As filed with the Securities and Exchange Commission on May 3, 2017
Registration No. 333-216961
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OncoGenex Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 2835 | 033-80623 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
19820 North Creek Parkway
Bothell, Washington 98011
(425) 686-1500
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Scott Cormack
President and Chief Executive Officer
OncoGenex Pharmaceuticals, Inc.
19820 North Creek Parkway
Bothell, Washington 98011
(425) 686-1500
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Alan Smith Robert Freedman Kee Kim Amanda Rose Fenwick & West LLP 1191 Second Avenue, Floor 10 Seattle, WA 98101 (206) 389-4510 |
Richard Stewart Chairman Achieve Life Science, Inc. 30 Sunnyside Avenue Mill Valley, CA 94941 (415) 670-9050 |
Rob R. Carlson Paul Hastings LLP 1117 South California Avenue Palo Alto, CA 94304 (650) 320-1800 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement and the satisfaction or waiver of all other conditions under the Merger Agreement described herein.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☒ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
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 definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ☐
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this proxy statement/prospectus/information statement is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus/information statement is not an offer to sell and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 3, 2017
PROPOSED MERGER
YOUR VOTE IS VERY IMPORTANT
To the Stockholders of OncoGenex Pharmaceuticals, Inc. and Achieve Life Science, Inc.:
OncoGenex Pharmaceuticals, Inc., a Delaware corporation, or OncoGenex, Ash Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of OncoGenex, or Merger Sub 1, Ash Acquisition Sub 2, Inc., a Delaware corporation and a wholly owned subsidiary of OncoGenex, or Merger Sub 2, and Achieve Life Science, Inc., a Delaware corporation, or Achieve, have entered into an Agreement and Plan of Merger and Reorganization, or Merger Agreement, pursuant to which Merger Sub 1 will merge with and into Achieve, or the First Merger, with Achieve becoming a wholly-owned subsidiary of OncoGenex and the surviving corporation of the First Merger, or the Initial Surviving Corporation, and promptly following the First Merger, the Initial Surviving Corporation shall merge with and into Merger Sub 2 with Merger Sub 2 continuing as the surviving entity in the second merger as a direct wholly owned subsidiary of OncoGenex. These transactions are referred to herein collectively as the merger. OncoGenex is expected to be renamed Achieve Life Sciences, Inc. and is referred to herein as the combined company. The merger will result in a clinical-stage pharmaceutical company focused on clinical and commercial development of cytisine, a selective nicotine receptor partial agonist currently in development for smoking cessation. In addition to cytisine, the combined companys pipeline will also include apatorsen, a once-weekly intravenous drug designed to inhibit production of heat shock protein 27 which may disable cancer cells defenses and overcome treatment resistance. Consideration received by the combined company with respect to apatorsen will be subject to the terms and conditions of the contingent value rights, or CVRs, to be issued to existing OncoGenex stockholders prior to the First Merger. Following the issuance of the CVRs, the holders of CVRs may be entitled to 80% of certain consideration received by the combined company as a result of the achievement of certain milestones less certain agreed to offsets.
At the closing of the First Merger, each outstanding share of Achieve common stock will be converted into the right to receive approximately 4,242.8904 shares of common stock of OncoGenex, subject to adjustment as provided in the Merger Agreement based on increases or decreases in the number of Achieves issued and outstanding capital stock and the number of shares of Achieve capital stock issuable upon the exercise of all issued and outstanding equity awards, the number of OncoGenexs issued and outstanding common stock, as well as the payment of cash in lieu of fractional shares. Immediately following the effective time of the First Merger, OncoGenex equity holders are expected to own approximately 25% of the outstanding capital stock of the combined company and the Achieve stockholders are expected to own approximately 75% of the outstanding capital stock of the combined company. Each unexpired and unexercised OncoGenex option, whether vested or unvested, will continue in accordance with its terms without amendment, cancellation or retirement. OncoGenex stockholders will continue to own and hold their existing shares of OncoGenex common stock in the combined company. The Merger Agreement contemplates that OncoGenex common stock will be subject to a reverse stock split at a ratio not to exceed one new share for up to every 20 shares outstanding, to be implemented prior to the consummation of the First Merger as discussed in this proxy statement/prospectus/information statement. OncoGenexs board of directors intends to set the specific ratio at the lowest ratio required to meet the minimum bid price requirements of the NASDAQ Capital Market.
Shares of OncoGenex common stock are currently listed on The NASDAQ Capital Market under the symbol OGXI. Prior to consummation of the merger, OncoGenex intends to file an initial listing application for the combined company with The NASDAQ Capital Market pursuant to NASDAQ reverse merger rules. After completion of the merger, the combined company expects to trade on The NASDAQ Capital Market under the
symbol ACHV. On May 2, 2017, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of OncoGenex common stock was $0.41 per share.
