Oncolytics Biotech Inc. — 2017 Form 20-F
Reporting period: Fiscal year ended December 31, 2017. The company reports in Canadian dollars under IFRS. This is an annual report, not a quarterly filing. Oncolytics is a development-stage biotechnology company focused on pelareorep (REOLYSIN), an investigational oncolytic virus for cancer; it had no operating revenue in 2017.
Key financial metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | None reported | None reported |
| Net loss | $15.62 million | $15.14 million |
| Net loss per share, basic and diluted | $0.12 | $0.13 |
| Research and development expense | $9.39 million | $9.77 million |
| Operating expense | $6.21 million | $5.52 million |
| Cash used in operating activities | $14.89 million | $12.48 million |
| Cash and cash equivalents at year-end | $11.84 million | $12.03 million |
| Short-term investments at year-end | None | $2.09 million |
| Working capital | Approximately $12.59 million | $10.37 million |
| Total assets | $18.15 million | $14.76 million |
| Total liabilities | $9.87 million | $4.07 million |
| Shareholders’ equity | $8.28 million | $10.69 million |
There was no long-term debt. Total liabilities include $6.18 million of deferred licensing consideration recorded as contract liability, not debt. Interest income was $130,101. Operating margins are not meaningful because the company reported no operating revenue. The accumulated deficit was $294.45 million.
Changes versus 2016 and financing
- Net loss increased by about 3%, while operating cash use increased by about 19%. Lower R&D spending was offset by higher operating expenses.
- Cash and cash equivalents declined modestly, and the company redeemed $2.09 million of short-term investments.
- Financing activities provided $12.81 million, primarily from a June public offering and the Canadian at-the-market program. The offering issued 16.445 million units, each comprising a common share and a warrant, for gross proceeds of $11.51 million; each warrant has a $0.95 exercise price.
- Common shares outstanding rose from 121.26 million to 141.81 million. The company reported no dividends declared or paid.
Business developments, outlook and risks
- Adlai licensing agreement: Adlai received exclusive development and commercialization rights for pelareorep in China, Hong Kong, Macau, Singapore, South Korea and Taiwan. The agreement provides for an upfront payment of approximately US$5.3 million, US$7.9 million upon specified regulatory milestones, up to US$65.4 million in other milestones, and royalties exceeding 10%, subject to approval and commercialization. At year-end, the company reported a C$4.77 million contract receivable and C$6.18 million contract liability; no licensing revenue was recognized in 2017. The upfront fee is to be recognized over time, and management estimated the liability would be recognized over the next five years. Adlai is responsible for development and commercialization in the territories, making potential proceeds dependent on its performance and milestone achievements.
- Clinical program: In a Phase 2 metastatic breast cancer trial, the company reported median overall survival of 21.8 months for the hormone-receptor-positive/HER2-negative subgroup receiving pelareorep plus paclitaxel, compared with 10.8 months for paclitaxel alone. This was a subgroup finding, not evidence of regulatory approval. In a small pancreatic cancer study combining pelareorep with pembrolizumab, one of five efficacy-evaluable patients had a partial response and two had stable disease. The product remains investigational; results from early or limited trials may not be confirmed in larger studies.
- Funding and commitments: Management expects significant losses to continue in 2018 and the foreseeable future and anticipates needing additional financing. Contractual obligations totaled $6.72 million, including $5.98 million of clinical-trial, manufacturing and collaboration purchase commitments due within one year and $285,987 of lease payments due within one year. The filing does not provide a definitive cash-runway estimate.
- Principal risks: Clinical efficacy, trial timing and enrollment, regulatory approval, manufacturing capacity and reliance on third parties; the need for additional capital and potential shareholder dilution; and dependence on Adlai for regional development and future payments. The company relies primarily on one U.S. toll manufacturer for clinical-grade product.
- The company believed it was a passive foreign investment company (PFIC) for U.S. tax purposes in 2017 and anticipated possible PFIC status in later years, which may have adverse tax consequences for U.S. shareholders. Shares trade on the TSX and OTCQX; they were delisted from Nasdaq in 2015 and are subject to penny-stock rules in the United States.
Investor facts to verify
- Review the Adlai agreement, collection status of the C$4.77 million receivable, and the timing and conditions for milestone and royalty payments.
- Check subsequent cash balances, operating cash use, financing activity and commitments against the absence of a stated runway estimate.
- Assess the full clinical-trial data, including the size and status of the reported breast-cancer subgroup and the limited pembrolizumab combination results.
- Quantify potential dilution from outstanding options, public-offering warrants and future equity financing.
- Consult a tax adviser regarding PFIC status and available elections; verify the company’s current PFIC information for the relevant tax year.
Audit and controls: Ernst & Young issued an unqualified opinion on the IFRS financial statements. Management reported internal control over financial reporting was effective as of December 31, 2017; the filing did not include an auditor attestation on those controls.