OncoGenex Pharmaceuticals, Inc. — Form 10-Q summary
Filing identity: The supplied filing is for OncoGenex Pharmaceuticals, Inc., not Achieve Life Sciences, Inc. It covers the quarter and six months ended June 30, 2011; the financial statements are unaudited. Amounts below are U.S. dollars unless noted.
Business context and reporting period
OncoGenex was a clinical-stage biopharmaceutical company developing cancer therapies intended to address treatment resistance. It reported four candidates: custirsen, OGX-427, OGX-225 and CSP-9222. The company had no product-sale revenue; reported revenue came from its Teva collaboration. The registrant reported 9,725,489 common shares outstanding at August 1, 2011.
Financial performance and position
| Metric | Three months ended June 30, 2011 | Six months ended June 30, 2011 | Comparable 2010 period |
|---|---|---|---|
| Collaboration revenue | $1.887 million | $3.086 million | $1.701 million / $6.401 million |
| Research and development expense | $5.409 million | $10.262 million | $3.079 million / $9.459 million |
| General and administrative expense | $1.471 million | $3.042 million | $1.475 million / $2.825 million |
| Net loss (income) | $6.530 million loss | $9.575 million loss | $0.154 million income / $2.890 million loss |
| Basic and diluted loss (income) per share | $0.67 loss | $0.99 loss | $0.02 income / $0.45 loss |
| Cash used in operating activities | Not separately stated | $9.631 million | $17.756 million used |
Operating loss was $4.993 million for the quarter and $10.218 million for the six-month period. The quarter’s results included a $1.687 million warrant revaluation loss; for the six months, warrant revaluation produced a $0.441 million gain. The 2010 quarterly and six-month results included a $3 million tax recovery, contributing to the reported 2010 quarterly net income.
At June 30, 2011, cash and cash equivalents were $20.876 million and short-term investments were $54.536 million, totaling $75.412 million; total current assets were $78.809 million. Total assets were $79.525 million, total liabilities $44.327 million, and shareholders’ equity $35.198 million. The company had a $14.828 million warrant liability and $19.866 million in current and noncurrent deferred collaboration revenue. It reported no borrowing or credit facilities. The filing does not provide a separate operating margin measure; the company recorded an operating loss.
Cash and short-term investments declined from $85.107 million at December 31, 2010. Cash and cash equivalents alone decreased by $2.657 million in the six months; investing activities provided $6.969 million, largely reflecting investment purchases and maturities, while financing activities provided $0.091 million.
Material changes versus prior periods
- Quarterly revenue increased 11% year over year, while six-month revenue declined about 52%, primarily because lower manufacturing-cost reimbursements were recorded as Teva paid those costs directly.
- Quarterly R&D expense rose about 76%; six-month R&D expense increased about 8%. Higher OGX-427 development costs and employee expenses contributed, partly offset in the six-month comparison by lower custirsen manufacturing costs.
- Quarterly net loss increased from 2010’s reported net income, which included the $3 million tax recovery. Six-month net loss increased from $2.890 million to $9.575 million.
- Operating cash use improved to $9.631 million from $17.756 million, principally because of 2010 payments to Isis and UBC and lower custirsen manufacturing costs.
- Total assets fell $10.393 million and shareholders’ equity fell $8.927 million from year-end 2010, principally reflecting use of cash and investments to fund operations and the accumulated loss.
Outlook, management commentary and key risks
- Management estimated existing capital resources would fund currently planned operations into mid-2014. This outlook included specified custirsen and OGX-427 trials and depended on planned spending; additional programs or delays could require financing sooner. Management expected R&D spending to increase.
- Under the Teva collaboration, OncoGenex was responsible for $30 million of direct and indirect development costs; $10.1 million had been incurred by June 30, leaving $19.9 million. Teva was to fund other clinical development plan expenses. Up to $370 million in milestone payments and tiered royalties were potential, not assured, future consideration; the company did not expect milestone payments in 2011.
- SYNERGY, a Phase 3 custirsen trial in prostate cancer, was expected to report survival-endpoint results in Q4 2013, with at least 800 patients planned. FDA discussions indicated an application primarily supported by SYNERGY could be acceptable for submission.
- SATURN enrollment had been slow under restrictive eligibility criteria. The company had proposed broadening eligibility to include docetaxel retreatment or cabazitaxel and was awaiting final written FDA agreement on the SPA amendment. Its pain-palliation results outlook moved from Q2 to Q4 2013.
- The planned Phase 3 custirsen trial in non-small cell lung cancer was delayed while the partners assessed the chemotherapy combination, safety considerations and evolving standard of care; the filing said initiation in 2011 was unlikely.
- The company expected to initiate a randomized Phase 2 OGX-427 bladder-cancer trial in the second half of 2011 and was evaluating partnering alternatives to expand OGX-427 development.
- Key risks included clinical-trial failure or delay, recruitment and safety challenges, dependence on Teva, uncertain regulatory approval and commercialization, reliance on third-party manufacturers, and possible need for further capital. OncoGenex also cited uncertainty in subleasing excess Bothell space and a $7.327 million related lease liability.
- Potential payment obligations to Isis are disputed or uncertain: Isis asserted entitlement to 30% of Teva milestone payments, while OncoGenex believed some sales-related milestones could be treated as royalty revenue and subject to lesser obligations. The filing provides no assurance of the ultimate amount.
- Management concluded 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
- Confirm this is the intended issuer: the filing names OncoGenex Pharmaceuticals, Inc., whereas the request metadata names Achieve Life Sciences, Inc.
- Track FDA’s final written decision on the SATURN SPA amendment, patient enrollment and the revised Q4 2013 results timing.
- Monitor SYNERGY enrollment and the expected Q4 2013 survival results, as well as the status and timing of the delayed NSCLC trial.
- Assess the assumptions underlying management’s mid-2014 cash runway, the remaining $19.9 million development commitment and any unplanned pipeline spending.
- Verify the resolution and potential financial impact of the Isis milestone-payment dispute, and the company’s ability to exit or sublease excess facilities.