OncoGenex is holding a special meeting of stockholders in order to obtain the stockholder approvals necessary to complete the merger and related matters. At the OncoGenex special meeting, which will be held at , local time, on , 2017 at 1191 Second Avenue, Floor 10, Seattle, WA 98101, unless postponed or adjourned to a later date, OncoGenex will ask its stockholders to, among other things, adopt the Merger Agreement thereby approving the merger and the issuance of OncoGenex common stock, approve an amendment to the OncoGenex certificate of incorporation effecting a reverse stock split of OncoGenex common stock, at a ratio not to exceed 1-for-20, with such specific ratio to be determined by OncoGenexs board of directors, in consultation with Achieves board of directors, following the special meeting, and an amendment to the certificate of incorporation changing the OncoGenex corporate name to Achieve Life Sciences, Inc., each as described in this proxy statement/prospectus/information statement.
As described in this proxy statement/prospectus/information statement, certain Achieve stockholders who in the aggregate own approximately 78% of the outstanding shares of Achieve common stock, and certain OncoGenex stockholders who in the aggregate own 1.2% of the outstanding shares of OncoGenex common stock, are parties to support agreements with OncoGenex and Achieve, respectively, whereby such stockholders agreed to vote such shares in favor of approving the transactions contemplated by the Merger Agreement and against actions that could adversely affect the consummation of the merger. In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the Securities and Exchange Commission and pursuant to the conditions of the Merger Agreement, the Achieve stockholders who are party to the support agreements will each execute an action by written consent of the Achieve stockholders, or written consent, adopting the Merger Agreement, thereby approving the merger and related transactions. Therefore, holders of a sufficient number of shares of Achieve capital stock required to adopt the Merger Agreement will adopt the Merger Agreement, and no meeting of Achieve stockholders to adopt the Merger Agreement and approve the merger and related transactions will be held. Nevertheless, all Achieve stockholders will have the opportunity to elect to adopt the Merger Agreement, thereby approving the merger and related transactions, by signing and returning to Achieve a written consent.
After careful consideration, the respective OncoGenex and Achieve boards of directors have approved the Merger Agreement and the respective proposals referred to above, and each of the OncoGenex and Achieve boards of directors has determined that it is advisable to consummate the merger. The board of directors of OncoGenex recommends that its stockholders vote FOR the proposals described in this proxy statement/prospectus/information statement, and the board of directors of Achieve recommends that its stockholders sign and return the written consent indicating their approval of the merger and adoption of the Merger Agreement and related transactions to Achieve.
More information about OncoGenex, Achieve and the proposed transactions are contained in this proxy statement/prospectus/information statement. OncoGenex and Achieve urge you to read this proxy statement/prospectus/information statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER RISK FACTORS BEGINNING ON PAGE 26.
OncoGenex and Achieve are excited about the opportunities the merger brings to both OncoGenex and Achieve stockholders, and thank you for your consideration and continued support.
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Scott Cormack | Richard Stewart | |
President and Chief Executive Officer | Chairman | |
OncoGenex Pharmaceuticals, Inc. |
Achieve Life Science, Inc. |
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus/information statement. Any representation to the contrary is a criminal offense.
This proxy statement/prospectus/information statement is dated , 2017, and is first being mailed to OncoGenex and Achieve stockholders on or about , 2017.
ONCOGENEX PHARMACEUTICALS, INC.
19820 North Creek Parkway
Bothell, Washington 98011
(425) 686-1500
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On , 2017
Dear Stockholders of OncoGenex:
On behalf of the board of directors of OncoGenex Pharmaceuticals, Inc., a Delaware corporation, or OncoGenex, OncoGenex is pleased to deliver this proxy statement/prospectus/information statement for the proposed merger between OncoGenex and Achieve Life Science, Inc., a Delaware corporation, or Achieve, pursuant to which Ash Acquisition Sub, Inc., a wholly owned subsidiary of OncoGenex, will merge with and into Achieve, with Achieve surviving as a wholly owned subsidiary of OncoGenex, and promptly following that first merger, Achieve shall merge with and into Ash Acquisition Sub 2, Inc., a wholly owned subsidiary of OncoGenex, with Ash Acquisition Sub 2, Inc. surviving as a wholly owned subsidiary of OncoGenex. These transactions are referred to as the merger. The special meeting of stockholders of OncoGenex will be held on , 2017 at , local time, at 1191 Second Avenue, Floor 10, Seattle, WA 98101, for the following purposes:
1. To consider and vote upon a proposal to approve the merger and the issuance of OncoGenex common stock in the merger pursuant to the Agreement and Plan of Merger and Reorganization, dated as of January 5, 2017, by and among OncoGenex, Ash Acquisition Sub, Inc., Ash Acquisition Sub 2, Inc. and Achieve, a copy of which is attached as Annex A to this proxy statement/prospectus/information statement, or the Merger Agreement;
2. To approve the amendment to the certificate of incorporation of OncoGenex to effect a reverse stock split of OncoGenex common stock, at a ratio not to exceed 1-for-20, with such specific ratio to be determined by OncoGenexs board of directors, in consultation with Achieves board of directors, following the special meeting, the form of which is attached as Annex B to this proxy statement/prospectus/information statement;
3. To approve the amendment to the certificate of incorporation of OncoGenex to change the name OncoGenex Pharmaceuticals, Inc. to Achieve Life Sciences, Inc., the form of which is attached as Annex C to this proxy statement/prospectus/information statement;
4. To consider and vote upon an adjournment of the OncoGenex special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of OncoGenex Proposal Nos. 1, 2 and 3; and
5. To transact such other business as may properly come before the OncoGenex special meeting or any adjournment or postponement thereof.
