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EX-31.1 - EX-31.1 - ACHIEVE LIFE SCIENCES, INC.ogxi-ex311_201503316.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED March 31, 2015

or

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______________ TO ____________.

Commission file number 033-80623

OncoGenex Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

95-4343413

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification Number)

19820 North Creek Parkway, Bothell, Washington 98011

(Address of Principal Executive Offices)

(425) 686-1500

(Registrant’s telephone number, including area code)

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x   No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  x   No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

o

 

Accelerated filer

o

 

 

 

 

 

Non-accelerated filer

o

(Do not check if a smaller reporting company)

Smaller reporting company  

x

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).   Yes  o   No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at May 14, 2015

Common Stock, $0.001 par value

 

23,762,606

 

 


OncoGenex Pharmaceuticals, Inc.

Index to Form 10-Q

 

 

Page
Number

 

 

Part I.   Financial Information

3

 

 

 

Item 1

Financial Statements (unaudited)

3

 

 

 

 

Consolidated Balance Sheets as of March 31, 2015 (unaudited) and December 31, 2014

3

 

 

 

 

Consolidated Statements of Loss and Comprehensive Loss (unaudited) for the three months ended March 31, 2015 and March 31, 2014

4

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2015 and March 31, 2014

5

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

 

 

 

Item 4.

Controls and Procedures

26

 

 

Part II.   Other Information

27

 

 

 

Item 1A.

Risk Factors

27

 

 

 

Item 6.

Exhibits

42

 

 

Items 1, 2, 3, 4 and 5 are not applicable and therefore have been omitted.

 

 

 

Signatures

43

 

 

Exhibit Index

44

2


PART I. FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements

OncoGenex Pharmaceuticals, Inc.

Consolidated Balance Sheets

(In thousands, except per share and share amounts) 

 

 

 

March 31,

 

 

December 31,

 

 

 

2015

 

 

2014

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents [note 4]

 

$

25,278

 

 

$

27,897

 

Restricted cash [note 4]

 

 

 

 

 

251

 

Short-term investments [note 4]

 

 

15,091

 

 

 

19,160

 

Interest receivable

 

 

71

 

 

 

113

 

Amounts receivable [note 3]

 

 

1,559

 

 

 

5,676

 

Prepaid expenses

 

 

3,008

 

 

 

2,165

 

Other current assets [note 7]

 

 

499

 

 

 

499

 

Total current assets

 

 

45,506

 

 

 

55,761

 

Restricted cash [note 4]

 

 

190

 

 

 

 

Property and equipment, net

 

 

416

 

 

 

257

 

Other assets

 

 

272

 

 

 

273

 

Total assets

 

$

46,384

 

 

$

56,291

 

LIABILITIES AND STOCKHOLDERS’’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

988

 

 

$

72

 

Accrued liabilities other

 

 

1,014

 

 

 

863

 

Accrued clinical liabilities

 

 

9,665

 

 

 

13,462

 

Accrued compensation

 

 

731

 

 

 

1,333

 

Current portion of long-term obligations [note 6 and 7]

 

 

52

 

 

 

236

 

Lease termination liability [note 6 and note 7]

 

 

1,250

 

 

 

3,250

 

Warrant liability [note 4 and note 5]

 

 

2,537

 

 

 

3,002

 

Total current liabilities

 

 

16,237

 

 

 

22,218

 

Long-term obligations, less current portion [note 7]

 

 

128

 

 

 

14

 

Total liabilities

 

 

16,365

 

 

 

22,232

 

Commitments and contingencies [note 7]

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 50,000,000 shares authorized, 22,688,329 and

   22,630,652 issued at March 31, 2015 and December 31, 2014, respectively, and

   22,679,086 and 22,621,426 outstanding at March 31, 2015 and December 31, 2014,

   respectively

 

 

22

 

 

 

22

 

Additional paid-in capital

 

 

191,889

 

 

 

191,373

 

Accumulated deficit

 

 

(164,527

)

 

 

(159,958

)

Accumulated other comprehensive income

 

 

2,635

 

 

 

2,622

 

Total stockholders' equity

 

 

30,019

 

 

 

34,059

 

Total liabilities and stockholders' equity

 

$

46,384

 

 

$

56,291

 

Subsequent events [note 8]

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

3


OncoGenex Pharmaceuticals, Inc.

Consolidated Statements of Loss and Comprehensive Loss

(Unaudited)

(In thousands, except per share and share amounts)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2015

 

 

2014

 

COLLABORATION REVENUE (note 3)

 

$

1,374

 

 

$

11,731

 

EXPENSES

 

 

 

 

 

 

 

 

Research and development

 

 

3,673

 

 

 

16,903

 

General and administrative

 

 

2,698

 

 

 

2,757

 

Total operating expenses

 

 

6,371

 

 

 

19,660

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

Interest income

 

 

54

 

 

 

12

 

Other

 

 

(39

)

 

 

2

 

Gain (loss) on warrants

 

 

465

 

 

 

(721

)

Total other income (expense)

 

 

480

 

 

 

(707

)

Net loss

 

$

(4,517

)

 

$

(8,636

)

OTHER COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

Net unrealized gain (loss) on securities

 

 

13

 

 

 

(1

)

Total other comprehensive income (loss)

 

 

13

 

 

 

(1

)

Comprehensive loss

 

$

(4,504

)

 

$

(8,637

)

Basic and diluted net loss per common share [note 5]

 

$

(0.20

)

 

$

(0.59

)

Shares used in computation of basic and diluted net loss per common share

   [note 5]

 

 

22,656,022

 

 

 

14,721,500

 

 

See accompanying notes

 

 

4


OncoGenex Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

March 31,

 

 

2015

 

 

2014

 

 

Operating Activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(4,517

)

 

$

(8,636

)

 

Adjustments to reconcile net loss to net cash used in

   operating activities:

 

 

 

 

 

 

 

 

 

(Gain) loss on warrants

 

 

(465

)

 

 

721

 

 

Depreciation

 

 

46

 

 

 

55

 

 

Stock-based compensation [note 5 [c] and note 5 [d]]

 

 

516

 

 

 

1,000

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Interest receivable

 

 

42

 

 

 

52

 

 

Amounts receivable

 

 

4,117

 

 

 

47

 

 

Prepaid expenses and other assets

 

 

(842

)

 

 

3,985

 

 

Accounts payable

 

 

916

 

 

 

784

 

 

Accrued liabilities other

 

 

(1,849

)

 

 

1,257

 

 

Accrued clinical liabilities

 

 

(3,797

)

 

 

 

 

Accrued compensation

 

 

(602

)

 

 

(801

)

 

Restricted cash

 

 

61

 

 

 

63

 

 

Excess lease liability [note 6]

 

 

(194

)

 

 

(189

)

 

Lease obligation

 

 

124

 

 

 

(30

)

 

Net cash used in operating activities

 

 

(6,444

)

 

 

(1,692

)

 

Financing Activities:

 

 

 

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

 

 

 

30

 

 

Taxes paid related to net share settlement of equity awards

 

 

(52

)

 

 

 

 

Net cash (used) provided by financing activities

 

 

(52

)

 

 

30

 

 

Investing Activities:

 

 

 

 

 

 

 

 

 

Purchase of investments

 

 

 

 

 

(51

)

 

Proceeds from sale of investments

 

 

1,071

 

 

 

 

 

Proceeds from maturities of investments

 

 

3,011

 

 

 

15,758

 

 

Purchase of property and equipment

 

 

(205

)

 

 

(7

)

 

Net cash provided by (used in) investing activities

 

 

3,877

 

 

 

15,700

 

 

Effect of exchange rate changes on cash

 

 

 

 

 

(1

)

 

Net increase (decrease) in cash and cash equivalents

 

 

(2,619

)

 

 

14,037

 

 

Cash and cash equivalents at beginning of year

 

 

27,897

 

 

 

14,593

 

 

Cash and cash equivalents at end of year

 

$

25,278

 

 

$

28,630

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

 

Property and equipment acquired under lease obligation

 

$

 

 

$

 

 

 

See accompanying notes.

 

5


OncoGenex Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

 

 

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

OncoGenex Pharmaceuticals, Inc. (referred to as “OncoGenex,” “we,” “us,” or “our”) is a biopharmaceutical company committed to the development and commercialization of new therapies that address treatment resistance in cancer patients. We were incorporated in the state of Delaware, are headquartered in Bothell, Washington and have a subsidiary in Vancouver, British Columbia. 

The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required to be presented for complete financial statements. The accompanying unaudited consolidated financial statements reflect all adjustments (consisting only of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The accompanying consolidated Balance Sheet at December 31, 2014 has been derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year then ended. The unaudited consolidated financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2014 and filed with the United States Securities and Exchange Commission, or the SEC, on March 26, 2015.

The consolidated financial statements include the accounts of OncoGenex and our wholly owned subsidiary, OncoGenex Technologies Inc., or OncoGenex Technologies. All intercompany balances and transactions have been eliminated.

 

 

2. ACCOUNTING POLICIES

Pending Adoption of Recent Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Updated, or ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 2015-40), or ASU 2014-15. ASU 2014-15 provides guidance to U.S. GAAP about management’s responsibility to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. This new rule requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles currently in the U.S. auditing standards. Specifically, ASU 2014-15 (1) defines the term substantial doubt, (2) requires an evaluation of every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management’s plans, (5) requires an express statement and other disclosures when substantial doubt is not alleviated, and (6) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). This guidance is effective for annual periods ending after December 15, 2016. We are currently in the process of evaluating the impact of adoption of ASU No. 2014-15 and do not expect any significant impact on our consolidated financial statements and related disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606): Revenue from Contracts with Customers, which guidance in this update will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance when it becomes effective. ASU No. 2014-09 affects any entity that enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principal of ASU No. 2014-09 is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, which will be our fiscal year 2018 (or December 31, 2018), and entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. Early adoption is prohibited. We are currently in the process of evaluating the impact of adoption of ASU No. 2014-09 on our consolidated financial statements and related disclosures.

Recently Adopted Accounting Policies

In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force), or ASU 2013-11, which provides clarification on the financial statement presentation of unrecognized tax benefits.

6


ASU 2013-11 specifies that an unrecognized tax benefit (or a portion thereof) shall be presented in the financial statements as a reduction to a deferred tax asset when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. If such deferred tax asset is not available at the reporting date to settle additional income taxes resulting from the disallowance of a tax position, or the entity does not plan to use the deferred tax asset for such purpose given the option, the unrecognized tax benefit shall be presented in the financial statements as a liability and shall not be combined with deferred tax assets. The amendments in ASU 2013-11 are effective for fiscal years (and interim periods within those years) beginning after December 15, 2013, with early adoption permitted. The adoption of this standard did not have a significant impact on our financial position or results of operations.

In February 2013, the FASB issued Accounting Standards Updates, or ASU, No. 2013-02, “Other Comprehensive Income.” This ASU requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under generally accepted accounting principles in the United States, or U.S. GAAP, to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The adoption of this standard did not have a significant impact on our financial position or results of operations.

 

 

3. COLLABORATION AGREEMENT

In December 2009, we, through our wholly-owned subsidiary, OncoGenex Technologies, entered into a collaboration agreement with Teva Pharmaceutical Industries Ltd., or Teva, for the development and global commercialization of custirsen (and related compounds), a pharmaceutical compound designed to inhibit the production of clusterin, a protein we believe is associated with cancer treatment resistance, or the Licensed Product. In December 2014, we and Teva agreed to terminate the collaboration agreement upon entry into a Termination Agreement. In April 2015, OncoGenex Technologies and Teva entered into the Termination Agreement, pursuant to which the collaboration agreement was terminated and we regained rights to custirsen.

