ACHIEVE LIFE SCIENCES, INC. quarterly report, Q2 FY2012

Business context and reporting period

The filing is OncoGenex Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2012. 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, with no product-sales revenue. Its reported revenue came from its Teva collaboration.

Financial results and position

Amounts below are in U.S. dollars; income-statement and cash-flow amounts are in millions.

MetricQ2 2012Q2 2011Six months 2012Six months 2011
Collaboration revenue$2.429$1.887$3.745$3.086
Research and development expense$6.326$5.409$11.408$10.262
General and administrative expense$2.047$1.471$3.784$3.042
Operating loss$(5.944)$(4.993)$(11.447)$(10.218)
Net loss$(4.215)$(6.530)$(11.075)$(9.575)
Basic and diluted loss per share$(0.29)$(0.67)$(0.89)$(0.99)

Revenue was entirely collaboration-related, so a conventional operating margin is not especially informative. Cash used in operating activities was $21.061 million in the first half of 2012, versus $9.631 million in the prior-year period. Financing activities provided $53.891 million, primarily from a March public offering; investing activities used $47.486 million, largely reflecting purchases and sales of marketable securities.

At June 30, 2012, cash and cash equivalents were $13.842 million and short-term investments were $83.806 million, totaling $97.648 million; restricted cash was a further $0.314 million. Current assets were $104.888 million and current liabilities $27.362 million, implying working capital of approximately $77.526 million. Total liabilities were $33.302 million, including reported current and long-term obligations of $7.380 million. The filing identifies a $6.651 million excess-facilities lease liability. It does not describe conventional funded debt. Accumulated deficit was $91.817 million.

Material changes versus the prior comparable period

  • First-half revenue rose 21% to $3.745 million, while R&D and G&A expenses increased about 11% and 24%, respectively. Higher clinical-trial activity and employee costs contributed to the expense increases.
  • First-half operating loss widened to $11.447 million and net loss increased to $11.075 million. Q2 net loss narrowed year over year, substantially because warrant revaluation produced a $1.644 million gain in Q2 2012 versus a $1.687 million loss in Q2 2011; the warrant gain is a non-cash item.
  • Cash, cash equivalents and short-term investments increased from $64.927 million at December 31, 2011 to $97.648 million at June 30, 2012, primarily following the March offering. The offering issued 4,789,750 shares at $12 each and generated approximately $53.8 million net proceeds; shares outstanding were 14,573,507 at July 30, 2012.
  • The Teva clinical plan was revised: AFFINITY replaced the planned SATURN pain-palliation study, and ENSPIRIT was added as a Phase 3 non-small-cell lung cancer study. OncoGenex terminated the Bayer license for CSP-9222 and discontinued that program.

Outlook, commentary, risks and contingencies

  • Management believed available capital would fund currently planned operations into 2015, including planned custirsen and OGX-427 studies. It cautioned that final AFFINITY and ENSPIRIT results could occur beyond the period covered by projected cash resources, and that further unplanned development could require additional funding.
  • Management expected remaining current deferred Teva collaboration revenue of $15.4 million to be recognized by Q4 2012 as eligible development costs were incurred. OncoGenex had a remaining $15.4 million contribution commitment toward the custirsen clinical plan; Teva was responsible for other plan costs. The company did not expect Teva milestone payments in 2012.
  • Management expected R&D expense to increase, potentially significantly, as development expanded. The company had no approved products and expected continuing losses; it had not generated product-sales revenue and did not expect sales for several years, if ever.
  • Principal risks include clinical-trial failure or delay, safety or efficacy problems, dependence on Teva for custirsen development and commercialization, reliance on third-party manufacturers and trial operators, competition, regulatory approval uncertainty, and possible need for additional financing.
  • Isis asserted entitlement to 30% of up to $370 million in potential Teva milestones. OncoGenex disputed that interpretation but acknowledged a possible lesser obligation; the filing says the amount payable is uncertain. Other disclosed commitments include milestone and royalty obligations under licenses with Isis and UBC and a $6.7 million excess Bothell lease liability. The company reported no material subsequent events through its evaluation date and no off-balance-sheet financing arrangements.
  • The company reported effective disclosure controls as of quarter-end and no material change in internal control over financial reporting during the quarter.

Most important facts for investors to verify

  1. Confirm the issuer: this filing is for OncoGenex Pharmaceuticals, Inc., not the company named in the request metadata.
  2. Track clinical-trial enrollment, timing and outcomes for SYNERGY, AFFINITY and ENSPIRIT, as well as OGX-427 studies.
  3. Assess cash burn against management’s runway estimate, particularly as operating cash use rose to $21.1 million in the first half.
  4. Verify the scope and timing of OncoGenex’s remaining $15.4 million Teva-plan funding commitment and recognition of deferred collaboration revenue.
  5. Monitor the unresolved Isis milestone-sharing interpretation, lease exposure and any financing needs if trial costs, timing or plans change.