ACHIEVE LIFE SCIENCES, INC. quarterly report, Q2 FY2016

Business context and reporting period

This is OncoGenex Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2016. The request identifies Achieve Life Sciences, Inc.; the filing itself names OncoGenex, so the issuer identity should be verified.

OncoGenex was a clinical-stage biopharmaceutical company developing cancer drug candidates custirsen, apatorsen and OGX-225. It had no product-sales revenue; reported revenue was collaboration revenue from recognizing Teva’s previously received advance reimbursement for custirsen development costs.

Financial performance and position

Gross margin is not applicable to this development-stage business, and the filing does not present a product-sales margin. For the six months, operating cash flow was negative $15.4 million, compared with positive $10.2 million in the prior-year period. Financing cash flow was zero; investing cash flow was negative $8.3 million, largely reflecting purchases and maturities of short-term investments.

At June 30, cash and cash equivalents were $10.6 million and short-term investments were $29.1 million, totaling $39.7 million, down from $55.2 million at year-end 2015. Current assets were $41.4 million and current liabilities $13.9 million. Total liabilities were $13.9 million, including $141,000 of long-term obligations; the filing reports no material funded debt. Stockholders’ equity was $28.2 million and accumulated deficit was $187.4 million.

Changes versus the prior comparable period

• Second-quarter revenue declined to $2.1 million from $4.0 million; first-half revenue fell to $5.1 million from $5.4 million. The Teva advance reimbursement was fully recognized by June 30, 2016, so management expected no further collaboration revenue beyond amounts already received.
• Second-quarter R&D expense declined 29% and G&A expense declined 19% year over year. First-half R&D and G&A expenses also declined, by approximately 9% and 17%, respectively, reflecting lower trial, professional, facility and personnel costs, partly offset by increased responsibility for ENSPIRIT costs.
• First-half net loss was broadly unchanged from $10.5 million in 2015. The company recorded a $1.4 million litigation-settlement expense in 2016; no such expense was reported in 2015.
• Cash and short-term investments fell by $15.5 million from December 31, 2015. The company also reduced its workforce by 11 employees, approximately 27% of its pre-reduction staff, and incurred about $0.4 million in restructuring costs.

Outlook, commentary and risks

Management estimated that available cash, cash equivalents and short-term investments would fund currently planned operations into the third quarter of 2017. This estimate depends on assumptions about trial timing and costs; management warned that additional funding could be needed sooner, and that financing might not be available on acceptable terms or at all. No product revenue had been generated, and the company expected continuing losses.

• Custirsen AFFINITY Phase 3 final survival results were expected in the third quarter of 2016. ENSPIRIT results were expected in the first half of 2017. The earlier SYNERGY Phase 3 trial did not meet its primary overall-survival endpoint.
• Apatorsen Borealis-2 Phase 2 results were expected in the fourth quarter of 2016. Results from the pancreatic Rainier trial did not show an overall-survival benefit, and the Spruce trial did not meet its statistical threshold for a progression-free-survival benefit.
• In August 2016, after quarter-end, the company settled Ionis litigation. It agreed to pay $1.4 million upfront and potentially up to $5.0 million in success-based payments tied to custirsen royalties and commercial transactions, subject to specified limits and change-of-control provisions.
• The company had accrued a $1.3 million lease-termination liability related to a potential additional payment to its former landlord, contingent on specified clinical and financing events. It also reported a $1.0 million liability-classified warrant balance, whose valuation depends on estimates including share-price volatility.
• Key risks include clinical-trial failure or delay, reliance on third parties for trial conduct and manufacturing, the need for additional capital or a collaborator, regulatory uncertainty, and intellectual-property and licensing obligations. Management reported effective disclosure controls at quarter-end.

Most important facts for investors to verify

• Confirm the issuer: the filing is for OncoGenex Pharmaceuticals, Inc., not the company named in the request.
• Check the actual timing, results and implications of AFFINITY, ENSPIRIT and Borealis-2, as well as any subsequent changes to trial plans.
• Assess cash burn against the stated runway into Q3 2017 and determine whether additional financing or a partnership was required.
• Review the Ionis settlement’s upfront payment, success-based obligations and potential change-of-control acceleration, and confirm how these were reflected in subsequent financial statements.
• Verify whether the contingent $1.3 million lease-termination payment became payable and monitor changes in trial-related accruals and warrant valuation.