ACHIEVE LIFE SCIENCES, INC. quarterly report, Q3 FY2011

Business context and reporting period

The supplied filing is OncoGenex Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2011. This differs from the request metadata naming Achieve Life Sciences, Inc. The company was a clinical-stage cancer therapeutics developer, with no product sales; its reported revenue was collaboration-related.

Financial highlights

Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.

MetricQ3 2011Q3 2010Nine months 2011Nine months 2010
Collaboration revenue$1.17$4.88$4.26$11.28
Research and development$3.81$6.72$14.08$16.18
General and administrative$1.46$1.07$4.50$3.89
Operating loss$4.10$6.95$14.32$12.83
Net income (loss)$4.47$(6.89)$(5.10)$(9.78)
Basic earnings (loss) per share$0.46$(1.07)$(0.52)$(1.53)

Q3 2011 net income primarily reflected an $8.58 million noncash gain from revaluing warrants; the nine-month warrant gain was $9.02 million. The company reported no product revenue and no gross margin figure.

  • Cash flow: Operating cash use was $15.82 million for the first nine months of 2011, versus $23.13 million in 2010. Investing activities provided $7.86 million, primarily reflecting investment maturities and purchases; financing provided $0.21 million.
  • Liquidity: At September 30, cash and cash equivalents were $15.72 million and short-term investments were $53.53 million, totaling approximately $69.26 million; restricted cash was $0.38 million. Current assets were $73.97 million and current liabilities $19.12 million.
  • Balance sheet: Total assets were $74.68 million, liabilities $34.66 million, and shareholders’ equity $40.03 million. Accumulated deficit was $71.17 million. The company reported no borrowing or credit facilities.
  • Obligations: Balance-sheet current and long-term obligations totaled $7.91 million. Separately, the company reported a $7.22 million liability for excess Bothell facilities. These amounts are not described as conventional borrowings.

Changes versus prior comparable periods

  • Revenue fell 76% in Q3 and 62% for the first nine months, mainly due to lower SATURN trial activity and reduced reimbursement revenue; Teva had begun paying manufacturing costs directly.
  • R&D declined year over year, reflecting lower custirsen trial and manufacturing costs, partly offset by higher OGX-427 activity. Nine-month G&A increased, largely due to employee and stock-based compensation costs.
  • The company moved from a Q3 2010 net loss to Q3 2011 net income because of the warrant revaluation gain, despite an operating loss. The nine-month net loss narrowed year over year.
  • Total assets declined from $89.92 million at December 31, 2010, mainly as cash and investments funded operations. Total liabilities fell from $45.79 million, principally reflecting warrant revaluation and other liability changes.

Outlook, commentary and risks

  • Management estimated existing resources would fund currently planned operations into 2014. It expected substantial future losses and anticipated R&D spending would increase; additional development beyond the stated plan could require new funding.
  • Under its Teva agreement, OncoGenex was responsible for $30 million of custirsen development costs. It had incurred $11 million by September 30, leaving a $19 million commitment. Management expected the related revenue-recognition performance period to continue into Q4 2013.
  • SYNERGY and SATURN were ongoing Phase 3 prostate cancer trials, with primary results projected for Q4 2013. SATURN had faced enrollment challenges; an FDA-agreed amendment added cabazitaxel and broadened eligibility. The planned Phase 3 NSCLC trial was delayed while the companies assessed chemotherapy combination and safety considerations.
  • The company initiated a Phase 2 OGX-427 metastatic bladder cancer trial in Q4 2011 and was evaluating partners to expand OGX-427 development. OGX-225 and CSP-9222 remained preclinical.
  • Key risks included clinical-trial failure or delay, dependence on Teva for custirsen development and commercialization, manufacturing and regulatory hurdles, financing needs, competition, and the ability to sublease or exit excess Bothell space.
  • Potential payments to Isis remain uncertain: the company disputed Isis’s position that it could be entitled to 30% of Teva milestone payments and stated that some milestones might instead qualify for lower payment obligations. The company could not assure the eventual amount.

Most important facts for investors to verify

  • Confirm the registrant identity: the supplied filing is for OncoGenex, not Achieve Life Sciences.
  • Assess whether the estimated cash runway into 2014 remains adequate against the $19 million remaining custirsen commitment, planned trials, and expected rising R&D costs.
  • Track SYNERGY and SATURN enrollment, timing and results, and the status and rationale for the delayed NSCLC Phase 3 trial.
  • Separate operating performance from the noncash warrant gain when evaluating Q3 2011 profitability; the company continued to report an operating loss and cash burn.
  • Review the fair-value assumptions behind the $6.25 million remaining warrant liability and the terms and classification of lease-related obligations.
  • Monitor the unresolved Isis payment interpretation, Teva collaboration obligations, and the company’s ability to secure funding or partners for other pipeline programs.