The board of directors of OncoGenex has fixed , 2017 as the record date for the determination of stockholders entitled to notice of, and to vote at, the OncoGenex special meeting and any adjournment or postponement thereof. Only holders of record of shares of OncoGenex common stock at the close of business on the record date are entitled to notice of, and to vote at, the OncoGenex special meeting. At the close of business on the record date, OncoGenex had shares of common stock outstanding and entitled to vote.
Your vote is important. The affirmative vote of the holders of a majority of the shares of OncoGenex common stock properly cast at the OncoGenex special meeting, presuming a quorum is present, is required for approval of OncoGenex Proposal Nos. 1 and 4. The affirmative vote of the holders of a majority of the OncoGenex common stock outstanding on the record date for the OncoGenex special meeting is required for approval of OncoGenex Proposal Nos. 2 and 3. Each of Proposal Nos. 1, 2 and 3 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2 and 3.
Even if you plan to attend the OncoGenex special meeting in person, OncoGenex requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the OncoGenex special meeting if you are unable to attend.
By Order of the OncoGenex Board of Directors,
Scott Cormack
President and Chief Executive Officer
Bothell, Washington
, 2017
THE ONCOGENEX BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, ONCOGENEX AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. THE ONCOGENEX BOARD OF DIRECTORS RECOMMENDS THAT ONCOGENEX STOCKHOLDERS VOTE FOR EACH SUCH PROPOSAL.
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Certain Financial Forecasts of OncoGenex Utilized in Connection with the Merger |
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Opinion of the Financial Advisor to OncoGenexs Board of Directors |
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Interests of the OncoGenex Directors and Executive Officers in the Merger |
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ONCOGENEX MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ACHIEVE MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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COMPARISON OF RIGHTS OF HOLDERS OF ONCOGENEX STOCK AND ACHIEVE STOCK |
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information statement does not give effect to the proposed reverse stock split of OncoGenex common stock, at a ratio not to exceed 1-for-20, described in OncoGenex Proposal No. 2 in this proxy statement/prospectus/information statement.
The following section provides answers to frequently asked questions about the merger. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections.
Q: | What is the merger? |
A: | OncoGenex Pharmaceuticals, Inc., or OncoGenex, and Achieve Life Science, Inc., or Achieve, have entered into an Agreement and Plan of Merger and Reorganization, dated as of January 5, 2017, or the Merger Agreement. The Merger Agreement contains the terms and conditions of the proposed business combination of OncoGenex and Achieve. Under the Merger Agreement, Ash Acquisition Sub, Inc., a wholly owned subsidiary of OncoGenex, will merge with and into Achieve, with Achieve surviving as a wholly owned subsidiary of OncoGenex, or the first merger, and promptly following the first merger, Achieve shall merge with and into Ash Acquisition Sub 2, Inc., a wholly owned subsidiary of OncoGenex, with Ash Acquisition Sub 2, Inc. surviving as a wholly owned subsidiary of OncoGenex, or the second merger. These transactions are referred to as the merger. Following the merger, OncoGenex is expected to be renamed Achieve Life Sciences, Inc. and is referred to herein as the combined company. |
At the closing of the first merger, each share of Achieve common stock outstanding immediately prior to the effective time of the first merger (excluding certain shares to be canceled pursuant to the Merger Agreement and shares held by stockholders who have exercised and perfected appraisal rights or dissenters rights as more fully described in The MergerAppraisal Rights and Dissenters Rights) will be converted into the right to receive approximately 4,242.8904 pre-reverse stock split shares of OncoGenex common stock, subject to adjustment as provided in the Merger Agreement based on increases or decreases in the number of Achieves issued and outstanding capital stock and the number of shares of Achieve capital stock issuable upon the exercise of all issued and outstanding equity awards, the number of OncoGenexs issued and outstanding common stock, as well as the payment of cash in lieu of fractional shares. The Merger Agreement contemplates that OncoGenex common stock will be subject to a reverse stock split at a ratio not to exceed 1-for-20, to be implemented prior to the consummation of the first merger. OncoGenexs board of directors intends to set the specific ratio at the lowest ratio required to meet the minimum bid price requirements of the NASDAQ Capital Market. As a result of the first merger, holders of Achieve stock are expected to own in the aggregate approximately 75% of the outstanding capital stock of the combined company, and the OncoGenex equity holders are expected to own in the aggregate approximately 25% of the outstanding capital stock of the combined company. Adjustments to the exchange ratio are described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement. After the completion of the merger, it is expected that OncoGenex will change its corporate name to Achieve Life Sciences, Inc. as required by the Merger Agreement.