Pursuant to the Termination Agreement, Teva paid to us, as advanced reimbursement for certain continuing research and development activities related to custirsen and certain other antisense inhibitors of clusterin, an amount equal to $27.0 million less approximately $3.8 million, which reduction represented a hold-back amount of $3.0 million and certain third-party expenses incurred by Teva between January 1, 2015 and April 24, 2015, or Closing Date. Teva will be entitled to deduct from the $3.0 million hold-back certain costs incurred after January 1, 2015 that may arise after the Closing Date. Teva will pay us (i) one-half of the then remaining hold-back amount six months after the Closing Date, (ii) one-half of the then remaining hold-back amount nine months after the Closing Date and (iii) the entire then remaining hold-back amount 12 months after the Closing Date.

Teva will be responsible for expenses related to custirsen incurred pursuant to the Collaboration Agreement through December 31, 2014. We will be responsible for any such expenses incurred from and after January 1, 2015. We do not owe, to Teva, any development milestone payments or royalty payments on sales of custirsen, if any.

In accordance with the Termination Agreement, Teva transferred certain third-party agreements for the ENSPIRIT study and custirsen development activities to us on the Closing Date. If any additional historical third-party agreements are discovered after the Closing Date and are used to conduct the ENSPIRIT study, then Teva will use commercially reasonable effort to assign such agreements to us and will be responsible for any costs invoiced under such agreements in excess of an aggregate of $0.1 million. We will be responsible for the initial $0.1 million of costs under such agreements.

All licenses granted by us to Teva under the collaboration agreement were terminated as of the Closing Date. In addition, Teva assigned to us certain patent applications related to custirsen and abandoned certain other patent applications as requested by us. Furthermore, Teva granted to us and our affiliates an exclusive license (except as to Teva and its affiliates) to any know-how created under and during the term of the collaboration agreement to develop, manufacture and commercialize custirsen and certain other antisense inhibitors of clusterin, as set forth in more detail in the Termination Agreement. Teva additionally granted to us and our affiliates a non-exclusive license to any intellectual property owned by or licensed to Teva and its affiliates, whether as of the Closing Date or thereafter, to develop, manufacture and commercialize custirsen, subject to certain limitations. Teva also agreed not to challenge the patentability, validity or enforceability of certain of our patents, and agreed not to file any patent applications covering custirsen or any antisense inhibitor of clusterin for 18 months after the Closing Date.

As part of the termination, Teva will assign the investigational new drug application for custirsen and submit amendments, on a country-by-country basis, transferring sponsorship of the ENSPIRIT study to us. We will submit an amendment to the protocol of the ENSPIRIT study on a country-by-country basis as we become the sponsor in the applicable country. In the event we elect to terminate the ENSPIRIT study, we would require Teva’s consent prior to becoming the sponsor in all jurisdictions.  However, if the drug monitoring safety committee recommends that the ENSPIRIT study be terminated for safety or futility reasons, prior to transfer of all

7


jurisdictions, then we will terminate the study in jurisdictions where we are the sponsor and Teva will terminate the study in jurisdictions where it is the sponsor.

We and Teva released each other from all claims related to the collaboration agreement. In addition, we agreed to indemnify Teva and its affiliates against any third-party claims attributable to the development and commercialization of custirsen prior to the execution of the collaboration agreement and after the Closing Date, and any third-party claims attributable to the conduct of the AFFINITY study. Teva agreed to indemnify us and our affiliates against any third-party claims attributable to the development of custirsen during the period between the execution of the collaboration agreement and the Closing Date, but excluding the AFFINITY study. The parties’ indemnity obligations cover, among other things, third-party claims brought by current or former patients in the relevant studies and patient product liability claims.

Of the total $1.6 million receivable at March 31, 2015, $1.4 million represents unbilled expense reimbursements due from Teva in advance of the completion of the termination agreement. This amount has been subsequently offset by the advanced reimbursement amount received from Teva in April 2015.

Isis and UBC License Agreements

Pursuant to the terms of the agreement with Isis, we anticipate that we would be required to pay third parties up to 30% of any milestone payments that are not based on a percentage of net sales of the Licensed Product. Pursuant to the terms of the agreements with Isis and UBC, we anticipate we will pay royalties to third-parties of 4.00% to 8.00% of net sales, unless our royalties are adjusted for competition from generic compounds, in which case royalties to third parties will also be subject to adjustment on a country-by-country basis. Certain third-party royalties are tiered based on the royalty rate received by us. Minimum royalty rates payable by us assume certain third-party royalties are not paid at the time that the Licensed Product is marketed due to the expiration of patents held by such third parties. Maximum royalty rates assume all third-party royalty rates currently in effect continue in effect at the time the Licensed Product is marketed. We did not make any royalty payments to Isis in 2014.

Amendment to Isis and UBC License Agreements

To facilitate the execution and performance of the our prior collaboration agreement with Teva, we and Isis agreed to amend the Isis License Agreement and we and UBC agreed to amend the UBC License Agreement, in each case, effective December 19 and December 20, 2009, respectively.

 

The amendment to the Isis License Agreement provides, among other things, that if we are the subject of a change of control with a third party, where the surviving company immediately following such change of control has the right to develop and sell the product, then (i) a milestone payment of $20.0 million will be due and payable to Isis 21 days following the first commercial sale of the product in the United States; and (ii) unless such surviving entity had previously sublicensed the product and a royalty rate payable to Isis by us has been established, the applicable royalty rate payable to Isis will thereafter be the maximum amount payable under the Isis License Agreement. Any non-royalty milestone amounts previously paid will be credited toward the $20.0 million milestone if not already paid. As a result of the $10.0 million milestone payment payable to Isis in relation to the collaboration agreement entered into with Teva in 2009, the remaining amount owing in the event of change of control discussed above is a maximum of $10.0 million. The $30.0 million in advanced reimbursement of development activities has been fully spent by us prior to the third anniversary of the terminated collaboration agreement with Teva. As a result, we do not owe any payment to Isis related to the $30.0 million advance reimbursement from Teva.

 

 

4. FAIR VALUE MEASUREMENTS

Assets and liabilities recorded at fair value in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. For certain of our financial instruments including amounts receivable and accounts payable the carrying values approximate fair value due to their short-term nature.

ASC 820 “Fair Value Measurements and Disclosures,” specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820, these inputs are summarized in the three broad levels listed below:

·

Level 1 – Quoted prices in active markets for identical securities.

·

Level 2 – Other significant inputs that are observable through corroboration with market data (including quoted prices in active markets for similar securities).

·

Level 3 – Significant unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability.

8


As quoted prices in active markets are not readily available for certain financial instruments, we obtain estimates for the fair value of financial instruments through third-party pricing service providers.

In determining the appropriate levels, we performed a detailed analysis of the assets and liabilities that are subject to ASC 820.

We invest our excess cash in accordance with investment guidelines that limit the credit exposure to any one financial institution other than securities issued by the U.S. Government. These securities are not collateralized and mature within one year.

A description of the valuation techniques applied to our financial instruments measured at fair value on a recurring basis follows.

Financial Instruments

Cash

Significant amounts of cash are held on deposit with large well-established U.S. and Canadian financial institutions.

U.S. Government and Agency Securities

U.S. Government Securities U.S. government securities are valued using quoted market prices. Valuation adjustments are not applied. Accordingly, U.S. government securities are categorized in Level 1 of the fair value hierarchy.

U.S. Agency Securities U.S. agency securities are comprised of two main categories consisting of callable and non-callable agency issued debt securities. Non-callable agency issued debt securities are generally valued using quoted market prices. Callable agency issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. Actively traded non-callable agency issued debt securities are categorized in Level 1 of the fair value hierarchy. Callable agency issued debt securities are categorized in Level 2 of the fair value hierarchy.

Corporate and Other Debt

Corporate Bonds and Commercial Paper The fair value of corporate bonds and commercial paper is estimated using recently executed transactions, market price quotations (where observable), bond spreads or credit default swap spreads adjusted for any basis difference between cash and derivative instruments. The spread data used are for the same maturity as the bond. If the spread data does not reference the issuer, then data that reference a comparable issuer are used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default swap spreads and recovery rates based on collateral values as significant inputs. Corporate bonds and commercial paper are generally categorized in Level 2 of the fair value hierarchy; in instances where prices, spreads or any of the other aforementioned key inputs are unobservable, they are categorized in Level 3 of the hierarchy.

Warrants

As of March 31, 2015, we recorded a $2.5 million warrant liability. We reassess the fair value of the common stock warrants classified as liabilities at each reporting date utilizing a Black-Scholes pricing model. Inputs used in the pricing model include estimates of stock price volatility, expected warrant life and risk-free interest rate. The computation of expected volatility was based on the historical volatility of shares of our common stock for a period that coincides with the expected life of the warrants that are classified as liabilities. Warrants that are classified as liabilities are categorized in Level 3 of the fair value hierarchy. A small change in the estimates used may have a relatively large change in the estimated valuation. Warrants that are classified as equity are not considered liabilities and therefor are not reassessed for their fair values at each reporting date.

The following table presents information about our assets and liabilities that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):

 

March 31, 2015

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

11,225

 

 

$

 

 

$

 

 

$

11,225

 

Money market securities

 

 

14,053

 

 

 

 

 

 

 

 

 

14,053

 

Restricted cash (Note 7)

 

 

190

 

 

 

 

 

 

 

 

 

190

 

Corporate bonds and commercial paper

 

 

 

 

 

15,091

 

 

 

 

 

 

15,091

 

Total assets

 

$

25,468

 

 

$

15,091

 

 

$

 

 

$

40,559

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants

 

$

 

 

$

 

 

$

2,537

 

 

$

2,537

 

 

9


The following table presents the changes in fair value of our total Level 3 financial liabilities for the three months ended March 31, 2015.  During the three months ended March 31, 2015, we did not issue any common stock warrants that were classified as liabilities (in thousands):

 

 

 

Liability at

 

 

 

 

 

 

Unrealized

 

 

Liability at

 

 

 

December 31,

 

 

Issuance of

 

 

Gain on

 

 

March 31,

 

 

 

2014

 

 

Warrants

 

 

warrants

 

 

2015

 

Warrant liability

 

$

3,002

 

 

$

-

 

 

$

(465

)

 

$

2,537

 

 

Cash, cash equivalents and marketable securities consist of the following (in thousands):

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

March 31, 2015

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Cash

 

$

11,225

 

 

$

 

 

$

 

 

$

11,225

 

Money market securities

 

 

14,053

 

 

 

 

 

 

 

 

 

14,053

 

Total cash and cash equivalents

 

$

25,278

 

 

$

 

 

$

 

 

$

25,278

 

Money market securities (restricted cash)

 

 

190

 

 

 

 

 

 

 

 

 

190

 

Total restricted cash

 

$

190

 

 

$

 

 

$

 

 

$

190

 

Corporate bonds and commercial paper

 

 

15,096

 

 

 

2

 

 

 

(7

)

 

 

15,091

 

Total short-term investments

 

$

15,096

 

 

$

2

 

 

$

(7

)

 

$

15,091

 

 

Our gross realized gains and losses on sales of available-for-sale securities were not material for the three months ended March 31, 2015 and 2014.

All securities included in cash and cash equivalents had maturities of 90 days or less at the time of purchase. All securities included in short-term investments have maturities of within one year of the balance sheet date.  The cost of securities sold is based on the specific identification method.

We only invest in A (or equivalent) rated securities. We do not believe that there are any other than temporary impairments related to our investment in marketable securities at March 31, 2015, given the quality of the investment portfolio and subsequent proceeds collected on sale of securities that reached maturity.

 

 

5. COMMON STOCK

[a]

Authorized

50,000,000 authorized common shares, par value of $0.001, and 5,000,000 preferred shares, par value of $0.001. 

