Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ONTX > SEC Filings for ONTX > Form 10-K on 20-Mar-2014All Recent SEC Filings

Show all filings for ONCONOVA THERAPEUTICS, INC.

Form 10-K for ONCONOVA THERAPEUTICS, INC.


20-Mar-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

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 clinical studies for myelodysplastic syndromes, or MDS and head and neck cancers. To date, we have enrolled more than 1,000 patients in rigosertib trials in hematological diseases and solid tumors. In February 2014, the Company announced top-line analysis of a Phase 3 trial of rigosertib IV in higher risk MDS patients who had progressed on, failed to respond to or relapsed after prior therapy with hypomethylating agents (HMAs). Although the results of this study showed numerical improvement in median overall survival in the rigosertib treated patients, the observed improvement of 2.4 months did not meet the required level of statistical significance. However, a statistically significant improvement in median overall survival was evident in the subset of patients who had progressed on or failed to respond to previous treatment with hypomethylating agents (HMAs). We plan to consult with regulatory authorities to determine the next steps for rigosertib IV in higher risk MDS. We are also testing rigosertib in two Phase 2 trials for transfusion-dependent lower risk MDS, in a Phase 2 trial for head and neck cancers and in a Phase 1/2 study in combination with azacitidine for first-line treatment of MDS. We also evaluated rigosertib in a Phase 3 trial for metastatic pancreatic cancer. In December 2013, a pre-planned interim futility and safety analysis for this trial was performed and as a result the study was discontinued. Baxter Healthcare SA, or Baxter, has commercialization rights for rigosertib in Europe and SymBio Pharmaceuticals Limited, or 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 is ON 013105, or briciclib, a small molecule targeting an important regulatory protein, cyclin D1, which is often found at elevated levels in cancer cells. We are planning to resume Phase 1 clinical development of briciclib (ON 013105) in 2014 with a multi-site dose escalation study in patients with advanced solid tumors refractory to current therapies.

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.


Table of Contents

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 $50.2 million, $52.8 million and $22.6 million during the years ended December 31, 2013, 2012 and 2011, 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 our initial public offering, or 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, or LLS, under a funding agreement. Under our collaboration agreements with Baxter and SymBio, we are also eligible to receive an aggregate of up to $359.5 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 December 31, 2013, we had $100.0 million in cash, cash equivalents and marketable securities, respectively.

Our net losses were $62.6 million, $29.9 million and $26.3 million for the years ended December 31, 2013, 2012 and 2011, respectively. We recognized revenues of $4.8 million, $46.2 million and $1.5 million for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, we had an accumulated deficit of $230.9 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, 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


Table of Contents

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.

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, in accordance with a development plan agreed upon by the parties. 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 $337.5 million if specified development and regulatory milestones are achieved.

We may also receive up to $212.5 million in milestone payments for regulatory approvals of the rigosertib MDS 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 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. Baxter also invested $5.0 million in our IPO in July 2013.

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 $22.0 million from SymBio upon the achievement of specified development and regulatory milestones for specified indications. 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, and


Table of Contents

$5.0 million is due upon receipt of marketing approval in Japan for rigosertib Oral in lower risk MDS 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 receive 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.

Financial Overview

     Revenue

    To date, we have derived revenue principally from activities pursuant to our
collaboration arrangements with Baxter and SymBio as well as from grants and
research agreements. The following table sets forth a summary of revenue
recognized from our collaboration agreements and research agreements for the
years ended December 31, 2013, 2012 and 2011:

                                                     Year Ended December 31,
                                                2013           2012          2011
  Baxter license and collaboration revenue   $ 4,176,000   $ 45,490,000   $         -
  SymBio license and collaboration revenue       577,000        503,000       227,000
  Research funding                                     -        197,000     1,260,000


                                             $ 4,753,000   $ 46,190,000   $ 1,487,000

We have not generated any revenue from commercial product sales. In the future, if any of our product candidates currently under development are approved for commercial sale in the United States and Canada, we may generate revenue from product sales, or alternatively, we may choose to select a collaborator to commercialize our product candidates in these markets.

The Baxter collaboration agreement is considered to be a multiple-element arrangement for accounting purposes. We determined that there are two deliverables under the Baxter agreement;


Table of Contents

specifically, the license to rigosertib for Europe and the related research and development services that we are obligated to provide. We concluded that $42.4 million of the fixed and determinable $50.0 million upfront payment was associated with the license and $7.6 million was associated with the research and development services. We recognized the entire $42.4 million associated with the upfront license as revenue during the third quarter of 2012 upon the execution of the Baxter agreement, and we are recognizing the research and development services revenue of $7.6 million on the proportional performance method over the period of commitment and development, which we estimate to be through March 31, 2014, the period of our non-contingent obligations to perform research and development services sufficient to advance rigosertib. For the years ended December 31, 2013, 2012 and 2011, we recognized $4.2 million, $3.1 million and $0.0 million, respectively, of research and development services revenue under the Baxter agreement.