Q: | What will happen to OncoGenex if, for any reason, the merger does not close? |
A: |
If, for any reason, the merger does not close, the OncoGenex board of directors may elect to, among other things, attempt to complete another strategic transaction like the merger, attempt to sell or otherwise dispose of the various assets of OncoGenex or continue to operate the business of OncoGenex. OncoGenex may be unable to identify and complete an alternative strategic transaction or continue to operate the business due to limited cash availability, and it may be required to dissolve and liquidate its assets. In such case, OncoGenex would be required to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or timing of available |
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cash left to distribute to stockholders after paying the debts and other obligations of OncoGenex and setting aside funds for reserves. |
Q: | Why are the two companies proposing to merge? |
A: | Following the merger, the combined company will create a clinical-stage pharmaceutical company focused on clinical and potential commercial development of cytisine, a selective nicotine receptor partial agonist currently in development for smoking cessation. Two recent large-scale, investigator-led, Phase 3 trials conducted by third parties in over 2,000 patients demonstrated positive results. These Phase 3 trials reinforced results from historic Central and Eastern European studies in over 8,000 subjects. The results of the two Phase 3 clinical trials were published in the New England Journal of Medicine in September 2011 and December 2014. The product is currently marketed by a third party in Central and Eastern Europe and is believed to have treated in excess of 21 million patients. While third party trials of cytisine have been conducted that may support any future clinical trials by Achieve, Achieve has not yet submitted an Investigational New Drug application, or IND, to the U.S. Food and Drug Administration, or FDA, for cytisine or conducted clinical trials for cytisine in the United States or any other jurisdiction. |
In addition to cytisine, the combined companys pipeline will also include apatorsen (OGX-427), a once-weekly intravenous drug designed to inhibit production of heat shock protein 27, or Hsp27, to disable cancer cells defenses and overcome treatment resistance. Positive Phase 2 results were recently reported following final analysis of the Borealis-2 trial of apatorsen in combination with docetaxel treatment that enrolled 200 patients with metastatic bladder cancer whose disease had progressed following first-line platinum-based chemotherapy. Patients who received apatorsen treatment experienced a 20% reduction in risk of death, compared to patients receiving docetaxel alone (HR=0.80; 95% CI: 0.65-0.98; p=0.078). Six previous randomized Phase 2 trials of apatorsen in several cancer indications failed to meet their pre-defined clinical endpoints. Efforts will continue to establish a strategic partnership to further the development of apatorsen. |
OncoGenex and Achieve believe that the combined company will have several potential advantages, including: (i) a refocused pipeline with a product candidate that has demonstrated positive results in two Phase 3 clinical studies, one conducted in Europe and the other conducted in New Zealand; (ii) an efficient expected path to potential commercialization; (iii) operational synergies; and (iv) an experienced management team. For a discussion of OncoGenex and Achieve reasons for the merger, please see the sections entitled The MergerOncoGenex Reasons for the Merger and The MergerAchieve Reasons for the Merger. |
Q: | Why am I receiving this proxy statement/prospectus/information statement? |
A: | You are receiving this proxy statement/prospectus/information statement because you have been identified as a stockholder of OncoGenex or Achieve as of the applicable record date, and you are entitled, as applicable, to vote at the OncoGenex stockholder meeting to approve among other things the merger and the issuance of shares of OncoGenex common stock pursuant to the Merger Agreement, or sign and return the Achieve written consent to adopt the Merger Agreement and approve the merger. This document serves as: |
| a proxy statement of OncoGenex used to solicit proxies for its special meeting of stockholders; |
| a prospectus of OncoGenex used to offer shares of OncoGenex common stock in exchange for shares of Achieve common stock in the first merger; and |
| an information statement of Achieve used to solicit the written consent of its stockholders for the adoption of the Merger Agreement and the approval of the merger and related transactions. |
Q: | What is required to consummate the merger? |
A: |