[b]

Issued and outstanding shares

Equity Award Issuances and Settlements

During the three month period ended March 31, 2015, we issued no common shares to satisfy stock option exercises and 82,410 common shares to satisfy restricted stock unit settlements, respectively, compared with the issuance of 10,000 and 35,309 common shares to satisfy stock option exercises and restricted stock unit settlements, respectively, during the three month period ended March 31, 2014.

[c]

Stock options

2010 Performance Incentive Plan

As of March 31, 2015, we had reserved, pursuant to various plans, 2,824,367 common shares for issuance upon exercise of stock options and settlement of restricted stock units by employees, directors, officers and consultants of ours, of which 1,270,817 were reserved for options currently outstanding, 590,536 were reserved for restricted stock units currently outstanding and 963,014 were available for future equity grants.

Stock Option Summary

Options vest in accordance with terms as determined by our Board of Directors, or the Board, which terms are typically four years for employee and consultant grants and one to three years for Board option grants. The expiry date for each option is set by the Board,

10


which is typically seven to ten years. The exercise price of the options is determined by the Board, but will be at least equal to the fair value of the share at the grant date.

Stock option transactions and the number of stock options outstanding are summarized below:

 

 

 

Number of

 

 

Weighted

 

 

 

Optioned

 

 

Average

 

 

 

Common

 

 

Exercise

 

 

 

Shares

 

 

Price

 

Balance,  December 31, 2014

 

 

1,283,419

 

 

$

10.55

 

Granted

 

 

 

 

 

 

Expired

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

Forfeited

 

 

(12,602

)

 

 

12.74

 

Balance,  March 31, 2015

 

 

1,270,817

 

 

$

10.53

 

 

The fair value of each stock award for employees and directors is estimated on the grant date and for consultants at each reporting period, using the Black-Scholes option-pricing model based on the weighted-average assumptions noted in the following table:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2015

 

 

2014

 

Risk-free interest rates

 

 

 

 

 

1.82

%

Expected dividend yield

 

 

 

 

 

0

%

Expected life

 

 

 

 

5.9 years

 

Expected volatility

 

 

 

 

 

81

%

 

The expected life was calculated based on the simplified method as permitted by the SEC’s Staff Accounting Bulletin 110, Share-Based Payment. We consider the use of the simplified method appropriate because we believe our historical stock option exercise activity may not be indicative of future stock option exercise activity based upon the AFFINITY clinical data results we expect to receive by late 2015 or early 2016, the structural changes to our business that may result and the potential impact of that data on our business operations and future stock option exercise activity. The expected volatility of options granted was calculated based on the historical volatility of the shares of our common stock. The risk-free interest rate is based on a U.S. Treasury instrument whose term is consistent with the expected life of the stock options. In addition to the assumptions above, as required under ASC 718, management made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest. Forfeiture rates are estimated using historical actual forfeiture rates. These rates are adjusted on a quarterly basis and any change in compensation expense is recognized in the period of the change. We have never paid or declared cash dividends on our common stock and do not expect to pay cash dividends in the foreseeable future.

The results for the periods set forth below included share-based compensation expense for stock options and restricted stock units in the following expense categories of the consolidated statements of loss (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2015

 

 

2014

 

Research and development

 

$

252

 

 

$

447

 

General and administrative

 

 

264

 

 

 

553

 

Total stock-based compensation

 

$

516

 

 

$

1,000

 

 

As of March 31, 2015 and December 31, 2014, the total unrecognized compensation expense related to stock options granted was $2.2 million and $2.7 million respectively, which is expected to be recognized as expense over a period of approximately 2.3 years from March 31, 2015.

For the three months ended March 31, 2015, a total of 6.9 million shares underlying options, restricted stock units and warrants have not been included in the loss per share computation, as their effect on diluted per share amounts would have been anti-dilutive. For the same periods in 2014, a total of 3.4 million shares underlying options, restricted stock units and warrants have not been included in the loss per share computation.

11


[d]

Restricted Stock Unit Awards

We grant restricted stock unit awards that generally vest and are expensed over a four year period. We also grant restricted stock unit awards that vest in conjunction with certain performance conditions to certain executive officers, key employees and consultants. At each reporting date, we are required to evaluate whether achievement of the performance conditions is probable. Compensation expense is recorded over the appropriate service period based upon our assessment of accomplishing each performance condition. For the three months ended March 31, 2015, $0.2 million of compensation expense was recognized related to these awards, compared to $0.5 million for the three months March 31, 2014.

The following table summarizes our restricted stock unit award activity during the three months ended March 31, 2015:

 

 

 

 

 

 

 

Weighted

 

 

 

Number

 

 

Average

 

 

 

of

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

Balance,  December 31, 2014

 

 

680,201

 

 

$

7.34

 

Granted

 

 

 

 

 

 

Settled

 

 

(82,410

)

 

 

11.95

 

Forfeited or expired

 

 

(7,255

)

 

 

4.99

 

Balance,  March 31, 2015

 

 

590,536

 

 

$

6.73

 

 

As of March 31, 2015, we had approximately $2.7 million in total unrecognized compensation expense related to our restricted stock unit awards that is to be recognized over a weighted-average period of approximately 2.6 years.

[e]

Non-employee options and restricted stock units

We recognize non-employee stock-based compensation expense over the period of expected service by the non-employee. As the service is performed, we are required to update our valuation assumptions, re-measure unvested options and restricted stock units and record the stock-based compensation using the valuation as of the vesting date. This differs from the accounting for employee awards where the fair value is determined at the grant date and is not subsequently adjusted. This re-measurement may result in higher or lower stock-based compensation expense in the Consolidated Statements of Loss and Comprehensive Loss. As such, changes in the market price of our stock could materially change the value of an option or restricted stock unit and the resulting stock-based compensation expense.

[f]

Common Stock Warrants

The following is a summary of outstanding warrants to purchase common stock at March 31, 2015:

 

 

 

Total

 

 

 

 

 

 

 

 

 

Outstanding

 

 

Exercise

 

 

 

 

 

and

 

 

price per

 

 

 

 

 

Exercisable

 

 

Share

 

 

Expiration Date

(1) Warrants issued in October 2010 financing

 

 

1,587,301

 

 

$

20.00

 

 

October 2015

(2) Series A Warrants issued in July 2014 financing

 

 

2,779,932

 

 

 

4.00

 

 

July 2019

(3) Series B Warrants issued in July 2014 financing

 

 

670,269

 

 

 

4.00

 

 

July 2019

 

No warrants were exercised during the three months ended March 31, 2015 or 2014.  The warrants issued in the October 2010 financing and the Series A and Series B warrants issued in the July 2014 financing are classified as liabilities. The estimated fair value of warrants issued and classified as liabilities is reassessed at each reporting date using the Black-Scholes option pricing model.

 

 

 

As of

 

 

 

March 31,

 

October 2010 Warrant Valuation Assumptions

 

2015

 

 

2014

 

Risk-free interest rates

 

 

0.26

%

 

 

0.30

%

Expected dividend yield

 

 

0

%

 

 

0

%

Expected life

 

0.56 years

 

 

1.6 years

 

Expected volatility

 

 

49.87

%

 

 

41.00

%

 

12


 

 

As of

 

 

 

March 31,

 

Series A and Series B Warrant Valuation Assumptions

 

2015

 

 

2014

 

Risk-free interest rates

 

 

1.19

%

 

 

 

Expected dividend yield

 

 

0

%

 

 

 

Expected life

 

4.25 years

 

 

 

 

Expected volatility

 

 

63.35

%

 

 

 

 

 

6. EXCESS LEASE LIABILITY

On August 21, 2008, Sonus Pharmaceuticals, Inc., or Sonus, completed a transaction, or Arrangement, with OncoGenex Technologies, whereby Sonus acquired all of the outstanding preferred shares, common shares and convertible debentures of OncoGenex Technologies. Sonus then changed its name to OncoGenex Pharmaceuticals, Inc. Prior to the Arrangement, Sonus entered into a non-cancellable lease arrangement for office space located in Bothell, Washington, which is considered to be in excess of our current requirements. The liability is computed as the present value of the difference between the remaining lease payments due less the estimate of net sublease income and expenses and has been accounted for in accordance with ASC 805-20, “Business Combinations -Identifiable Assets and Liabilities, and Any Noncontrolling Interest.” In February 2015, we entered into a Lease Termination Agreement with the landlord for the office space in Bothell such that the lease terminated effective March 1, 2015. Under the Lease Termination Agreement, we paid BMR-217TH Place LLC, or BMR, a $2.0 million termination fee. We may also pay BMR an additional termination fee of $1.3 million if we (i) meet the primary endpoint for our phase 3 clinical trial for the treatment of second line metastatic CRPC with custirsen and if we (ii) close a transaction or transactions pursuant to which we receive funding in an aggregate amount of at least $20.0 million. As a result of the Lease Termination Agreement, we have recorded the lease termination fees and have made an adjustment to the lease liability to reflect the change in estimated liability.

This represents our best estimate of the liability. Subsequent changes in the liability due to changes in estimates of sublease and occupancy assumptions are recognized as adjustments to the related liability with an offset to restructuring (gain)/loss in future periods.

 

 

 

Liability at

 

 

Amortization

 

 

Reduction

 

 

Liability at

 

 

 

December 31,

 

 

of excess

 

 

of

 

 

March 31,

 

(In thousands)

 

2014

 

 

lease facility

 

 

Liability

 

 

2015

 

Current portion of excess lease facility

 

$

194

 

 

$

(194

)

 

$

 

 

$

 

Long-term portion of excess lease facility

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

194

 

 

$

(194

)

 

$

 

 

$

 

 

 

7. COMMITMENTS AND CONTINGENCIES

Teva Pharmaceutical Industries Ltd.

In December 2009, we, through our wholly-owned subsidiary, OncoGenex Technologies, entered into a collaboration agreement with Teva for the development and global commercialization of custirsen (and related compounds). In December 2014, we and Teva agreed to terminate the collaboration agreement upon entry into a Termination Agreement. In April 2015, OncoGenex Technologies and Teva entered into the Termination Agreement, pursuant to which the collaboration agreement was terminated and we regained rights to custirsen. Pursuant to the Termination Agreement, Teva paid to us, as advanced reimbursement for certain continuing research and development activities related to custirsen and certain other antisense inhibitors of clusterin, an amount equal to $27.0 million less approximately $3.8 million, which reduction represented a hold-back amount of $3.0 million and certain third-party expenses incurred by Teva between January 1, 2015 and April 24, 2015, or Closing Date.

All licenses granted by us to Teva under the collaboration agreement were terminated as of the Closing Date.

In accordance with the Termination Agreement, Teva transferred certain third-party agreements for the ENSPIRIT study and custirsen development activities to us on the Closing Date. If any additional historical third-party agreements are discovered after the Closing Date and are used to conduct the ENSPIRIT study, then Teva will use commercially reasonable effort to assign such agreements to us and will be responsible for any costs invoiced under such agreements in excess of an aggregate of $0.1 million. We will be responsible for the initial $0.1 million of costs under such agreements.

Prior to the termination of the collaboration agreement, Teva made upfront payments in the aggregate amount of $50.0 million. Teva also acquired $10.0 million of our common stock at a premium under a separate Stock Purchase Agreement. We were required to contribute $30.0 million in direct and indirect costs towards the clinical development plan. We fulfilled our obligation to contribute $30.0 million towards the development of custirsen. Teva was required to and did fund all additional expenses under the clinical development plan through December 31, 2014, after which date we took over responsibility for future costs following termination of

13


our collaboration agreement. We do not owe, to Teva, any development milestone payments or royalty payments on sales of custirsen, if any.

