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ONTX > SEC Filings for ONTX > Form 10-Q on 14-Nov-2013All Recent SEC Filings

Show all filings for ONCONOVA THERAPEUTICS, INC.

Form 10-Q for ONCONOVA THERAPEUTICS, INC.


14-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The interim unaudited condensed consolidated financial statements and this Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2012 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our final prospectus filed on July 25, 2013 with the SEC pursuant to Rule 424(b)(4) of the Securities Act. As used in this report, unless the context suggests otherwise, "we," "us," "our," "the Company" or "Onconova" refer to Onconova Therapeutics, Inc.

Information Regarding Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements. All statements other than statements of historical fact contained in this quarterly report, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "design," "intend," "expect" or the negative version of these words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under the heading "Risk Factors" contained in our final prospectus filed on July 25, 2013 with the SEC pursuant to Rule 424(b)(4) of the Securities Act. In light of these risks, uncertainties and assumptions, actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements in this quarterly report and you should not place undue reliance on these forward-looking statements.

Forward-looking statements include, but are not limited to, statements about:

the initiation, cost, timing, progress and results of our research and development activities, including preclinical and clinical studies;

our ability to obtain and maintain regulatory approval of rigosertib, ON 013105, recilisib and any of our other future product candidates, and any related restrictions, limitations, and/or warnings in the label of an approved product candidate;

                      our ability to obtain funding for our operations;

                      our plans to research, develop and commercialize our
product candidates;

                      our ability to enter into collaboration agreements to

pursue the development, regulatory approval and commercialization of our product candidates;

our collaboration partners' election(s) to pursue development and commercialization;

our ability, and the ability of our in-licensors, to obtain and maintain intellectual property protection for our product candidates;

the size and growth potential of the markets for our product candidates, and our ability to serve those markets;

our ability to successfully commercialize our product candidates, if approved;

the rate and degree of market acceptance of our product candidates, if approved;

our ability to develop sales and marketing capabilities, whether alone or with potential collaborators, and to commercialize our product candidates, if approved;

                      regulatory developments in the United States and foreign
countries;

                      the performance of third parties in connection with the

development of our product candidates, including third parties conducting our clinical trials, as well as third-party suppliers and manufacturers;

the development, regulatory approval and commercial success of competing therapies;

                      our ability to retain key scientific or management
personnel;

                      our expectations regarding the time during which we will

be an emerging growth company under the Jumpstart Our Business Startups Act of 2012 ("JOBS Act");

our use of the net proceeds from the IPO; and

the accuracy of our estimates regarding expenses, future revenues, capital requirements and need for additional financing.

Although we believe that the expectations and assumptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Any forward-looking statement made by us in this quarterly report speaks only as of the date on which it is made. We disclaim any duty to update any of these forward-looking statements after the date of this quarterly report to conform these statements to actual results or revised expectations.

Overview

We are a clinical-stage biopharmaceutical company focused on discovering and developing novel small molecule drug candidates to treat cancer. Using our proprietary chemistry platform, we have created an extensive library of targeted anti-cancer agents designed to work against specific cellular pathways that are important to cancer cells. We believe that the drug candidates in our pipeline have the potential to be efficacious in a wide variety of cancers without causing harm to normal cells. We have three clinical-stage product candidates and six preclinical programs.

Rigosertib, our most advanced product candidate, is being tested in a number of ongoing phase 2 and phase 3 clinical trials. We are conducting a pivotal phase 3 trial of rigosertib under an SPA from the FDA for higher risk MDS. We expect to report top-line overall survival results from this trial in December 2013 or the first quarter of 2014. We are also evaluating rigosertib in a phase 3 trial for metastatic pancreatic cancer, and a pre-planned interim futility and safety analysis is expected in December 2013. In addition, we are testing rigosertib in two phase 2 trials for transfusion-dependent lower risk MDS, and in a phase 2 trial for head and neck cancers. Baxter has commercialization rights for rigosertib in Europe and SymBio has commercialization rights in Japan and Korea. We have retained development and commercialization rights to rigosertib in the rest of the world, including in the United States.

Our second clinical-stage product candidate, ON 013105, is in a phase 1 trial in patients with relapsed or refractory lymphoma, including an aggressive form of non-Hodgkin's lymphoma known as mantle cell lymphoma and acute lymphoid leukemia. We suspended enrollment in this Phase 1 trial in October 2012 and we plan to resume clinical evaluation of ON 013105 in the first quarter of 2014.


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Our third clinical-stage product candidate, recilisib, is being developed in collaboration with the U.S. Department of Defense for acute radiation syndromes. We have conducted animal studies and clinical trials of recilisib under the FDA's Animal Efficacy Rule, which permits marketing approval for new medical countermeasures for which human efficacy studies are not feasible or ethical, by relying on evidence from animal studies in appropriate animal models to support efficacy in humans. We have completed four phase 1 trials to evaluate the safety and pharmacokinetics of recilisib in healthy human adult subjects using both subcutaneous and oral formulations.