To consummate the merger, OncoGenex stockholders must approve the issuance of OncoGenex common stock pursuant to the Merger Agreement. In addition, the Merger Agreement anticipates approval of an amendment to the certificate of incorporation of OncoGenex effecting the reverse stock split not to exceed |
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1-for-20, and an amendment to the certificate of incorporation of OncoGenex to change OncoGenexs name to Achieve Life Sciences, Inc. Moreover, Achieve stockholders must approve the first merger. |
The approval of the merger and the issuance of OncoGenex common stock pursuant to the Merger Agreement by the stockholders of OncoGenex require the affirmative vote of the holders of a majority of the shares of OncoGenex common stock properly cast at the OncoGenex special meeting, presuming a quorum is present at the meeting. The approval of the reverse stock split and the change of OncoGenexs name require the affirmative vote of the holders of a majority of shares of OncoGenex common stock outstanding on the record date for the OncoGenex special meeting. The approval of the reverse stock split is required in order to authorize OncoGenex to implement the reverse stock split and ensure that the post-merger trading price of OncoGenexs common stock continues to meet the minimum bid price required by the listing requirements of The NASDAQ Capital Market. Each of these proposals are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of all of the following matters: the issuance of OncoGenex common stock pursuant to the Merger Agreement, the amendment to the certificate of incorporation of OncoGenex effecting the reverse stock split and the amendment to the certificate of incorporation of OncoGenex to change OncoGenexs name.
The adoption of the Merger Agreement and the approval of the merger and related transactions by the stockholders of Achieve require the affirmative votes of the holders of a majority of the outstanding Achieve common stock. In addition to the requirement of obtaining such stockholder approval and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived. One of these closing conditions requires Achieves liabilities, other than expenses incurred in connection with the merger, not to exceed $1.2 million. Achieve may reduce its current liabilities through a variety of means, including raising funds (subject to consent from OncoGenex), repaying existing debt or converting liabilities into equity.
Although there is no current agreement in place with any potential investor, Achieve is pursuing a financing in which it would issue securities, including additional shares of its common stock, in exchange for up to $5 million, which financing could occur between the date of this proxy statement/prospectus/information statement and the closing of the merger. The terms of such financing will require the consent of OncoGenex but will not be subject to the vote or approval of OncoGenex stockholders. Such financing would not dilute the ownership of the current OncoGenex stockholders, and therefore, any shares issued in such financing would cause an adjustment to the exchange ratio.
Certain Achieve stockholders who in the aggregate own approximately 78% of the outstanding shares of Achieve common stock, and certain OncoGenex stockholders who in the aggregate own 1.2% of the outstanding shares of OncoGenex common stock, are parties to support agreements with OncoGenex and Achieve, respectively, whereby such stockholders agreed to vote in favor of the adoption of the Merger Agreement, the merger and the issuance of OncoGenex common stock in the first merger pursuant to the Merger Agreement, respectively, subject to the terms of the support agreements. In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the Securities and Exchange Commission and pursuant to the conditions of the Merger Agreement, Achieve stockholders who are party to the support agreements will each execute written consents approving the merger and related transactions. Therefore, holders of a sufficient number of shares of Achieve capital stock required to adopt the Merger Agreement, thereby approving the merger, have agreed to adopt the Merger Agreement via written consent. Stockholders of Achieve, including those who are parties to support agreements, are requested to execute written consents providing such approvals.
For a more complete description of the closing conditions under the Merger Agreement, please see the section entitled The Merger AgreementConditions to the Completion of the Merger.
Q: | What will Achieve stockholders receive in the merger? |
A: | As a result of the merger, Achieve stockholders will become entitled to receive shares of OncoGenex common stock equal to approximately 75% of the outstanding common stock of OncoGenex. |
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For a more complete description of what Achieve stockholders will receive in the merger, please see the sections entitled Market Price and Dividend Information and The Merger AgreementMerger Consideration.