Isis Pharmaceuticals Inc. and University of British Columbia

We are obligated to pay milestone payments of up to CAD $1.6 million and $7.75 million pursuant to license agreements with the UBC and Isis, respectively, upon the achievement of specified product development milestones related to apatorsen and OGX-225 and low to mid-single digit royalties on future product sales.

In addition, we are required to pay to Isis up to 30% of all non-royalty revenue (defined to mean revenue not based on net sales of products) we receive from third parties. In May 2015, we received a letter from Isis requesting payment of 30% of the $23.2 million paid by Teva under the Termination Agreement, as well as 30% of any amounts paid by Teva upon release of the $3.0 million holdback amount. Under the Isis license agreement, no payment is due to Isis on any consideration that we receive for the reimbursement for research and development activities. Since the amounts paid or payable by Teva under the Termination Agreement constitute an advanced reimbursement for certain continuing research and development activities related to custirsen and certain other antisense inhibitors of clusterin, we do not believe that any payments are due to Isis. We are also obligated to pay to UBC certain patent costs and annual license maintenance fees for the extent of the patent life of CAD $8,000 per year. We paid Isis and UBC USD $0.8 million and CAD $0.1 million, respectively, in 2010 upon the initiation of a phase 2 clinical trial of apatorsen in patients with CRPC. We did not make any royalty payments to Isis under the terms of the agreement in 2014 and do not anticipate making any royalty payments to Isis under the terms of the agreement in 2015. The UBC agreements have effective dates ranging from November 1, 2001 to April 5, 2005 and each agreement expires upon the later of 20 years from its effective date or the expiry of the last patent licensed thereunder, unless otherwise terminated.

Unless otherwise terminated, the Isis agreements for custirsen and apatorsen will continue for each product until the later of 10 years after the date of the first commercial product sale, or the expiration of the last to expire of any patents required to be licensed in order to use or sell the product, unless OncoGenex Technologies abandons either custirsen or apatorsen and Isis does not elect to unilaterally continue development. The Isis agreement for OGX-225 will continue into perpetuity unless OncoGenex Technologies abandons the product and Isis does not elect to unilaterally continue development.

To facilitate the execution and performance of our prior collaboration agreement with Teva, we amended the license agreement with Isis and UBC, as it pertains to custirsen, in December 2009.

The amendment to the license agreement with Isis provides, among other things, that if we are subject to change of control with a third party, where the surviving company immediately following such change of control has the right to develop and sell the product, then (i) a milestone payment of $20.0 million will be due and payable to Isis 21 days following the first commercial sale of the product in the United States; and (ii) unless such surviving entity had previously sublicensed the product and a royalty rate payable to Isis by us has been established, the applicable royalty rate payable to Isis will thereafter be the maximum amount payable under the license agreement. Any non-royalty milestone amounts previously paid will be credited toward the $20.0 million milestone if not already paid. As a result of the $10.0 million milestone payment payable to Isis in relation to the Collaboration Agreement, the remaining amount owing in the event of change of control discussed above is a maximum of $10.0 million.

Lease Arrangements

We have an operating lease agreement for office space being used in Vancouver, Canada, which expires in September 2015.

Future minimum lease payments under the Vancouver lease are as follows (in thousands):

 

2015

 

 

56

 

Total

 

$

56

 

 

In February 2015, we entered into a Lease Termination Agreement with BMR pursuant to which we and BMR agreed to terminate that certain Lease, dated November 21, 2006, as amended, for the premises located at 1522 217th Place S.E. in Bothell, Washington, or Terminated Lease, effective March 1, 2015. Under the Lease Termination Agreement, we paid BMR a $2.0 million termination fee. We may also pay BMR an additional termination fee of $1.3 million if we (i) meet the primary endpoint for our phase 3 clinical trial for the treatment of second line metastatic CRPC with custirsen and if we (ii) close a transaction or transactions pursuant to which we receive funding in an aggregate amount of at least $20.0 million. BMR drew approximately $0.1 million on our letter of credit with respect to its payment of deferred state sales tax and terminated the remaining balance of $0.2 million. Subsequent to March 31, 2015, BMR returned to us the security deposit under the Terminated Lease, less amounts deducted in accordance with the terms of the Terminated Lease, of $0.5 million.

14


With respect to the contingent payment of $1.3 million, we have assessed that the likelihood of meeting both contingent events is more likely than not. As a result, we have recognized the $1.3 million in lease termination liability on our balance sheet as at March 31, 2015.

In February 2015, we entered into an office lease with Grosvenor International (Atlantic Freeholds) Limited, or Landlord, pursuant to which we leased approximately 11,526 square feet located at 19820 North Creek Parkway, Bothell, Washington, 98011, commencing on February 15, 2015. We have the option to rent an additional 8,054 square feet before August 1, 2015. The initial term of this lease will expire on April 30, 2018, with an option to extend the term for one approximately three-year period. Our monthly base rent for the premises will start at approximately $18,000 commencing on May 1, 2015 and will increase on an annual basis up to approximately $20,000. The Landlord has agreed to provide us with a construction allowance of approximately $0.1 million. We will be responsible for 17% of taxes levied upon the building during each calendar year of the term. We delivered to the Landlord a letter of credit in the amount of $0.2 million, in accordance with the terms if the lease, which the Landlord may draw upon for base rent or other damages in the event of our default under this lease.

The future minimum annual lease payments under the new Bothell lease are as follows (in thousands):

 

2015

 

 

144

 

2016

 

 

224

 

Remainder

 

 

315

 

Total

 

$

683

 

 

Consolidated rent expense related to the Bothell, Washington and Vancouver, Canada offices in the three months ended March 31, 2015 was $0.5 million. Consolidated rent expense for the three months ended March 31, 2014 was $0.7 million.

Guarantees and Indemnifications

We and Teva released each other from all claims related to the collaboration agreement. In addition, we agreed to indemnify Teva and its affiliates against any third-party claims attributable to the development and commercialization of custirsen prior to the execution of the collaboration agreement and after the Closing Date, and any third-party claims attributable to the conduct of the AFFINITY study. Teva agreed to indemnify us and our affiliates against any third-party claims attributable to the development of custirsen during the period between the execution of the collaboration agreement and the Closing Date, but excluding the AFFINITY study. The parties’ indemnity obligations cover, among other things, third-party claims brought by current or former patients in the relevant studies and patient product liability claims.

We indemnify our officers, directors and certain consultants for certain events or occurrences, subject to certain limits, while the officer, director or consultant is or was serving at our request in such capacity. The term of the indemnification period is equal to each officer’s, director’s and consultant’s lifetime.

The maximum amount of potential future indemnification is unlimited; however, we have obtained director and officer insurance that limits our exposure and may enable us to recover a portion of any future amounts paid. We believe that the fair value of these indemnification obligations is minimal. Accordingly, we have not recognized any liabilities relating to these obligations as of March 31, 2015.

We have agreements with certain organizations with which we do business that contain indemnification provisions pursuant to which we typically agree to indemnify the party against certain types of third-party claims. We accrue for known indemnification issues when a loss is probable and can be reasonably estimated. There were no accruals for or expenses related to indemnification issues for any period presented.

 

 

8. SUBSEQUENT EVENTS

 

Teva Collaboration Agreement Termination

In December 2014, we and Teva agreed to terminate the collaboration agreement upon entry into a Termination Agreement. In April 2015, OncoGenex Technologies and Teva entered into the Termination Agreement, pursuant to which the collaboration agreement was terminated and we regained rights to custirsen.

Pursuant to the Termination Agreement, Teva agreed to pay to us, as advanced reimbursement for certain continuing research and development activities related to custirsen and certain other antisense inhibitors of clusterin, an amount equal to $27.0 million less approximately $3.8 million, which reduction represents a hold-back amount of $3.0 million and certain third-party expenses incurred by Teva between January 1, 2015 and April 24, 2015, or Closing Date. Teva will be entitled to deduct from the $3.0 million hold-back

15


certain costs incurred after January 1, 2015 that may arise after the Closing Date. Teva will pay us (i) one-half of the then remaining hold-back amount six months after the Closing Date, (ii) one-half of the then remaining hold-back amount nine months after the Closing Date and (iii) the entire then remaining hold-back amount 12 months after the Closing Date.

Teva will be responsible for expenses related to custirsen incurred pursuant to the Collaboration Agreement through December 31, 2014. We will be responsible for any such expenses incurred from and after January 1, 2015. We do not owe, to Teva, any development milestone payments or royalty payments on sales of custirsen, if any.

In accordance with the Termination Agreement, Teva transferred certain third-party agreements for the ENSPIRIT study and custirsen development activities to us on the Closing Date. If any additional historical third-party agreements are discovered after the Closing Date and are used to conduct the ENSPIRIT study, then Teva will use commercially reasonable effort to assign such agreements to us and will be responsible for any costs invoiced under such agreements in excess of an aggregate of $0.1 million. We will be responsible for the initial $0.1 million of costs under such agreements.

All licenses granted by us to Teva under the collaboration agreement were terminated as of the Closing Date. In addition, Teva assigned to us certain patent applications related to custirsen and abandoned certain other patent applications as requested by us. Furthermore, Teva granted to us and our affiliates an exclusive license (except as to Teva and its affiliates) to any know-how created under and during the term of the collaboration agreement to develop, manufacture and commercialize custirsen and certain other antisense inhibitors of clusterin, as set forth in more detail in the Termination Agreement. Teva additionally granted to us and our affiliates a non-exclusive license to any intellectual property owned by or licensed to Teva and its affiliates, whether as of the Closing Date or thereafter, to develop, manufacture and commercialize custirsen, subject to certain limitations. Teva also agreed not to challenge the patentability, validity or enforceability of certain of our patents, and agreed not to file any patent applications covering custirsen or any antisense inhibitor of clusterin for 18 months after the Closing Date.

As part of the termination, Teva will assign the investigational new drug application for custirsen and submit amendments, on a country-by-country basis, transferring sponsorship of the ENSPIRIT study to us. We will submit an amendment to the protocol of the ENSPIRIT study on a country-by-country basis as it becomes the sponsor in the applicable country. In the event we elected to terminate the ENSPIRIT study, it would require Teva’s consent prior to us becoming the sponsor in all jurisdictions.  However, if the drug monitoring safety committee recommends that the ENSPIRIT study be terminated for safety or futility reasons, prior to transfer of all jurisdictions, then we will terminate the study in jurisdictions where we are the sponsor and Teva will terminate the study in jurisdictions where it is the sponsor.

We and Teva released each other from all claims related to the collaboration agreement. In addition, we agreed to indemnify Teva and its affiliates against any third-party claims attributable to the development and commercialization of custirsen prior to the execution of the collaboration agreement and after the Closing Date, and any third-party claims attributable to the conduct of the AFFINITY study. Teva agreed to indemnify us and our affiliates against any third-party claims attributable to the development of custirsen during the period between the execution of the collaboration agreement and the Closing Date, but excluding the AFFINITY study. The parties’ indemnity obligations cover, among other things, third-party claims brought by current or former patients in the relevant studies and patient product liability claims.

Termination of ATM Facility with MLV

 

In June 2013, we entered into a Sales Agreement with MLV & Co. LLC, or MLV, to sell shares of our common stock, par value $0.001 per share, having aggregate sales proceeds of $25.0 million, from time to time, through an “at the market” equity offering program, or ATM Offering, under which MLV acted as sales agent. On April 27, 2015, we and MLV terminated the Sales Agreement. We were not subject to any termination penalties related to termination of the Sales Agreement.

 

 

Purchase Agreement and Financing with Lincoln Park Capital

On April 30, 2015, we and Lincoln Park Capital Fund, LLC, or LPC, entered into a share and unit purchase agreement, or Purchase Agreement, pursuant to which we have the right to sell to LPC up to $18.0 million in shares of the our common stock, par value $0.001 per share, subject to certain limitations and conditions set forth in the Purchase Agreement.  

