ACHIEVE LIFE SCIENCES, INC. quarterly report, Q1 FY2015

Business context and reporting period

This is OncoGenex Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2015; the filing identifies OncoGenex as a clinical-stage biopharmaceutical company. The request metadata names Achieve Life Sciences, Inc., but the supplied filing is for OncoGenex.

The company was developing cancer drug candidates custirsen, apatorsen and OGX-225 and had no product-sale revenue. Its results depended primarily on collaboration revenue and financing.

Financial results and liquidity

At March 31, cash and cash equivalents were $25.3 million and short-term investments were $15.1 million, totaling $40.4 million. Total assets were $46.4 million; total liabilities were $16.4 million; and stockholders’ equity was $30.0 million. Accumulated deficit was $164.5 million. The filing reports no material debt balance: obligations were $0.2 million in total, separate from a $2.5 million warrant liability.

No product-sales margins were reported. The company reported a $0.5 million noncash gain from revaluing liability-classified warrants, versus a $0.7 million loss in Q1 2014. Cash and investments declined from $47.1 million at December 31, 2014, while current assets declined to $45.5 million and current liabilities to $16.2 million.

Material changes and unusual items

• Revenue fell primarily because of lower Teva collaboration activity. R&D expense also fell substantially, chiefly from lower clinical-trial costs as patients came off treatment. The lower net loss therefore coincided with much lower revenue and does not indicate product commercialization.
• In April 2015, after quarter-end, the company terminated its Teva collaboration and regained custirsen rights. Teva paid approximately $23.2 million as an advance reimbursement for future research and development, from a stated $27.0 million amount reduced by approximately $3.8 million. A $3.0 million holdback remains subject to deductions and staged payments. The company assumed responsibility for custirsen costs from January 1, 2015.
• In May 2015, Isis requested 30% of the Teva termination payment and any holdback releases. OncoGenex stated it did not believe payment was due because the amounts were research-and-development reimbursement; the matter is a potential contingency to monitor.
• The company paid a $2.0 million fee to terminate its former Bothell lease and recorded an additional $1.3 million contingent lease termination liability, dependent on clinical and financing milestones.
• In April, OncoGenex entered a financing agreement with Lincoln Park Capital (LPC): an initial $2.0 million unit purchase and a right, subject to conditions, to sell up to a further $16.0 million of shares over 24 months. The company also issued 126,582 shares as consideration without cash proceeds. The earlier ATM sales agreement was terminated.

Outlook, management commentary and risks

Management estimated available resources would fund currently planned operations into the third quarter of 2016, including the AFFINITY trial results and ENSPIRIT through its planned second futility analysis. It said additional capital would be needed to continue ENSPIRIT beyond late 2015 or early 2016. The estimate is subject to trial timing, costs and other assumptions; the filing cautions that funds could be used sooner than expected.

• Custirsen’s phase 3 SYNERGY trial had failed to meet its primary overall-survival endpoint. AFFINITY was continuing after an interim futility review; the company was seeking regulatory advice on adding a poor-prognosis co-primary analysis.
• ENSPIRIT, a phase 3 NSCLC trial, had a protocol amendment intended to reduce enrollment and move the second futility review earlier; regulatory approval and sponsor transfers were ongoing. Final results were estimated for the second half of 2016, subject to trial progress.
• Apatorsen studies were at phase 2; several enrollment or data milestones were expected during late 2015 or 2016. OGX-225 had not been tested in humans.
• Key risks include clinical failure or delay, regulatory approval and trial-amendment uncertainty, dependence on third-party manufacturers and trial contractors, the need for additional financing or a partner, potential dilution from equity sales, and patent and product-liability exposure.

Disclosure controls and procedures were assessed as effective at quarter-end; the company reported no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

1. Cash actually received under the Teva termination, the remaining holdback and any deductions or future reimbursement obligations.
2. Whether the Isis payment request is resolved and whether any related liability or cash outflow arises.
3. Clinical and regulatory developments for AFFINITY and ENSPIRIT, including futility decisions, protocol approvals, sponsorship transfer and the cost to continue trials.
4. Whether LPC purchases or other financing provide sufficient capital, and the resulting share dilution and runway.
5. Clinical outcomes for apatorsen and the contingent $1.3 million lease payment triggers.