In addition to our three clinical-stage product candidates, we are advancing six preclinical programs that target kinases, cellular metabolism or division. We intend to explore additional collaborations to further the development of these product candidates as we focus internally on our more advanced programs.

We were incorporated in Delaware in December 1998 and commenced operations in January 1999. Our operations to date have included our organization and staffing, business planning, raising capital, in-licensing technology from research institutions, identifying potential product candidates, developing product candidates and building strategic alliances, as well as undertaking preclinical studies and clinical trials of our product candidates.

Since commencing operations we have dedicated a significant portion of our resources to our development efforts for our clinical-stage product candidates, particularly rigosertib. We incurred research and development expenses of $38.1 million and $42.2 million during the nine months ended September 30, 2013 and 2012, respectively. We anticipate that a significant portion of our operating expenses will continue to be related to research and development as we continue to advance our preclinical programs and our clinical-stage product candidates. In July 2013, we completed the IPO, from which we received net proceeds of $79.8 million. Prior to the consummation of the IPO, we funded our operations primarily through the sale of Preferred Stock amounting to $144.7 million, including $50.0 million that Baxter invested in our Preferred Stock in 2012, as well as proceeds from the issuance of convertible debt and a stockholder loan amounting to $26.8 million in the aggregate, all of which was later converted into shares of our Preferred Stock, and upfront payments of $7.5 million from SymBio and $50.0 million from Baxter in connection with our collaboration agreements. We have also received an aggregate of $8.0 million from The Leukemia and Lymphoma Society ("LLS") under a funding agreement. Under our collaboration agreements with Baxter and SymBio, we are also eligible to receive an aggregate of up to $545.5 million upon the achievement of specified development and regulatory milestones and up to $280.0 million upon the achievement of specified commercialization milestones, as well as tiered royalties, at percentage rates ranging from the low-teens to low-twenties, on any future net sales of products resulting from these collaborations. As of September 30, 2013 and December 31, 2012, we had $116.6 million and $81.5 million in cash, cash equivalents and marketable securities, respectively.

Our net losses were $47.9 million and $19.7 million for the nine months ended September 30, 2013 and 2012, respectively. We recognized revenues of $2.8 million and $43.2 million for the nine months ended September 30, 2013 and 2012, respectively. As of September 30, 2013, we had an accumulated deficit of $216.3 million. We expect to incur significant expenses and operating losses for the foreseeable future as we continue the development and clinical trials of, and seek regulatory approval for, our product candidates, even as milestones under our license and collaboration agreements may be met. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses. We do not currently have an organization for the sales, marketing and distribution of pharmaceutical products. We may rely on licensing and co-promotion agreements with strategic or collaborative partners for the commercialization of our products in the United States and other territories. If we choose to build a commercial infrastructure to support marketing in the United States for any of our product candidates that achieve regulatory approval, such commercial infrastructure could be expected to include a targeted, oncology sales force supported by sales management, internal sales support, an internal marketing group and distribution support. To develop the appropriate commercial infrastructure internally, we would have to invest financial and management resources, some of which would have to be deployed prior to having any certainty about marketing approval.

Furthermore, as a result of the IPO, we have and expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will seek to fund our operations primarily through public equity or debt financings or other sources. Other additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed or on less favorable terms could have a material adverse effect on our financial condition and our ability to pursue our business strategy.


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Collaboration Agreements

Baxter Healthcare SA

In September 2012, we entered into a development and license agreement with Baxter, granting Baxter an exclusive, royalty-bearing license for the research, development, commercialization and manufacture (in specified instances) of rigosertib in all therapeutic indications in Europe. Under the Baxter agreement, we are obligated to use commercially reasonable efforts to direct, coordinate and manage the development of rigosertib for MDS and pancreatic cancer, in accordance with a development plan agreed upon by the parties. Under the agreement, if after a specified development event we elect not to move forward with the development of rigosertib for pancreatic cancer, Baxter may on its own, at its own expense, develop rigosertib for pancreatic cancer for the purposes of obtaining marketing approval. In addition, there is a specified mechanism set forth in the agreement to expand the scope of the collaboration for additional indications. Our agreement with Baxter is guided by a joint steering committee. If the joint steering committee is not able to make a decision by consensus, then any dispute would be resolved by specified executive officers of both parties.