 

Pursuant to the Purchase Agreement, LPC initially purchased 956,938 Series A-1 Units at a purchase price of $2.09 per unit, with each Series A-1 Unit consisting of (a) one share of Common Stock and (b) one warrant to purchase one-quarter of a share of Common Stock at an exercise price of $2.40 per share, or Series A-1 Warrant.  Each Series A-1 Warrant is exercisable six months following the issuance date until the date that if five years and six months after the issuance date and is subject to customary adjustments.  The Series A-1 Warrants are issuable only as part of the Series A-1 Units in the initial purchase of $2.0 million and no warrants shall be issued in connection with any other purchases of Common Stock under the Purchase Agreement.

 

16


After the initial purchase, as often as every business day over the 24-month term of the Purchase Agreement, and up to an aggregate amount of an additional $16.0 million (subject to certain limitations) of shares of common stock, we have the right, from time to time, in our sole discretion and subject to certain conditions to direct LPC to purchase up to 125,000 shares of common stock with such amounts increasing as the closing sale price of our common stock as reported on The NASDAQ Capital Market increases. The purchase price of shares of common stock pursuant to the Purchase Agreement will be based on prevailing market prices of common stock at the time of sales without any fixed discount, and we will control the timing and amount of any sales of common stock to LPC. In addition, we may direct LPC to purchase additional amounts as accelerated purchases if on the date of a regular purchase the closing sale price of the common stock is not below $1.50 per share. As consideration for entering into the Purchase Agreement, we issued to LPC 126,582 shares of common stock, no cash proceeds were received from the issuance of these shares.

 

17


Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

INFORMATION REGARDING FORWARD LOOKING STATEMENTS

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of risks and uncertainties. We caution readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. These statements are based on current expectations of future events. Such statements include, but are not limited to, statements about future financial and operating results, plans, objectives, expectations and intentions, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management and other statements that are not historical facts. You can find many of these statements by looking for words like “believes,” “expects,” “anticipates,” “estimates,” “may,” “should,” “will,” “could,” “plan,” “intend” or similar expressions in this document  or in documents incorporated by reference into this document. We intend that such forward-looking statements be subject to the safe harbors created thereby. Examples of these forward-looking statements include, but are not limited to:

·

progress and preliminary and future results of clinical trials conducted by us or our collaborators;

·

anticipated regulatory filings and requirements and future clinical trials conducted by us or our collaborators;

·

timing and amount of future contractual payments, product revenue and operating expenses;

·

market acceptance of our products and the estimated potential size of these markets; and

·

our anticipated future capital requirements and the terms of any capital financing agreements.

These forward-looking statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections. Factors that might cause such a difference include those discussed in Item 1A “Risk Factors,” as well as those discussed elsewhere in the Quarterly Report on Form 10-Q.  You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document or, in the case of documents referred to or incorporated by reference, the date of those documents.

All subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as may be required under applicable U.S. securities law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. 

Overview

We are an emerging leader in next generation cancer therapeutics. Our mission is to accelerate transformative therapies to improve the lives of people living with cancer and other serious diseases. We have developed a pipeline of late-stage product candidates that are designed to block the production of specific proteins that promote treatment resistance in cancer. We believe our therapies are first-in-class and have the potential to redefine treatment outcomes in a variety of cancers. We have three product candidates in our pipeline: custirsen, apatorsen and OGX-225, each of which has a distinct mechanism of action and represents a unique opportunity for cancer drug development. Of the product candidates in our pipeline, custirsen and apatorsen are clinical-stage assets being evaluated in two phase 3 studies and five phase 2 studies.

Our product candidates custirsen, apatorsen and OGX-225 focus on mechanisms of treatment resistance in cancer patients and are designed to block the production of specific proteins that we believe promote treatment resistance and survival of tumor cells and are over-produced in response to a variety of cancer treatments. Our aim in targeting these particular proteins is to disable the tumor cell’s adaptive defenses, thereby rendering the tumor cells more susceptible to attack with a variety of cancer therapies. We believe this approach will increase survival time and improve the quality of life for cancer patients.

Product Candidate Custirsen

Three phase 3 custirsen clinical trials have been initiated:

·

The SYNERGY Trial: The phase 3 clinical trial evaluated a survival benefit for custirsen in combination with first-line docetaxel treatment in patients with metastatic castrate resistant prostate cancer, or metastatic CRPC. Results of the SYNERGY trial were presented at the European Society for Medical Oncology (ESMO) 2014 Congress in September 2014. Final survival results indicated that the addition of custirsen to standard first-line docetaxel/prednisone therapy did

18


not meet the primary endpoint of a statistically significant improvement in overall survival, or OS, in men with metastatic CRPC, compared to docetaxel/prednisone alone (median survival 23.4 months vs. 22.2 months, respectively; hazard ratio 0.93 and one-sided p value 0.207). The adverse events observed were similar to custirsen's known adverse event profile. Subsequent exploratory analyses showed improved overall survival for those men who received custirsen and were defined as having poor prognosis. Those preliminary results showed a 33% lower rate of death for patients who had poor prognostic disease and received custirsen. Based on these findings, we plan to amend the AFFINITY and ENSPIRIT trials as outlined below.

·

The AFFINITY Trial: The phase 3 clinical trial to evaluate a survival benefit for custirsen in combination with cabazitaxel treatment as second-line chemotherapy in patients with CRPC. We initiated this phase 3 clinical trial in August 2012 and completed enrollment of approximately 630 patients in September 2014. The trial is designed to show a survival benefit with 85% power based on a hazard ratio of 0.75. A single interim futility analysis was completed in January 2015; the trial is continuing based on the recommendation of the Independent Data Monitoring Committee. Based on the exploratory analyses from the SYNERGY trial that showed a significant survival benefit in men who received custirsen and who were defined as having poor prognosis, we are seeking advice from the FDA and other regulatory authorities on amending the AFFINITY trial and statistical analysis plan to include a co-primary endpoint for evaluation of survival benefit in men with poor prognosis.  This analysis, if permitted by regulatory authorities, would evaluate patients who have at least two of five poor prognostic factors, defined as poor performance status, elevated prostate specific antigen (PSA), elevated lactate dehydrogenase (LDH), anemia, or the presence of liver metastasis.

·

The ENSPIRIT Trial: The phase 3 clinical trial to evaluate a survival benefit for custirsen in combination with docetaxel treatment as second-line chemotherapy in patients with non-small cell lung cancer, or NSCLC. This trial was initiated in September 2012. We have filed a protocol amendment with the FDA and have or will be initiating filings with regulatory agencies in other countries as we become the sponsor in such countries to amend the statistical design and analysis plan of the ENSPIRIT trial. The amendment, if approved, will allow for a smaller trial size and will include a more rigorous second interim futility analysis that will occur earlier. Specifically, the original design was to enroll 1,100 patients in order to show a survival benefit with 90% power based on a hazard ratio of 0.80 and a critical hazard ratio, which is the minimum effect size to be statistically significant, of 0.87. Under the amended protocol, 700 patients will be enrolled in order to show a survival benefit with 90% power based on a hazard ratio of 0.75 and a critical hazard ratio of 0.84. We believe that a critical hazard ratio of 0.87 would not be clinically meaningful nor be sufficient for approval, whereas a critical hazard ratio of 0.84 is more appropriate and consistent with recently approved NSCLC treatments.  Two formal interim futility analyses remain in the revised protocol and are designed to terminate the trial early if there is inadequate evidence of clinical benefit or futility. The first interim futility analysis was completed in August 2014 and the trial continued based on the recommendation of the Independent Data Monitoring Committee. The second interim futility analysis is based on OS futility and, under the amended protocol, will be conducted when 40% of the death events for final analysis have occurred, rather than 50% as was required in the original protocol.  The second interim futility analysis is planned to occur by mid-2015, subject to these modifications. The trial will not be stopped early in order to claim efficacy. The goal of the ENSPIRIT amendment is to provide a better assessment of more clinically relevant survival benefit when adding custirsen to second-line docetaxel and to terminate the trial early for survival futility, if that occurs. Based on the current ENSPIRIT enrollment and the changes outlined in the protocol amendment filed with the FDA, we believe final survival results could be available in the second half of 2016.

Custirsen has received Fast Track designation from the U.S. Food and Drug Administration, or FDA, for second-line treatment of metastatic CRPC when combined with cabazitaxel and prednisone and for the second-line treatment of advanced NSCLC when combined with docetaxel in patients with disease progression following treatment with a first-line, platinum-based chemotherapy doublet regimen.

We and collaborating investigators have conducted one phase 3 clinical trial and five phase 2 clinical trials to evaluate the ability of custirsen to enhance the effects of therapy in prostate, non-small cell lung and breast cancers. Results have been presented for each of these trials. Data from these trials demonstrate the potential benefit of adding custirsen, a second generation antisense molecule, to existing cancer therapies.

Product Candidate Apatorsen

Apatorsen is our product candidate designed to inhibit production of heat shock protein 27, or Hsp27, a cell-survival protein expressed in many types of cancers including bladder, non-small cell lung, pancreatic, prostate and breast cancers. Hsp27 expression is stress-induced, including by many anti-cancer therapies. Overexpression of Hsp27 is thought to be an important factor leading to the development of treatment resistance and is associated with metastasis and negative clinical outcomes in patients with various tumor types.

Hsp27 can also function as an immunomodulatory protein by a number of mechanism that include altering important membrane expressed proteins on monocytes and immature dendritic cells; this alteration results in tumor-associated immune cells that are not functional in identifying and killing cancer cells. The induction of anti-inflammatory cytokines by Hsp27 may also play a role in down-regulating lymphocyte activation leading to additional unresponsive immune cells.

19


In 2013, we initiated the ORCA program which encompasses clinical studies designed to evaluate whether inhibition of Hsp27 can lead to improved prognosis and treatment outcomes for cancer patients. Our goal is to advance cancer treatment by conducting clinical trials for apatorsen across multiple cancer indications including bladder, lung, pancreatic and prostate cancers. We are conducting parallel clinical trials to evaluate apatorsen in several cancer indications and treatment combinations to accelerate the development of apatorsen. As part of this strategy, we are supporting specific investigator-sponsored trials to allow assessment of a broader range of clinical indications for future OncoGenex-sponsored trials and possible market approval.

Our completed company-sponsored Borealis-1™ phase 2 trial was a three-arm, randomized, placebo-controlled trial evaluating apatorsen in combination with a first-line standard of care chemotherapy (gemcitabine and cisplatin) in the metastatic setting. Recent trial results indicated that the addition of 600mg apatorsen to gemcitabine and cisplatin showed a 14% reduction in risk of death and a 17% reduction in progressive disease and death when compared to chemotherapy alone. Subsequent exploratory analyses showed improved overall survival for those patients who received apatorsen and had poor prognosis over various prognostic factors such as performance status.

Our current apatorsen development activities for bladder cancer include the following clinical trial:

·

The Borealis-2™ Trial: An investigator-sponsored, randomized phase 2 trial evaluating apatorsen in combination with docetaxel treatment compared to docetaxel treatment alone in patients with advanced or metastatic bladder cancer who have disease progression following first-line platinum-based chemotherapy. Patients may also continue weekly apatorsen infusions as maintenance treatment until disease progression or unacceptable toxicity if they complete all 10 cycles of docetaxel, or are discontinued from docetaxel due to docetaxel toxicity. This trial is designed to have adequate power to detect a survival benefit corresponding to a hazard ratio of approximately 0.667. The primary analysis is to be performed at one-sided 0.10 significance level with 90% power to detect a difference in overall survival. We expect to enroll approximately 200 patients. This trial was initiated in April 2013 and is expected to complete enrollment at the end of 2015.

