Business context and reporting period
OncoGenex Pharmaceuticals, Inc. (the registrant in this filing) reported unaudited results for the quarter and six months ended June 30, 2017. It was a clinical-stage biopharmaceutical company with no product sales. Its proposed all-stock merger with Achieve Life Sciences was pending; after closing, the combined company was expected to be renamed Achieve Life Sciences, with Achieve stockholders owning about 75% and existing OncoGenex holders about 25%.
Financial results and liquidity
Amounts below are in U.S. dollars. Income statement and balance-sheet figures are in millions; cash-flow figures cover the six months ended June 30.
| Metric | Q2 2017 / June 30, 2017 | Comparable period / December 31, 2016 |
|---|---|---|
| Collaboration revenue | $0 | Q2 2016: $2.1 million |
| Operating expenses | $3.1 million | Q2 2016: $8.5 million |
| Net loss | $3.0 million; $0.10 per share | Q2 2016: $6.9 million; $0.23 per share |
| Six-month revenue | $0 | Six months 2016: $5.1 million |
| Six-month net loss | $6.3 million; $0.21 per share | Six months 2016: $10.6 million; $0.35 per share |
| Cash and cash equivalents | $13.9 million | $15.2 million |
| Current assets | $14.5 million | $26.9 million |
| Total assets | $14.9 million | $27.5 million |
| Total liabilities | $1.8 million | $8.5 million |
| Stockholders’ equity | $13.1 million | $19.0 million |
For the six months, net cash used in operations was $11.5 million, compared with $15.4 million in 2016. Investing activities provided $10.2 million, mainly from maturities of short-term investments; financing activities used $22,000. Cash, cash equivalents and short-term investments totaled $13.9 million at June 30, versus $25.5 million at year-end. Restricted cash was $0.3 million. Long-term obligations were $68,000, including the current portion; the filing reports no material off-balance-sheet financing arrangements.
Margins are not meaningful because the company reported no revenue in 2017. Management stated that existing cash and investments were expected to fund currently planned operations for at least 12 months, subject to assumptions and possible earlier funding needs.
Material changes versus the prior comparable period
- Quarterly and six-month revenue fell to zero after the company fully recognized Teva’s remaining advance reimbursement in 2016; no further Teva payments were expected.
- Research and development expense fell to $0.8 million for Q2 and $1.7 million for the half year, from $4.7 million and $9.3 million, respectively, largely because custirsen development had been discontinued and other development activity and staffing had been reduced.
- General and administrative expense was $2.3 million in Q2, down from $2.5 million; the six-month total rose slightly to $4.9 million from $4.8 million, with merger-related legal fees partly offsetting lower staffing and consulting costs.
- Operating cash use improved year over year, but the cash and investment balance declined by $11.6 million from year-end. Lower accrued clinical liabilities and payables contributed to the balance-sheet decline in liabilities.
Outlook, risks and unusual items
- Merger: The shareholder vote was scheduled for August 1, 2017, and completion remained subject to approvals and other closing conditions. Specified termination circumstances could trigger a $0.5 million fee; certain covenant breaches could trigger a $1.0 million fee, and expense reimbursement of up to $0.5 million could also apply. OncoGenex had paid $0.4 million of Achieve’s transaction costs by June 30.
- Apatorsen and CVRs: The company did not intend to conduct further apatorsen studies without a collaboration partner and had not identified one. The planned CVRs would pass through 80% of specified apatorsen-related consideration, net of agreed offsets, if milestones were achieved within five years after the merger. The filing cautions that the CVRs might have no value; if no third-party term sheet was secured by August 17, 2017, the combined company would no longer be contractually required to pursue an apatorsen agreement and no CVR consideration would be payable.
- Pipeline: Custirsen was discontinued after failing to meet primary endpoints in three Phase 3 trials; OGX-225 was also discontinued. All six completed Phase 2 apatorsen trials were described, with results mixed; most failed their predefined endpoints. Management characterized one bladder-cancer trial as meeting its primary endpoint under a one-sided 0.10 significance test.
- Funding and listing: The company had no product-sales revenue and expected continued losses. It warned that a delayed or failed merger, inability to find an apatorsen partner, litigation, or changed development plans could accelerate its need for capital. Nasdaq had notified the company that it was below the $1.00 minimum bid-price requirement; the company intended to regain compliance, potentially through a reverse stock split after the merger. Failure could jeopardize listing and merger completion.
- Other items: A $0.1 million six-month restructuring recovery reflected revised estimates. A $0.1 million gain on warrant revaluation reduced the reported loss. The company disclosed $0.4 million of accrued termination liability under a consultant agreement with the CEO’s spouse, who received about $0.1 million in consulting payments in the half year.
- Management stated that disclosure controls and procedures were effective at quarter-end and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the merger closed, the final ownership and dilution terms, and any effects of the July 19, 2017 merger-agreement amendment.
- Whether an apatorsen partner or term sheet was secured by August 17, 2017, and the final CVR terms, offsets and milestone conditions.
- Cash burn and available liquidity after June 30, including whether the stated 12-month runway remained achievable and whether new financing was needed.
- Nasdaq compliance status, any reverse stock split, and continued listing of the combined company.
- Final apatorsen trial data and the remaining obligations, if any, associated with discontinued programs, leases, merger costs and contingencies.