Q: | What will OncoGenex stockholders receive in the merger? |
A: | OncoGenex plans to issue contingent value rights, or CVRs, to holders of OncoGenex common stock as of immediately before completion of the first merger. Each CVR will be a non-transferable right to potentially receive certain cash, equity or other consideration received by the combined company in the event the combined company receives any such consideration during the five-year period after consummation of the first merger as a result of the achievement of certain milestones relating to OncoGenexs apatorsen product candidate. The aggregate consideration to be distributed to the holders of the CVRs, if any, will be equal to 80% of the consideration received by the combined company as a result of the achievement of certain milestones less certain agreed to offsets, as determined pursuant to the CVR agreement. Under the CVR agreement, for a period of six months beginning on February 17, 2017, OncoGenex and the combined company will use certain defined efforts to enter into an agreement with a third party regarding the development and/or commercialization of apatorsen. At the expiration of this six-month period, if a third party has not entered into a term sheet for the development or commercialization of apatorsen, the combined company will no longer be contractually required to pursue an agreement regarding apatorsen and no consideration will be payable to the holders of CVRs. |
OncoGenex is currently undertaking efforts to identify a third party to develop and, if approved, commercialize apatorsen, but has not yet identified such a party or set any milestones. OncoGenex cannot give any assurance that it will be able to identify and enter into an agreement with a third party to develop and potentially commercialize apatorsen by August 17, 2017, or if it does, that any milestones will be set or any consideration will ever be received by the combined company or distributed to the CVR holders. Therefore, OncoGenex stockholders will not be able to determine the value of the CVRs, if any, prior to the special meeting of OncoGenex stockholders since the value of the CVRs is contingent upon the occurrence of future events that are not yet known.
For a more complete description of the CVRs, please see the section entitled Agreements Related to the MergerCVR Agreement.
Q: | Who will be the directors of OncoGenex following the merger? |
A: | Upon consummation of the merger, the board of directors of the combined company is expected to be composed of seven directors. Three of the directors will be designated by OncoGenex, and four of the directors will be designated by Achieve. OncoGenex is expected to designate Scott Cormack, Stewart Parker and Martin Mattingly. Achieve is expected to designate Richard Stewart, Anthony Clarke and two other independent directors that have yet to be determined. |
Q: | Who will be the executive officers of OncoGenex immediately following the merger? |
A: | Upon consummation of the merger, the executive management team of OncoGenex is expected to be composed of members of the Achieve executive management team and OncoGenex executive management team prior to the merger as set forth below: |
Name |
Title |
|
Richard Stewart |
Chief Executive Officer | |
Dr. Anthony Clarke |
Chief Scientific Officer | |
Dr. Cindy Jacobs |
Chief Medical Officer | |
John Bencich |
Chief Financial Officer |
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Q: | What are the intended U.S. federal income tax consequences of the merger to Achieve United States stockholders? |
A: | Each of OncoGenex and Achieve intends the first merger and second merger, taken together, the merger, qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code. In general, the material tax consequences to U.S. Holders (as defined herein) of Achieve common stock are expected to be as follows: |
| Each Achieve stockholder should not generally recognize gain or loss upon the exchange of Achieve common stock for OncoGenex common stock pursuant to the merger, except to the extent of cash received in lieu of a fractional share of OncoGenex common stock as described below; and |
| Each Achieve stockholder should recognize gain or loss to the extent any cash received in lieu of a fractional share of OncoGenex common stock exceeds or is less than the basis of such fractional share. |
However, there are many requirements that must be satisfied in order for the merger to be treated as a reorganization under Section 368(a) of the Code, some of which are based upon factual determinations, and the reorganization treatment could be affected by actions taken after the merger. If the merger failed to qualify as a reorganization under Section 368(a) of the Code, the Achieve stockholders generally would recognize the full amount of gains and losses realized on the exchange of their Achieve common stock in the merger.
Tax matters are very complicated, and the tax consequences of the merger to a particular Achieve stockholder will depend on such stockholders circumstances. Accordingly, you should consult your tax advisor for a full understanding of the tax consequences of the merger to you, including the applicability and effect of federal, state, local and foreign income and other tax laws. For more information, please see the section entitled The MergerMaterial U.S. Federal Income Tax Consequences of the Merger.
Q: | As an OncoGenex stockholder, how does the OncoGenex board of directors recommend that I vote? |
A: | After careful consideration, the OncoGenex board of directors recommends that OncoGenex stockholders vote: |
| FOR Proposal No. 1 to approve the merger and the issuance of shares of common stock of OncoGenex in the first merger; |
| FOR Proposal No. 2 to approve the amendment to certificate of incorporation of OncoGenex to effect a reverse stock split of OncoGenex common stock, at a ratio not to exceed 1-for-20, with such specific ratio to be determined by OncoGenexs board of directors, in consultation with Achieves board of directors, following the special meeting; |
| FOR Proposal No. 3 to approve the amendment to the certificate of incorporation of OncoGenex to change the name of OncoGenex Pharmaceuticals, Inc. to Achieve Life Sciences, Inc.; and |
| FOR Proposal No. 4 to adjourn the special meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2 and 3. |
Each of Proposal Nos. 1, 2 and 3 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2 and 3.