Our current apatorsen development activities for NSCLC include the following clinical trials:

·

The Spruce™ Trial: An investigator-sponsored, randomized, placebo-controlled phase 2 trial evaluating apatorsen plus carboplatin and pemetrexed therapy or placebo plus carboplatin and pemetrexed therapy in patients with previously untreated advanced non-squamous NSCLC. Patients also continue weekly apatorsen or placebo infusions as maintenance treatment until disease progression if they complete a minimum of 3 cycles of chemotherapy treatment. The trial is expected to randomize approximately 155 patients. The aim of the trial is to determine if adding apatorsen to carboplatin and pemetrexed therapy can extend PFS outcome. Additional analyses are expected to include tumor response rates, overall survival, safety, tolerability and the effect of therapy on Hsp27 levels. This trial was initiated in August 2013 and patient enrollment was completed in February 2015. Primary PFS endpoint data is expected in the first half of 2016.

·

The Cedar™ Trial: An investigator-sponsored, randomized phase 2 trial evaluating apatorsen plus gemcitabine and carboplatin therapy or gemcitabine and carboplatin therapy alone in patients with previously untreated advanced squamous NSCLC. Patients also continue weekly apatorsen infusions as maintenance treatment after chemotherapy until disease progression. The trial is expected to randomize approximately 140 patients. The aim of the trial is to determine if adding apatorsen to gemcitabine and carboplatin therapy can extend PFS outcome. Additional analyses will include tumor response rates, overall survival, safety, and health-related quality of life. Additional analyses are expected to determine the effect of therapy on Hsp27 levels and to explore potential biomarkers that may help predict response to treatment. The trial was initiated in July 2014 and is enrolling patients.

Our current apatorsen development activities for pancreatic cancer include the following clinical trial:

·

The Rainier™ Trial: An investigator-sponsored, randomized, placebo-controlled phase 2 trial evaluating apatorsen in combination with Abraxane® (paclitaxel protein-bound particles for injectable suspension)(albumin-bound) and gemcitabine in approximately 130 patients with previously untreated metastatic pancreatic cancer. The objective of the trial will be overall survival, with additional analyses to evaluate PFS, tumor response rates, safety, tolerability, and the effect of therapy on Hsp27 levels. The trial was initiated in August 2013 and patient enrollment was completed in December 2014. Top line survival data is expected at the end of 2015 or early 2016.

Our current apatorsen development activities for prostate cancer include the following clinical trial:

·

The Pacific™ Trial: An investigator-sponsored, randomized phase 2 trial evaluating apatorsen in men with CRPC who are experiencing a rising PSA while receiving Zytiga® (abiraterone acetate). The aim of the trial is to determine if adding apatorsen to Zytiga treatment can reverse or delay treatment resistance by evaluating the PFS rate at a milestone Day 60 assessment. Other secondary endpoints such as PSA and objective responses, time to disease progression, CTCs and Hsp27 levels are expected to be evaluated. We expect approximately 80 patients will be enrolled. The trial was initiated in December 2012 and is enrolling patients.

20


The primary endpoints of these phase 2 trials are survival or PFS outcomes in order to direct future company-sponsored trials in defining patient populations and indications that show promising trends in survival or PFS benefits. Statistically significant differences in these trials due to the small sample sizes is unlikely. However, these trials are designed such that if the primary endpoints reach statistical significance, we believe they could be used as supportive studies for registration.

Product Candidate OGX-225

OGX-225 is our product candidate designed to inhibit the production of Insulin Growth Factor Binding Proteins -2 and -5 (IGFBP-2, IGFBP-5), two proteins that when overexpressed affect the growth of cancer cells. Increased IGFBP-2 and IGFBP-5 production are observed in many human cancers, including prostate, breast, colorectal, non-small cell lung, glioblastoma, acute myeloid leukemia, acute lymphoblastic leukemia, neuroblastoma, and melanoma. The increased production of these proteins is linked to faster rates of cancer progression, treatment resistance, and shorter survival duration in humans.

Preclinical studies with human prostate and breast cancer cells have shown that reducing IGFBP-2 and IGFBP-5 production with OGX-225 sensitized these tumor types to hormone ablation therapy or chemotherapy and induced tumor cell death. We have begun development activities for OGX-225 and have completed IND enabling toxicology studies.

Collaboration Revenue

Revenue recognized to date was attributable to the upfront payment we received in the fourth quarter of 2009 pursuant to a collaboration agreement with Teva, as well as cash reimbursements from Teva for certain costs incurred by us under the clinical development plan. Our policy is to account for these reimbursements as collaboration revenue. As a result of the termination of the collaboration agreement with Teva, we do not expect to earn collaboration revenue beyond the amounts provided in the Termination Agreement.

In April 2015, we and Teva terminated the collaboration agreement. Pursuant to the Termination Agreement, Teva paid to us, as advanced reimbursement for certain continuing research and development activities related to custirsen and certain other antisense inhibitors of clusterin, an amount equal to $27.0 million less approximately $3.8 million, which reduction represents a hold-back amount of $3.0 million and certain third-party expenses incurred by Teva between January 1, 2015 and April 24, 2015, or Closing Date. Teva will be entitled to deduct from the $3.0 million hold-back certain costs incurred after January 1, 2015 that may arise after the Closing Date. Teva will pay us (i) one-half of the then remaining hold-back amount six months after the Closing Date, (ii) one-half of the then remaining hold-back amount nine months after the Closing Date and (iii) the entire then remaining hold-back amount 12 months after the Closing Date. As a result of the termination of the collaboration agreement with Teva, we do not expect to earn any additional collaboration revenue beyond the amounts provided in the Termination Agreement.

Research and Development Expenses

Research and development, or R&D, expenses consist primarily of costs for clinical trials, contract manufacturing, personnel costs, milestone payments to third parties, facilities, regulatory activities, preclinical studies and allocations of other R&D-related costs. External expenses for clinical trials include fees paid to clinical research organizations, clinical trial site costs and patient treatment costs.

Currently, we manage our clinical trials through contract research organizations and independent medical investigators at their sites and at hospitals and expect this practice to continue. Through our clinical development programs, we are developing each of our product candidates in parallel for multiple disease indications. Due to the number of ongoing projects and our ability to utilize resources across several projects, we do not record or maintain information regarding the indirect operating costs incurred for our research and development programs on a program-specific basis. In addition, we believe that allocating costs on the basis of time incurred by our employees does not accurately reflect the actual costs of a project.

Several of our clinical trials have been supported by grant funding that was received directly by the hospitals and/or clinical investigators conducting the clinical trials as investigator-sponsored trials, thereby allowing us to complete these clinical trials at a lower cost to us.

Under the collaboration agreement with Teva, we had spent the required $30.0 million in development costs related to custirsen. In accordance with the Termination Agreement, Teva was required to and did fund all additional expenses under the clinical development plan through December 31, 2014, after which date we took over responsibility for future costs following termination of our collaboration agreement. We do not owe, to Teva, any development milestone payments or royalty payments on sales of custirsen if any.

Since our product candidates are in the early stages of development, we cannot estimate completion dates for development activities or when we might receive material net cash inflows from our R&D projects, if ever.

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Our projects or intended R&D activities may be subject to change from time to time as we evaluate our R&D priorities and available resources.

General and Administrative Expenses

General and administrative, or G&A, expenses consist primarily of salaries and related costs for our personnel in executive, finance and accounting, corporate external communications, human resources and other administrative functions, as well as consulting costs, including market research, business consulting and intellectual property. Other costs include professional fees for legal and auditing services, insurance and facility costs.

Warrant liability

The following is a summary of outstanding warrants to purchase common stock that are classified as liabilities at March 31, 2015:

 

 

 

Total

 

 

 

 

 

 

 

 

 

Outstanding

 

 

Exercise

 

 

 

 

 

and

 

 

price per

 

 

 

 

 

Exercisable

 

 

Share

 

 

Expiration Date

(1) Warrants issued in October 2010 financing

 

 

1,587,301

 

 

$

20.00

 

 

October 2015

(2) Series A Warrants issued in July 2014 financing

 

 

2,779,932

 

 

 

4.00

 

 

July 2019

(3) Series B Warrants issued in July 2014 financing

 

 

670,269

 

 

 

4.00

 

 

July 2019

 

No warrants were exercised during the three months ended March 31, 2015 or 2014.

We reassess the fair value of the common stock warrants classified as liabilities at each reporting date utilizing a Black-Scholes pricing model. Inputs used in the pricing model include estimates of stock price volatility, expected warrant life and risk-free interest rate. The computation of expected volatility was based on the historical volatility of shares of our common stock for a period that coincides with the expected life of the warrants.

Results of Operations

For the three months ended March 31, 2015 and 2014

Revenue

Revenue for the three months ended March 31, 2015 and 2014 was $1.4 million and $11.7 million, respectively. The decrease for the three months ended March 31, 2015 as compared to 2014 was due primarily to a decrease in revenue earned through our strategic collaboration with Teva as a result of the clinical development activities associated with the AFFINITY trial. As a result of the termination of the collaboration agreement with Teva, we do not expect to earn collaboration revenue beyond the amounts provided in the termination agreement.

Research and Development Expenses

Our research and development expenses for our clinical development programs for the for the three months ended March 31, 2015 and 2014 are as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2015

 

 

2014

 

Clinical development programs:

 

 

 

 

 

 

 

 

Custirsen

 

$

1,192

 

 

$

11,347

 

Apatorsen

 

$

528

 

 

$

2,714

 

Other  research and development

 

$

1,953

 

 

$

2,842

 

Total research and development expenses

 

$

3,673

 

 

$

16,903

 

 

R&D expenses for the three months ended March 31, 2015 and 2014 were $3.7 million and $16.9 million, respectively. The decrease in the 2015 as compared to 2014 were due primarily to lower clinical trial costs for the AFFINITY and Borealis-1 trials as a result of patients coming off treatment.

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General and Administrative Expenses

G&A expenses for the three months ended March 31, 2015 and 2014 were $2.7 million and $2.8 million, respectively. The decrease in 2015 as compared to 2014 were due primarily to lower employee and consulting costs. These were partially offset by higher professional fees.

Gain (Loss) on Warrants

We recorded a gain of $0.5 million and a loss of $0.7 million on the revaluation of our outstanding liability-classified warrants for the three months ended March 31, 2015 and 2014, respectively. We revalue warrants that are classified as liabilities at each balance sheet date to fair value.

Liquidity and Capital Resources

We have incurred an accumulated deficit of $164.5 million through March 31, 2015, and we expect to incur substantial additional losses in the future as we expand our R&D activities and other operations, as more fully described below. We have not generated any revenue from product sales to date, and we may not generate product sales revenue in the near future, if ever.

Our operations to date have been primarily funded through the sale of our equity securities and payments received from Teva. As of March 31, 2015, our cash, cash equivalents, and short-term investments decreased to $40.4 million from $47.1 million as of December 31, 2014.

In April 2015, we and Teva terminated the collaboration agreement. Pursuant to the Termination Agreement, Teva paid to us, as advanced reimbursement for certain continuing research and development activities related to custirsen and certain other antisense inhibitors of clusterin, an amount equal to $27.0 million less approximately $3.8 million, which reduction represented a hold-back amount of $3.0 million and certain third-party expenses incurred by Teva between January 1, 2015 and April 24, 2015, or Closing Date. Teva will be entitled to deduct from the $3.0 million hold-back certain costs incurred after January 1, 2015 that may arise after the Closing Date. Teva will pay us (i) one-half of the then remaining hold-back amount six months after the Closing Date, (ii) one-half of the then remaining hold-back amount nine months after the Closing Date and (iii) the entire then remaining hold-back amount 12 months after the Closing Date.