Under the terms of the agreement, Baxter made an upfront payment of $50.0 million. We are eligible to receive pre-commercial milestone payments of up to an aggregate of $512.5 million if specified development and regulatory milestones are achieved. The potential pre-commercial development milestone payments to us include the following:

$50.0 million for successful completion of a phase 3 clinical trial for rigosertib IV in higher risk MDS patients;

$25.0 million for each of the two joint decisions to proceed with the development of Rigosertib for certain indications specified in the arrangement with Baxter; and

$25.0 million for each drug approval application filed for indications specified in the arrangement with Baxter.

We may also receive up to $337.5 million in milestone payments for regulatory approvals of the three rigosertib indications specified in the arrangement with Baxter, each of which may be up to and in excess of $100.0 million. We are also potentially eligible to receive an additional $20.0 million pre-commercial milestone payment related to the timing of regulatory approval of rigosertib IV in higher risk MDS patients in Europe. In addition to these pre-commercial milestones, we are eligible to receive up to an aggregate of $250.0 million in milestone payments based on Baxter's achievement of pre-specified threshold levels of annual net sales of rigosertib. We are also entitled to receive royalties at percentage rates ranging from the low-teens to the low-twenties on net sales of rigosertib by Baxter in the licensed territory. In July 2012, Baxter also purchased $50.0 million of our Series J Preferred Stock, which converted to shares of our Common Stock immediately prior to the consummation of the IPO.

SymBio Pharmaceuticals Limited

In July 2011, we entered into a license agreement with SymBio, as subsequently amended, granting SymBio an exclusive, royalty-bearing license for the development and commercialization of rigosertib in Japan and Korea. Under the SymBio license agreement, SymBio is obligated to use commercially reasonable efforts to develop and obtain market approval for rigosertib inside the licensed territory, and we have similar obligations outside of the licensed territory. We have also entered into an agreement with SymBio that provides that we will supply them with development-stage product. Under the SymBio license agreement, we also agreed to supply commercial product to SymBio under specified terms that will be included in a commercial supply agreement to be negotiated prior to first commercial sale of rigosertib. We have also granted SymBio a right of first negotiation to license or obtain the rights to develop and commercialize compounds having a chemical structure similar to rigosertib in the licensed territory.

Under the terms of the SymBio license agreement, we received an upfront payment of $7.5 million. We are eligible to receive milestone payments of up to an aggregate of $33.0 million from SymBio upon the achievement of specified development and regulatory milestones for specified indications. Of the development milestones, $3.0 million is due after enrollment of the first patient in the event a decision is made, after our interim analysis, to start a phase 3 clinical trial of rigosertib IV in combination with gemcitabine for pancreatic cancer patients in the United States. Of the regulatory milestones, $5.0 million is due upon receipt of marketing approval in the United States for rigosertib IV in higher risk MDS patients, $3.0 million is due upon receipt of marketing approval in Japan for rigosertib IV in higher risk MDS patients, $5.0 million is due upon receipt of marketing approval in the United States for rigosertib Oral in lower risk MDS patients, $5.0 million is due upon receipt of marketing approval in Japan for rigosertib Oral in lower risk MDS patients, $5.0 million is due upon receipt of marketing approval in the United States for rigosertib IV in combination with gemcitabine in pancreatic cancer patients, and $3.0 million is due upon receipt of marketing approval in Japan for rigosertib IV in combination with gemcitabine in pancreatic cancer patients. Furthermore, upon receipt of marketing approval in the United States and Japan for an additional specified indication of rigosertib, which we are currently not pursuing, an aggregate of $4.0 million would be due. In addition to these pre-commercial milestones, we are eligible to receive tiered milestone payments of up to an aggregate of $30.0 million based upon annual net sales of rigosertib by SymBio in the licensed territory.

Further, under the terms of the SymBio license agreement, SymBio is obligated to make royalty payments to us at percentage rates ranging from the mid-teens to 20% based on net sales of rigosertib by SymBio in the licensed territory.

The Leukemia and Lymphoma Society

In May 2010, we entered into a funding agreement with LLS to fund the development of rigosertib. We terminated the funding agreement effective as of March 2013. Under the LLS funding agreement, we were obligated to use the funding received exclusively for the payment or reimbursement of the costs and expenses for clinical development activities for rigosertib. Under this agreement, we retained ownership and control of all intellectual property pertaining to works of authorship, inventions, know-how, information, data and proprietary material.

Under the LLS funding agreement, as amended, we received funding of $8.0 million from LLS through 2012. We did not received any funding in 2013. We are required to make specified payments to LLS, including payments payable upon execution of the first out-license, first approval for marketing by a regulatory body, completion of the first commercial sale of rigosertib, and achieving specified annual net sales levels of rigosertib. The extent of these payments and our obligations will depend on whether we out-license rights to develop or commercialize rigosertib to a third party, we commercialize rigosertib on our own or we combine with or are sold to another company. In addition, we will pay to LLS a single-digit percentage royalty of our net sales of rigosertib, if any. The sum of our payments to LLS is capped at three times the total funding received from LLS, or $24.0 million.