Q: | As an Achieve stockholder, how does the Achieve board of directors recommend that I vote? |
A: | After careful consideration, the Achieve board of directors recommends that the Achieve stockholders execute the written consent indicating their votes in favor of the adoption of the Merger Agreement and the approval of the merger and the transactions contemplated thereby. |
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Q: | What risks should I consider in deciding whether to vote in favor of the merger or to execute and return the written consent, as applicable? |
A: | You should carefully review the section of this proxy statement/prospectus/information statement entitled Risk Factors, which sets forth certain risks and uncertainties related to the merger, risks and uncertainties to which the combined companys business will be subject, and risks and uncertainties to which each of OncoGenex and Achieve, as an independent company, is subject. |
Q: | When do you expect the merger to be consummated? |
A: | The merger is anticipated to be consummated in mid-2017, but the exact timing cannot be predicted. For more information, please see the section entitled The Merger AgreementConditions to the Completion of the Merger. |
Q: | What do I need to do now? |
A: | OncoGenex and Achieve urge you to read this proxy statement/prospectus/information statement carefully, including its annexes, and to consider how the merger affects you. |
If you are a stockholder of OncoGenex, you may provide your proxy instructions in one of two different ways. First, you can mail your signed proxy card in the enclosed return envelope. Second, you may also provide your proxy instructions via the Internet by following the instructions on your proxy card or voting instruction form. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the special meeting of OncoGenex stockholders.
If you are a stockholder of Achieve, you may execute and return your written consent to Achieve in accordance with the instructions provided.
Q: | What happens if I do not return a proxy card or otherwise provide proxy instructions, as applicable? |
A: | If you are an OncoGenex stockholder, the failure to return your proxy card or otherwise provide proxy instructions will reduce the aggregate number of votes required to approve OncoGenex Proposals Nos. 1 and 4 and will have the same effect as voting against OncoGenex Proposal Nos. 2 and 3, and your shares will not be counted for purposes of determining whether a quorum is present at the OncoGenex special meeting. |
If you return a proxy card but abstain from voting on one or more matters, such abstentions will not be counted towards the vote total for each proposal and, accordingly, will have no effect on the outcome of OncoGenex Proposal Nos. 1 and 4 and will have the same effect as a vote against OncoGenex Proposal Nos. 2 and 3.
If you do not give instructions to your broker, your broker can vote your OncoGenex shares with respect to discretionary items but not with respect to non-discretionary items. It is anticipated that OncoGenex Proposal No. 1 will be a non-discretionary item. On non-discretionary items for which you do not give your broker instructions, the OncoGenex shares will be treated as broker non-votes. Broker non-votes will have no effect on the outcome of OncoGenex Proposal Nos. 1 and 4 and will have the same effect as a vote against OncoGenex Proposal Nos. 2 and 3. OncoGenex Proposal Nos. 2, 3 and 4 are matters on which a broker or other nominee are generally empowered to vote, and therefore, limited or no broker non-votes are expected with respect to those proposals.
Q: | May I vote in person at the special meeting of stockholders of OncoGenex? |
A: |
If your shares of OncoGenex common stock are registered directly in your name with the OncoGenex transfer agent, you are considered to be the stockholder of record with respect to those shares, and the proxy |
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materials and proxy card are being sent directly to you by OncoGenex. If you are an OncoGenex stockholder of record, you may attend the special meeting of OncoGenex stockholders and vote your shares in person. Even if you plan to attend the OncoGenex special meeting in person, OncoGenex requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the OncoGenex special meeting if you are unable to attend. If your shares of OncoGenex common stock are held in a brokerage account or by another nominee, you are considered the beneficial owner of shares held in street name, and the proxy materials are being forwarded to you by your broker or other nominee together with a voting instruction card. As the beneficial owner, you are also invited to attend the special meeting of OncoGenex stockholders. Because a beneficial owner is not the stockholder of record, you may not vote these shares in person at the OncoGenex special meeting unless you obtain a proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the meeting. |
Q: | When and where is the special meeting of OncoGenex stockholders being held? |
A: | The special meeting of OncoGenex stockholders will be held at 1191 Second Avenue, Floor 10, Seattle, WA 98101, at local time, on , 2017. Subject to space availability, all OncoGenex stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis. |
Q: | If my OncoGenex shares are held in street name by my broker, will my broker vote my shares for me? |
A: | Unless your broker has discretionary authority to vote on certain matters, your broker will not be able to vote your shares of OncoGenex common stock on matters requiring discretionary authority without instructions from you. Brokers are not expected to have discretionary authority to vote for OncoGenex Proposal No. 1. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker. Brokers are expected to have discretionary authority to vote for Proposal Nos. 2, 3 and 4. |
Q: | May I change my vote after I have submitted a proxy or provided proxy instructions? |
A: | OncoGenex stockholders of record, other than those OncoGenex stockholders who are parties to support agreements, may change their vote at any time before their proxy is voted at the OncoGenex special meeting in one of three ways. First, a stockholder of record of OncoGenex can send a written notice to the Secretary of OncoGenex stating that it would like to revoke its proxy. Second, a stockholder of record of OncoGenex can submit new proxy instructions either on a new proxy card or via the Internet. Third, a stockholder of record of OncoGenex can attend the OncoGenex special meeting and vote in person. Attendance alone will not revoke a proxy. If an OncoGenex stockholder of record or a stockholder who owns OncoGenex shares in street name has instructed a broker to vote its shares of OncoGenex common stock, the stockholder must follow directions received from its broker to change those instructions. |
Q: | Who is paying for this proxy solicitation? |
A: | OncoGenex will pay the costs of printing and filing this proxy statement/prospectus/information statement and proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of OncoGenex common stock for the forwarding of solicitation materials to the beneficial owners of OncoGenex common stock. OncoGenex will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. OncoGenex has engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice and informational support, for a service fee, plus customary disbursements, which are not expected to exceed $25,000 in total. |
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Q: | Who can help answer my questions? |
A: | If you are an OncoGenex stockholder and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact OncoGenexs proxy solicitor: |
THE PROXY ADVISORY GROUP, LLC
844-997-7699 (toll free)
212-616-2180 (collect)
If you are an Achieve stockholder and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact:
Achieve Life Science, Inc.