Teva will be responsible for expenses related to custirsen incurred pursuant to the Collaboration Agreement through December 31, 2014. We will be responsible for any such expenses incurred from and after January 1, 2015. We do not owe, to Teva, any development milestone payments or royalty payments on sales of custirsen, if any.

As a result of the termination of the collaboration agreement, we will not receive any future cash reimbursements from Teva for certain costs incurred by us in connection with the clinical development of custirsen. We expect that the $27.0 million advanced reimbursement payment from Teva, less amounts deductible in accordance with the Termination Agreement, will be sufficient to complete both the AFFINITY trial, including announcement of trial results expected in late 2015 or early 2016, and the planned second futility analysis of the ENSPIRIT trial, which is expected in mid-2015. Additional capital will be required to fund the ENSPIRIT trial beyond late 2015 or early 2016.

In April 2015, we and Lincoln Park Capital Fund, LLC, or LPC, entered into a Purchase Agreement, pursuant to which we have the right to sell to LPC up to $18.0 million in shares of our common stock, par value $0.001 per share, subject to certain limitations and conditions set forth in the Purchase Agreement. LPC initially purchased 956,938 Series A-1 Units at a purchase price of $2.09 per unit, for aggregate gross proceeds of $2.0 million. Each Series A-1 Unit consisted of (i) one share of common stock and (ii) one warrant to purchase one-quarter of a share of common stock at an exercise price of $2.40 per share. After the initial purchase, we have the right, from time to time, in our sole discretion and subject to certain conditions, to direct LPC to purchase additional shares of common stock having an aggregate value of $16.0 million. We may direct LPC to purchase such additional shares as often as every business day over the 24-month term of the Purchase Agreement in increments of up to 125,000 shares of common stock, with such amounts increasing as the closing sale price of our common stock increases. The purchase price of shares of common stock pursuant to the Purchase Agreement will be based on prevailing market prices of common stock at the time of sale without any fixed discount, and we will control the timing and amount of any sales of common stock to LPC. In addition, we may direct LPC to purchase additional amounts as accelerated purchases if on the date of a regular purchase the closing sale price of the common stock is not below $1.50 per share. As consideration for entering into the Purchase Agreement, we issued to LPC 126,582 shares of common stock. We did not receive any cash proceeds from the issuance of these shares.  

Based on our current expectations, we believe our capital resources will be sufficient to fund our currently planned operations into the third quarter of 2016. Our currently planned operations are set forth below under the heading Operating Capital and Capital Expenditure Requirements.

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Cash Flows

Cash Used in Operations

For the three months ended March 31, 2015, net cash used in operating activities increased to $6.4 million from $1.7 million in the three months ended March 31, 2014. The increase in cash used in operations in 2015 compared to 2014 was primarily attributable to a decrease in cash reimbursements from Teva in 2015.

Cash Provided by Financing Activities

For the three months ended March 31, 2015, net cash used by financing activities was $0.1 million compared to net cash provided of $30,000 in the three months ended March 31, 2014. Net cash used by financing activities in the three months ended March 31, 2015 was the result of taxes paid related to net share settlement of equity awards. Net cash provided by financing activities in the three months ended March 31, 2014 related to proceeds received from the exercise of stock options.

Cash Provided by Investing Activities

For the three months ended March 31, 2015, net cash provided by investing activities decreased to $3.9 million from $15.7 million for the for the three months ended March 31, 2014. Net cash provided by investing activities in the three months ended March 31, 2015 and 2014 was due to transactions involving marketable securities in the normal course of business.

Operating Capital and Capital Expenditure Requirements

Based on our current expectations, we believe that our cash, cash equivalents, short-term investments and amounts receivable from Teva in connection with the Termination Agreement, will be sufficient to fund our currently planned operations into the third quarter of 2016, which may include:

 

·

announcing AFFINITY trial results, a phase 3 trial that is evaluating a survival benefit for custirsen in combination with cabazitaxel as second-line chemotherapy in approximately 630 patients with CRPC with final results expected late 2015 or early 2016, depending on timing of the event-driven final analysis (1);

 

·

continuation of the ENSPIRIT trial through late 2015 or early 2016, including the second interim futility analysis expected in mid-2015 (1);

 

·

completing enrollment in the Borealis-2 trial, an investigator-sponsored, randomized, controlled phase 2 trial evaluating apatorsen in patients with advanced or metastatic bladder cancer who have disease progression following initial platinum-based chemotherapy first-line treatment and are eligible to receive docetaxel second-line chemotherapy;

 

·

announcing Spruce trial results, an investigator-sponsored, randomized, placebo-controlled phase 2 trial evaluating apatorsen treatment with carboplatin and pemetrexed chemotherapy in patients with previously untreated advanced non-squamous NSCLC;

 

·

continued enrollment in the Cedar trial, an investigator-sponsored, randomized phase 2 trial evaluating apatorsen treatment with gemcitabine and carboplatin chemotherapy in patients with previously untreated advanced squamous NSCLC;

 

·

announcing Rainier trial results, an investigator-sponsored, randomized, placebo-controlled phase 2 trial evaluating apatorsen in combination with Abraxane® and gemcitabine in patients with previously untreated metastatic pancreatic cancer; and

 

·

continuing enrollment in the Pacific trial, an investigator-sponsored randomized phase 2 trial evaluating apatorsen treatment in combination with Zytiga in patients with prostate cancer, with preliminary results expected in 2015.

 

(1) We expect the amount received from Teva in accordance with the Termination Agreement will be sufficient to complete both the AFFINITY trial, including announcement of trial results expected in late 2015 or early 2016, and the planned second futility analysis of the ENSPIRIT trial. Additional capital will be required to fund the ENSPIRIT trial beyond the late 2015 or early 2016.

Results from the additional custirsen and apatorsen trials may be released at a date that is beyond the period for which we currently project we have available cash resources. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. If we were to continue ENSPIRIT beyond the second futility analysis, conduct development activities with respect to our other product candidates beyond those development activities described above, including activities with respect to OGX-225, if the clinical trials cost more than we anticipate, or if custirsen is successful in a phase 3 trial with no partnership, we would require additional funding to support such operations. If we need to extend our cash availability or to conduct any such currently unplanned development activities, we would seek such necessary funding through the

24


licensing or sale of certain of our product candidates, by executing a partnership or collaboration agreement, or through private or public offerings of our equity or debt, including the sale of common stock pursuant to an at-the market offering. However, we can provide no assurance that such funding would be available to us on favorable terms, or at all.

Our future capital requirements will depend on many factors, including:

 

·

our ongoing level of focus and efforts to develop custirsen and apatorsen;

 

·

our ability to obtain additional funding through a partnership or collaboration agreement with a third party or licenses of certain of our product candidates, or through private or public offerings of our equity or debt, or through sale of certain of our royalty rights;

 

·

timing, costs and results of clinical trials, preclinical development and regulatory approvals;

·

success of custirsen, apatorsen and our other product candidates;

 

·

timing, costs and results of drug discovery and R&D; and

 

·

costs related to obtaining, defending and enforcing patents.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet financing arrangements at March 31, 2015.

Commitments and Contingencies

We previously disclosed certain contractual obligations and contingencies and commitments relevant to us within the financial statements and Management Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on March 26, 2015. There have been no material changes to our “Contractual Obligations” table in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2014 Form 10-K. For more information regarding our current contingencies and commitments, see note 7 to the financial statements included above.

Material Changes in Financial Condition

 

 

 

March 31,

 

 

December 31,

 

(in thousands)

 

2015

 

 

2014

 

Total Assets

 

$

46,384

 

 

$

56,291

 

Total Liabilities

 

 

16,365

 

 

 

22,232

 

Total Equity

 

 

30,019

 

 

 

34,059

 

 

The decrease in assets at March 31, 2015 compared to December 31, 2014 was primarily due to a decrease in cash, cash equivalents and short-term investments as the assets have been used to fund operations and a decrease in amounts receivable due to a decrease in revenue earned through our prior strategic collaboration with Teva. The decrease in liabilities at March 31, 2015 compared to December 31, 2014 is primarily due to lower clinical trial accruals associated with patients coming off treatment in the AFFINITY and Borealis-1 trials.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. We have discussed those estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 26, 2015. Since December 31, 2014, there have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them.

New Accounting Standards

See Note 2, “Accounting Policies,” of the consolidated financial statements for information related to the adoption of new accounting standards in 2015, none of which had a material impact on our financial statements, and the future adoption of recently issued accounting standards, which we do not expect to have a material impact on our financial statements. 

 

 

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Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Interest rate risk is the risk that the fair values and future cash flows of financial instruments will fluctuate because of the changes in market interest rates. We invest our cash in a variety of financial instruments, primarily in short-term bank deposits, money market funds, and domestic and foreign commercial paper and government securities. These investments are denominated in U.S. dollars, and we monitor our exposure to interest rate changes. We have very limited interest rate risk due to having only a few assets or liabilities subject to fluctuations in interest rates. Our investment portfolio includes only marketable securities with active secondary or resale markets to help ensure portfolio liquidity. Due to the nature of our highly liquid marketable securities, a change in interest rates would not materially change the fair market value. We have estimated the effect on our portfolio of a hypothetical increase in interest rates by 1% to be a reduction of approximately $0.3 million in the fair value of our investments as of March 31, 2015.

Foreign Currency Exchange Risk

We are exposed to risks associated with foreign currency transactions on certain contracts and payroll expenses related to our Canadian subsidiary, OncoGenex Technologies, denominated in Canadian dollars, and we have not hedged these amounts. As our unhedged foreign currency transactions fluctuate, our earnings might be negatively affected. Accordingly, changes in the value of the U.S. dollar relative to the Canadian dollar might have an adverse effect on our reported results of operations and financial condition, and fluctuations in exchange rates might harm our reported results and accounts from period to period. We have estimated the effect on our reported results of operations of a hypothetical increase of 10% in the exchange rate of the Canadian dollar against the U.S. dollar to be approximately $0.1 million for the three months ended March 31, 2015.

 

 

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act are accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

During the quarter ended March 31, 2015, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

We have not made any changes to our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

Limitations on Effectiveness of Controls

Our management does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

 

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PART II. OTHER INFORMATION

Item 1A.

Risk Factors

Risks Related to Our Business

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information contained in this Quarterly Report on Form 10-Q and in the other periodic and current reports and other documents we file with the Securities and Exchange Commission, before deciding to invest in our common stock. If any of the following risks materialize, our business, financial condition, results of operation and future prospects will likely be materially and adversely affected. In that event, the market price of our common stock could decline and you could lose all or part of your investment.

Risks Related to Our Business

We have incurred losses since inception and anticipate that we will continue to incur losses for the foreseeable future. We have never had any products available for commercial sale and we may never achieve or sustain profitability.

We are a clinical-stage biopharmaceutical company, are not profitable, have incurred losses in each year since our inception and do not expect to become profitable in the foreseeable future. We have never had any products available for commercial sale, and we have not generated any revenue from product sales nor do we anticipate that we will generate revenue from product sales in the foreseeable future. Our revenue to date has been collaboration revenue under the collaboration agreement with Teva, which was terminated in April 2015. As a result of the termination of the collaboration agreement, TEVA will no longer be responsible for custirsen-related expenses, and we will not receive additional revenue from TEVA other than the advanced reimbursement payment we received in connection with the termination of the collaboration agreement. We have not yet submitted any products for approval by regulatory authorities, and we continue to incur research and development and general and administrative expenses related to our operations. We expect to continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our research activities and conduct development of, and seek regulatory approvals for, our product candidates, and prepare for and begin to commercialize any approved products. If our product candidates fail in clinical trials or do not gain regulatory approval, or if our product candidates do not achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.