The SymBio collaboration agreement is also considered to be a multiple-element arrangement for accounting purposes. We determined that there were three deliverables under the SymBio collaboration agreement; specifically, the license to rigosertib for Japan and Korea, our obligation to perform research and development services necessary for SymBio to seek approval in its territory and our obligation to participate on a joint steering committee. We concluded that these deliverables should be accounted for as a single unit of accounting. We determined that the $7.5 million upfront payment received in 2011 should be deferred and recognized as revenue on a straight-line basis through December 2027, reflecting our estimate of when we will complete our obligations under the agreement. For the years ended December 31, 2013, 2012 and 2011, we recognized revenues of $455,000, $455,000 and $227,000, respectively, under the SymBio collaboration agreement. In addition, we recognized revenues of $122,000, $48,000 and $0.0 for the years ended December 31, 2013, 2012 and 2011, respectively, related to the supply agreement with SymBio.

Pursuant to our funding agreement with LLS, during the year ended December 31, 2012, we paid $1.0 million to LLS, which we recorded as research and development expenses. This payment reduced the maximum milestone and royalty payment obligation under this agreement to $23.0 million at December 31, 2013.

In addition, some of our obligations under the LLS funding agreement will remain in effect until the completion of specified milestones and payments to LLS. Assuming the successful outcome of the development activities covered by the LLS funding agreement and our receipt of necessary regulatory approvals, we will be required to take commercially reasonable steps through March 2018 to advance the development of rigosertib in clinical trials and to bring rigosertib to practical application for MDS in a major market country, provided that we believe the product is safe and effective. We believe that we can satisfy our obligation by out-licensing rigosertib to, or partnering rigosertib with, a third party. We are required to report to LLS on our efforts and results with respect to continuing development of rigosertib. Our failure to perform these diligence obligations, even if we successfully achieve the specified development milestones, would require us to pay back to LLS the total amount of the funding we received from them, unless an exception applies. If LLS were to claim that such failure occurred and we disagreed with such claim, the dispute would be settled through binding arbitration.

As a result of the potential obligation to pay back to LLS the total amount of funding received under this arrangement, the $8.0 million of milestone payments we received through December 31, 2013 has been recorded as deferred revenue.

Preclinical Collaboration

In December 2012, we formed GBO, LLC, or GBO, an entity jointly-owned by both us and GVK Biosciences Private Limited, or GVK, to collaborate on the development of two of our preclinical programs. GVK made an initial capital contribution of $500,000 in exchange for a 10% interest in GBO and we contributed a sub-license to the intellectual property related to the two programs in


Table of Contents

exchange for a 90% interest. GVK will be required to make additional capital contributions over time, subject to specified conditions, and its interest in GBO will increase to as much as 50%. At specified times, we will be entitled to buy back from GVK the rights to either of these two programs.

GBO is consolidated in our financial statements for the year ended December 31, 2013, which means that we included its assets and liabilities in our balance sheets and its expenses in our statements of operations, less those amounts comprising the non-controlling interest. The consolidation of GBO did not have a material effect on our consolidated financial position or results of operations.

     Operating Expenses

    The following table summarizes our operating expenses for the years ended
December 31, 2013, 2012 and 2011:

                                         2013           2012           2011
        General and administrative   $ 16,793,000   $ 15,707,000   $  6,436,000
        Research and development       50,182,000     52,762,000     22,624,000


        Total operating expenses     $ 66,975,000   $ 68,469,000   $ 29,060,000

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs for executive and other administrative personnel, including stock-based compensation and travel expenses. Other general and administrative expenses include facility-related costs, communication expenses and professional fees for legal, patent review, consulting and accounting services.

We anticipate that our general and administrative expenses will increase in the future with the continued research and development and potential commercialization of our product candidates and as we operate as a public company. These increases will likely include increased costs for insurance, costs related to the hiring of additional personnel and payments to outside consultants, investor relations, lawyers and accountants, among other expenses. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and expense as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.

Research and Development Expenses

Our research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:


employee-related expenses, including salaries, benefits, travel and stock-based compensation expense;


expenses incurred under agreements with CROs and investigative sites that conduct our clinical trials and preclinical studies;


the cost of acquiring, developing and manufacturing clinical trial materials;


facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies; and


costs associated with preclinical activities and regulatory operations.

Research and development costs are expensed as incurred. License fees and milestone payments we make related to in-licensed products and technology are expensed if it is determined that they have


Table of Contents

no alternative future use. We record costs for some development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We plan to increase our research and development expenses for the foreseeable future.

To date, our research and development expenses have related primarily to the development of rigosertib. We do not currently utilize a formal time allocation system to capture expenses on a project-by-project basis because we are organized and record expense by functional department and our employees may allocate time to more than one development project. Accordingly, we do not allocate expenses to individual projects or product candidates, although we do allocate some portion of our research and development expenses by functional area and by compound.

The following table summarizes our research and development expenses by functional area for the years ended December 31, 2013, 2012 and 2011:

                                                 Twelve Months Ended December 31,
                                                2013           2012           2011
 Pre-clinical & clinical development        $ 28,693,000   $ 20,957,000   $ 11,593,000
 Milestones & royalties                                -     13,500,000      1,875,000
 Personnel related                             9,059,000      4,876,000      4,020,000
 Manufacturing, formulation & development      4,967,000      3,362,000      3,184,000
 Stock-based compensation                      3,170,000      6,645,000          3,000
 Consulting fees                               4,293,000      3,422,000      1,949,000


                                            $ 50,182,000   $ 52,762,000   $ 22,624,000

It is difficult to determine with certainty the duration and completion costs of our current or future preclinical programs and clinical trials of our product candidates, or if, when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of future clinical and preclinical studies, uncertainties in clinical trial enrollment rate and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing . . .

  Add ONTX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ONTX - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.