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Critical Accounting Policies and Significant Judgments and Estimates

This management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, revenue recognition, deferred revenue and stock-based compensation. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe there have been no significant changes in our critical accounting policies as discussed in our final prospectus filed on July 25, 2013 with the SEC pursuant to Rule 424(b)(4) of the Securities Act.


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Results of Operations



Comparison of the Three Months Ended September 30, 2013 and 2012



                                                Three Months Ended September 30,
                                                    2013                 2012              Change
Revenue                                      $        1,116,000    $      42,803,000    $ (41,687,000 )
Operating expenses:
General and administrative                            5,927,000            8,922,000       (2,995,000 )
Research and development                             15,293,000           26,962,000      (11,669,000 )
Total operating expenses                             21,220,000           35,884,000      (14,664,000 )
Loss from operations                                (20,104,000 )          6,919,000      (27,023,000 )
Change in fair value of warrant liability               (31,000 )            (25,000 )         (6,000 )
Interest expense                                         (1,000 )         (8,357,000 )      8,356,000
Other income (expense), net                              47,000               28,000           19,000
Net loss before income taxes                        (20,089,000 )         (1,435,000 )    (18,654,000 )
Income taxes                                            432,000                    -          432,000
Net loss                                     $      (20,521,000 )  $      (1,435,000 )  $ (19,086,000 )

Revenues

Revenues decreased by $41.7 million for the three months ended September 30, 2013 when compared to the same period in 2012 primarily as a result of our entering into the Baxter agreement in the third quarter of 2012. Baxter made an upfront payment of $50.0 million of which $42.6 million was recognized as revenue in the three months ended September 30, 2012.

General and administrative expenses

General and administrative expenses decreased by $3.0 million, or 34%, to $5.9 million for the three months ended September 30, 2013 from $8.9 million for the three months ended September 30, 2012. There was a decrease of $2.7 million related to stock-based compensation, primarily resulting from a decrease in expense related to a change from the liability accounting method to the equity accounting method, partially offset by an increase in expense related to options granted in connection with the IPO. Additionally, there was a decrease of $1.2 million in professional fees, primarily related to the execution of the Baxter agreement. The decrease in expense was partially offset by an increase of $0.7 million as a result of the increase in general and administrative headcount to 18 at September 30, 2013 from 10 at September 30, 2012 and an increase of $0.3 million in other miscellaneous expenses.

Research and development expenses

Research and development expenses decreased by $11.7 million, or 43%, to $15.3 million for the three months ended September 30, 2013 from $27.0 million for the three months ended September 30, 2012. In the three months ended September 30, 2012, the Company made a $12.5 million milestone payment in accordance with its license agreement with Temple University. Additionally, there was a decrease of $3.9 million related to stock-based compensation, primarily resulting from a decrease in expense related to a change from the liability accounting method to the equity accounting method, partially offset by an increase in expense related to options granted in connection with the IPO. The decrease in expense was partially offset by an increase in clinical trial expenses of $2.9 million for rigosertib,an increase of $1.3 million related to an increase in research and development headcount to 44 at September 30, 2013 from 32 at September 30, 2012, an increase of $1.1 million related to nonclinical trial costs and an increase of $0.3 million in consulting services.

Change in fair value of warrant liability

The fair value of the warrant liability increased by $31,000 for the three months ended September 30, 2013 compared to an increase of $25,000 for the three months ended September 30, 2012. The change in the fair value of the warrant liability in 2013 and 2012 was related to the revaluation of the outstanding warrants to fair value.

Interest expense

Interest expense decreased to $1,000 for the three months ended September 30, 2013 from $8.4 million for the three months ended September 30, 2012. The decrease was the result of the conversion of the outstanding promissory notes into shares of Series I Preferred Stock in July 2012.

Other income (expense), net

Other income (expense), net, increased by $19,000 for the three months ended September 30, 2013 compared to the three months ended September 30, 2012. This increase was largely due to foreign exchange rate fluctuations.

Income taxes

Income taxes increased by $0.4 million for the three months ended September 30, 2013 compared to the three months ended September 30, 2012. This increase reflects US federal alternative minimum tax of $0.1 million and state income taxes of $0.3 million for the tax year ended December 31, 2012.


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Comparison of the Nine Months Ended September 30, 2013 and 2012



                                               Nine Months Ended September 30,         Change
                                                   2013                2012               $
Revenue                                      $       2,823,000    $   43,221,000    $ (40,398,000 )
Operating expenses:
General and administrative                          12,390,000        13,009,000         (619,000 )
Research and development                            38,096,000        42,186,000       (4,090,000 )
Total operating expenses                            50,486,000        55,195,000       (4,709,000 )
. . .
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