ACHIEVE LIFE SCIENCES, INC. quarterly report, Q1 FY2012

Business context and reporting period

The supplied filing is OncoGenex Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2012. This does not match the request metadata naming Achieve Life Sciences, Inc.; verify the issuer before relying on this summary. OncoGenex was a clinical-stage biopharmaceutical company developing cancer therapies. Its lead candidate, custirsen, was partnered with Teva; OGX-427 was also in clinical development, and OGX-225 was preclinical.

Financial performance and position

Amounts are in U.S. dollars; financial statement figures are in millions unless stated otherwise.

• Revenue was collaboration revenue, not product sales. It included recognition of Teva-related deferred revenue and reimbursable research costs.
• Net loss increased substantially, principally reflecting a $1.430 million warrant revaluation loss in Q1 2012 versus a $2.128 million gain in Q1 2011, alongside higher operating expenses.
• At March 31, 2012, cash and cash equivalents were $56.852 million and short-term investments were $54.469 million, for a combined $111.321 million. Current assets were $114.551 million; total assets were $115.221 million.
• Total liabilities were $37.094 million, including $9.311 million of warrant liability, $17.335 million of deferred collaboration revenue, and $7.571 million of current and long-term obligations. The company reported no borrowing or credit facilities.
• Operating cash burn rose year over year. Financing provided $53.779 million, mainly from a March public offering; investing activities used $18.059 million, primarily from purchases and sales of investments. Cash and cash equivalents increased to $56.852 million from $28.517 million at year-end 2011.
• The March offering issued 4,789,750 shares at $12 per share, producing approximately $53.8 million net proceeds. Shares outstanding were 14,539,869 at March 31, compared with 9,749,819 at December 31, 2011.

Material changes versus the prior comparable period

• Revenue increased modestly, while R&D and general and administrative expenses also increased. Cash used in operations rose by approximately $3.3 million.
• The net loss more than doubled, with the year-over-year swing in warrant revaluation being a major factor.
• The equity offering materially increased cash and shareholders’ equity, while diluting existing shareholders.
• Under a March 2012 amendment to its Teva collaboration, the company revised custirsen’s clinical plan to include the ongoing SYNERGY trial and planned AFFINITY and non-small cell lung cancer Phase 3 trials. The prior SATURN trial was being closed down.
• OncoGenex discontinued CSP-9222 development and gave notice to terminate its Bayer license; the filing states obligations end 60 days after Bayer receives the notice.

Outlook, commentary, risks and unusual items

• Management believed available capital would fund currently planned operations into 2015. This depends on the company’s clinical-development plans and assumptions; management cautioned that final results from the AFFINITY and lung-cancer Phase 3 trials could fall beyond the projected cash runway.
• Management expected R&D expense to increase, potentially significantly, and expected to recognize the remaining $17.3 million of deferred collaboration revenue by Q4 2012 as development costs were incurred. The company did not expect Teva milestone payments in 2012.
• OncoGenex was obligated to fund $30 million of custirsen development costs; $12.7 million had been incurred by March 31, leaving $17.3 million. Teva was to fund other costs under the plan.
• Key risks include clinical-trial delay or failure, regulatory uncertainty, reliance on Teva for custirsen development and commercialization, third-party manufacturing and trial providers, competition, intellectual-property challenges, and potential need for additional financing.
• The company recorded a $6.847 million liability for excess Bothell lease space and was evaluating exit or sublease options. It disclosed no material subsequent events and no off-balance-sheet financing arrangements.
• Management reported disclosure controls were effective at quarter-end and no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

• Confirm that this OncoGenex filing—not an Achieve Life Sciences filing—is the intended document.
• Check the status, enrollment, timelines, and eventual results of SYNERGY, AFFINITY, and the planned custirsen lung-cancer trial, as well as ongoing OGX-427 studies.
• Assess whether the stated cash runway into 2015 remains realistic given clinical spending, the $17.3 million remaining custirsen funding commitment, and trial timing.
• Review Teva’s continuing obligations and the potential financial consequences of collaboration changes or termination, including the company’s dispute with Isis over portions of possible milestone payments.
• Evaluate dilution from the March 2012 share offering and the warrant liability’s sensitivity to valuation assumptions.
• Monitor the excess-facility lease liability and whether OncoGenex can exit or sublease space on its assumptions.