to $11.3 million from $4.2 million, primarily reflecting clinical-trial accruals. The company reported a $0.5 million warrant liability and a $2.9 million nine-month noncash gain from its revaluation.
Material changes versus the prior comparable period
- Nine-month revenue more than doubled year over year, primarily because of Teva reimbursements associated with increased custirsen clinical-development activity, including AFFINITY.
- Nine-month R&D expense rose 73% to $42.1 million, driven by clinical-trial enrollment and treatment, investigator-sponsored trials, staffing, and toxicology work; lower manufacturing costs partly offset increases.
- Nine-month net loss widened by $8.2 million to $25.2 million. Q3 net loss also widened, despite higher revenue, as operating expenses increased and the warrant revaluation gain was lower than in Q3 2012.
- Cash, cash equivalents, and investments declined by $28.6 million from year-end 2012. The 2012 comparison included substantial financing proceeds from a public offering; no shares had been sold under the new $25 million at-the-market facility by September 30, 2013.
Outlook, commentary, risks, and unusual items
- Management said existing cash, investments, and Teva receivables were expected to fund currently planned operations into 2015. It cautioned that estimates could prove wrong and additional funding might be needed, particularly for unplanned development or higher-than-expected trial costs.
- Management expected R&D expense to remain stable for the rest of 2013 and decline somewhat in 2014 and beyond, as much of Borealis-1 spending had occurred and investigator-sponsored apatorsen trials were expected to be less capital intensive.
- SYNERGY’s final survival results were expected by mid-2014; the required death-event timing had shifted later, to late Q1 or early Q2 2014. The company said the trial remained blinded and on plan, and cautioned that slower event accumulation did not indicate the outcome.
- AFFINITY enrollment was expected to finish by the end of 2014. Borealis-1 enrollment was complete, with results expected in the second half of 2014. Teva was responsible for funding remaining expenses under the custirsen development plan, after OncoGenex had met its $30 million contribution.
- Key risks include clinical-trial failure or delay, regulatory uncertainty, dependence on Teva for custirsen development and reimbursements, potential financing needs, third-party manufacturing and collaboration risks, and intellectual-property and competition risks. The company had no product-sales revenue and expected continuing losses.
- Potential additional obligations include milestone and royalty payments to Isis and UBC. The filing notes a dispute over whether Isis would be entitled to 30% of certain Teva milestone payments; the company believes some may instead be treated as royalty revenue, but gives no assurance on the outcome.
- The company reported no material subsequent events and no material change in contractual obligations. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Confirm the registrant identity: this filing is for OncoGenex Pharmaceuticals, Inc., not Achieve Life Sciences, Inc.
- Track cash burn, Teva receivable collection and reimbursement concentration, and whether management’s stated runway into 2015 remains supportable.
- Verify the timing and outcomes of SYNERGY, AFFINITY, ENSPIRIT, and the apatorsen trials, including any enrollment or analysis changes.
- Monitor the Teva collaboration, including funding responsibilities, potential termination rights, milestone prospects, and the Isis/UBC payment obligations.
- Assess potential dilution if the company uses its $25 million at-the-market share offering, and review the lease liabilities and accrued clinical-trial costs.