The termination of our collaboration agreement with Teva will result in us being required to take over responsibility for conducting the ongoing custirsen trials, and further development of custirsen will require significant resources from us or another collaborator.

In April 2015, we and Teva entered into a Termination Agreement, pursuant to which we terminated our collaboration agreement. Under the terms of the Termination Agreement, we received approximately $23.2 million and regained responsibility for all custirsen-related expenses as of January 1, 2015, including those related to the ENSPIRIT trial, as well as manufacturing and regulatory activities for the custirsen programs, which were previously managed and funded by Teva. As a result, Teva will transition the responsibilities associated with conducting the ongoing custirsen clinical trials to us and will use commercially reasonable efforts to assign all third-party contracts related to the ENSPIRIT trial to us. Some of these third parties may not agree to assignment of the contracts to us on the same terms they did with Teva, or at all, and Teva may fail to identify third-party contracts that are necessary to conduct the ongoing trials. We are also relying on Teva to assist in certain development and regulatory activities as custirsen is transitioned back to the Company. If these activities are not completed in a timely or satisfactory manner, there may delays in development of custirsen, diversion of management’s attention and potentially reduced resources for the apatorsen clinical trials.

Additionally, further development of custirsen will require significant resources from us or another collaborator. We will not receive any future cash reimbursements from Teva for costs incurred by us in connection with the clinical development of custirsen, and we will be required to fund all future development and commercialization ourselves if we are unable to find another collaborator. We expect that the $23.2 million payment from Teva will allow for the completion and final results from the AFFINITY trial, as well as continuation of the ENSPIRIT trial through late 2015 or early 2016 and through the second interim futility analysis expected in mid-2015, but we will need to acquire additional capital or enter into a new partnership or collaboration agreement to fund additional development. There are no assurances that we will have access to additional capital or find a new collaborator, or that the terms and timing of any such arrangements would be acceptable to us. As a result, we could experience a significant delay in the custirsen development process. If we determine to discontinue the development of custirsen, or any ongoing clinical trials, we would not receive any future return on our investment from that product candidate, or a specific indication.

Clinical trials may not demonstrate a clinical benefit of our product candidates.

Positive results from preclinical studies and clinical trials, including those results from the custirsen or apatorsen clinical trials conducted to date, should not be relied on as evidence that later-stage or large-scale clinical trials will succeed. We will be required to

27


demonstrate with substantial evidence through well-controlled clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek regulatory approvals for their commercial sale. Success in early clinical trials does not mean that future clinical trials will be successful because product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of the FDA and other non-U.S. regulatory authorities, despite having progressed through initial clinical trials. Further, preliminary results from our clinical trials may not be confirmed in final data, or may change materially.

Even after the completion of our planned Phase 3 clinical trials, the FDA or other non-U.S. regulatory authorities may disagree with our clinical trial design and our interpretation of data, and may require us to conduct additional clinical trials to demonstrate the efficacy of our product candidates.

We are highly dependent on the success of our lead product candidates, custirsen and apatorsen, and we cannot give any assurance that they, or any of our other product candidates, will receive regulatory approval or will be successfully commercialized.

In order to market custirsen, we must, among other things, complete ongoing clinical trials, including phase 3 or registration clinical trials, to demonstrate safety and efficacy. In April 2014, we announced that top-line survival results from our phase 3 SYNERGY trial indicated that the addition of custirsen to standard first-line docetaxel/prednisone therapy did not meet the primary endpoint of a statistically significant improvement in overall survival in men with metastatic CRPC, compared to docetaxel/prednisone alone. We may decide not to continue to advance the development and commercialization of custirsen, which would harm or prevent the commercialization of this product candidate. The failure to further develop and eventually commercialize custirsen could have a material adverse effect on our business and financial condition.

Completing the additional clinical trials will be required for apatorsen to establish the safety and efficacy of this product candidate. We are conducting parallel clinical trials to evaluate apatorsen in several cancer indications and treatment combinations to accelerate the development of apatorsen.

OGX-225 has not been tested in humans. Our preclinical testing of this product candidate may not be favorable and we may not be able to clinically evaluate OGX-225.

Our clinical development programs for our product candidates may not receive regulatory approval either if such product candidates fail to demonstrate that they are safe and effective in clinical trials and consequently fail to obtain necessary approvals from the FDA, or similar non-U.S. regulatory agencies, or if we have inadequate financial or other resources to advance these product candidates through the clinical trial process. Our protocol amendments, including but not limited to the sponsorship change from Teva to us, revisions to statistical analysis plans, or inclusion of analyses on poor prognostic patients, may be approved by regulatory authorities on a country-by-country basis slower than we anticipate, or not at all. As a result, we may require Teva’s cooperation in terminating the ENSPIRIT trial on a country-by-country basis where Teva remains sponsor in such countries. Such cooperation may be delayed or may not be satisfactorily received.  We may be required to continue the ENSPIRIT study longer than would be desirable until we become the sponsor in all jurisdictions. If competitive products developed by third parties show significant benefit in the cancer indications in which we are developing our product candidates, any planned supportive or primary registration trials may be delayed, altered or not initiated and custirsen, apatorsen and our other product candidates may never receive regulatory approval. Any failure to obtain regulatory approval of custirsen, apatorsen or our other product candidates could have a material and adverse effect on our business.

We rely, in part, on third parties to conduct clinical trials for our product candidates and plan to rely on third parties to conduct future clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain regulatory approval for or commercialize our current and future product candidates.

To implement our product development strategies, we rely on third parties, such as collaborators, contract research organizations, medical institutions, clinical investigators and contract laboratories, to conduct clinical trials of our product candidates. Although we rely on third parties to conduct our clinical trials, we are responsible for ensuring that each of our clinical trials is conducted in accordance with our investigational plan and protocol. Moreover, the FDA and non-U.S. regulatory authorities require us to comply with regulations and standards, commonly referred to as Good Clinical Practices, or GCPs, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate and that the clinical trial subjects are adequately informed of the potential risks of participating in clinical trials. Our reliance on third parties does not relieve us of these responsibilities and requirements. If the third parties conducting our clinical trials do not perform their contractual duties or obligations, do not meet expected deadlines or need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to GCPs or for any other reason, we may need to enter into new arrangements with alternative third parties and our clinical trials may be extended, delayed or terminated. In addition, a failure by such third parties to perform their obligations in compliance with GCPs may cause our clinical trials to fail to meet regulatory requirements, which may require us to repeat our clinical trials.

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Because we depend on financing from third parties for our operations, our business may fail if such financing becomes unavailable or is not available on commercially reasonable terms.

To date, we have financed our operations primarily through the sale of our equity securities and from payments we received pursuant to the collaboration agreement with Teva. In April 2015, our collaboration agreement with Teva was terminated, and we will not receive any future payments from Teva. We believe that our existing capital resources and interest on such resources will be sufficient to meet our current operating requirements into the third quarter of 2016. If, however, the ENSPIRIT study continues beyond the second interim futility analysis, regulatory authorities may take longer to approve the transfer of sponsorship from Teva to us or take longer than expected to approve the ENSPIRIT protocol amendment which may require us to continue the trial longer than expected, patients live longer as a result of new or investigational therapies, the trials proceed slower than expected or are initiated later than expected, we change our development plans, acquire rights to new product candidates or cannot find third-party collaborators for our other product candidates, we will need additional capital sooner than we expect. Our future capital requirements will depend on many factors, including, without limitation:

·

the scope and results of our clinical trials and preclinical studies;

·

whether we experience delays in our clinical and preclinical development programs, or slower-than-anticipated product development or rate of events;

·

whether we are able to enter into additional third-party collaborative partnerships to develop and/or commercialize any of our other product candidates on terms that are acceptable to us;

·

our ability to forecast the cost of our ongoing development activities, including the ENSPIRIT trial

·

the timing and requirements of, and the costs involved in, making sponsorship changes from Teva to us, making protocol amendments to any of our ongoing studies prior to their completion and conducting studies required to obtain regulatory approvals for our product candidates from the FDA and comparable foreign regulatory agencies;

·

the availability of third parties to perform the key development tasks for our product candidates, including conducting preclinical studies and clinical trials and manufacturing our product candidates to be tested in those studies and trials and the associated costs of those services;

·

the costs involved in preparing, filing, prosecuting, maintaining, defending the validity of and enforcing patent claims and other costs related to patent rights and other intellectual property rights, including litigation costs and the results of such litigation;

·

whether we modify our development program, including terminating and starting new trials; and

·

whether opportunities to acquire additional product candidates arise and the costs of acquiring and developing those product candidates.

If we are unable to raise funds on acceptable terms when it becomes necessary to do so, we may not be able to continue developing our product candidates, acquire or develop additional product candidates or respond to competitive pressures or unanticipated requirements. For these reasons, any inability to raise additional funds when we require it could have a material adverse effect on our business.

We may seek to partner with third-party collaborators with respect to the development of our product candidates, and we cannot control whether we will be able to do so on favorable terms, if at all.

Our business strategy relies in part on potentially partnering successful product candidates with larger companies to complement our internal development and commercialization efforts. We will be competing with many other companies as we seek partners for our product candidates and may not be able to compete successfully against those companies. If we are not able to enter into collaboration arrangements for our product candidates, we would be required to undertake and fund further development, clinical trials, manufacturing and commercialization activities solely at our own expense and risk. If we are unable to finance and/or successfully execute those expensive activities, our business could be materially and adversely affected, and we may be forced to discontinue clinical development of these product candidates.

Our product candidates may cause undesirable and potentially serious side effects during clinical trials that could delay or prevent their regulatory approval or commercialization.

Since patients in our clinical trials have advanced stages of cancer, we expect that additional adverse events, including serious adverse events, will occur.

Undesirable side effects caused by any of our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or non-U.S. regulatory authorities for any or all targeted

29


indications. This, in turn, could prevent us from commercializing our product candidates and generating revenue from their sale. In addition, if our product candidates receive marketing approval and we or others later identify undesirable side effects caused by the product:

·

we may elect to terminate the ongoing clinical trials and cease development of custirsen;

·

regulatory authorities may withdraw their approval of the product;

·

we may be required to recall the product, change the way the product is administered, conduct additional clinical trials or change the labeling of the product;

·

a product may become less competitive and product sales may decrease; and

·

our reputation may suffer.

Any one or a combination of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase the costs and expenses of commercializing the product, which in turn could delay or prevent us from generating significant revenue from the sale of the product. Recent events have raised questions about the safety of marketed drugs and may result in increased cautiousness by the FDA in reviewing new drugs based on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals, additional clinical trials being required, or more stringent product labeling requirements. Any delay in obtaining, or the inability to obtain, applicable regulatory approvals would prevent us from commercializing our product candidates.

Our clinical trials may be suspended or terminated at any time, including by the FDA, other regulatory authorities, a Data Safety Monitoring Board overseeing the clinical trial at issue, by a clinical trial site or investigator, or by us. Any failure or significant delay in completing clinical trials for our product candidates could materially harm our financial results and the commercial prospects for our product candidates.

We do not know whether any of our currently planned or on-going clinical trials for custirsen or apatorsen will proceed or be completed on schedule, if at all, or, with respect to our other product candidates, whether we will be able to initiate any future preclinical studies or clinical trials, as applicable, beyond those currently planned. The completion of our clinical trials currently in progress could also be substantially delayed or prevented by several factors, including:

·

delay or failure to obtain required future additional funding, when needed, through private or public offerings of our equity securities, debt financings, or the execution of a licensing, partnership or collaboration agreement with a third party for any of our product candidates;

·

lack of efficacy evidenced during clinical trials;

·

inadequate evidence of clinical benefit or futility;

·

slower than expected rates of patient recruitment, enrollment and final analysis;

·

failure of patients to complete the clinical trial;

·

unforeseen safety issues;