30 Sunnyside Avenue
Mill Valley, California 94941
Attention: Chief Executive Officer
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This summary highlights selected information from this proxy statement/prospectus/information statement and may not contain all of the information that is important to you. To better understand the merger, the proposals being considered at the OncoGenex special meeting and the Achieve stockholder actions that are the subject of the written consent, you should read this entire proxy statement/prospectus/information statement carefully, including the Merger Agreement and the other annexes to which you are referred to herein. For more information, please see the section entitled Where You Can Find More Information.
OncoGenex Pharmaceuticals, Inc.
19820 North Creek Parkway, Suite 201
Bothell, WA 98011
(425) 686-1500
OncoGenex Pharmaceuticals, Inc., or OncoGenex, is a biopharmaceutical company that has been focused on the development of novel next generation cancer therapeutics. Its mission is to accelerate transformative therapies to improve the lives of people living with cancer and other serious diseases. OncoGenexs product candidate, apatorsen, has a distinct mechanism of action and represents a unique opportunity for cancer drug development that it believes has the potential to improve treatment outcomes in a variety of cancers. Apatorsen is designed to block the production of heat shock protein 27, or Hsp27, a protein that promotes treatment resistance in cancer. In some clinical trials evaluating apatorsen, high serum Hsp27 levels appear to be a strong prognostic indicator for shorter survival outcomes.
Achieve Life Science, Inc.
30 Sunnyside Avenue
Mill Valley, California 94941
(415) 670-9050
Achieve is a clinical-stage specialty pharmaceutical company focused on the development and commercialization of cytisine, a smoking cessation aid that has been marketed in Central and Eastern Europe by a third party for over 15 years under the brand name Tabex and is estimated to have treated in excess of 21 million patients through December 2016. Cytisine is a naturally occurring plant-based alkyloid from the seeds of the Laburnum anagyroides plant that is believed to reduce the severity of nicotine withdrawal symptoms by targeting receptors in the brain. Cytisine has the potential to be more cost effective than competing prescription smoking cessation medicines and to have better efficacy than currently available Over-the-Counter, or OTC, treatments.
Ash Acquisition Sub, Inc.
19820 North Creek Parkway, Suite 201
Bothell, WA 98011
(425) 686-1500
Ash Acquisition Sub, Inc., or Merger Sub 1, is a wholly owned subsidiary of OncoGenex and was formed solely for the purposes of carrying out the first merger.
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Ash Acquisition Sub 2, Inc.
19820 North Creek Parkway, Suite 201
Bothell, WA 98011
(425) 686-1500
Ash Acquisition Sub 2, Inc., or Merger Sub 2, is a wholly owned subsidiary of OncoGenex and was formed solely for the purposes of carrying out the second merger.
If the merger is completed, Merger Sub 1 will merge with and into Achieve, or the first merger, with Achieve surviving as a wholly owned subsidiary of OncoGenex, and promptly following the first merger, Achieve shall merge with and into Merger Sub 2, with Merger Sub 2 surviving as a wholly owned subsidiary of OncoGenex. Both mergers together are referred to herein as the merger.
Immediately after the first merger, subject to adjustments to reflect certain events that could occur prior to closing of the first merger, Achieve stockholders will own approximately 75% of the outstanding capital stock of the combined company, and OncoGenex equity holders will own approximately 25% of the outstanding capital stock of the combined company. Adjustments to the exchange ratio are described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement.
For a more complete description of the merger exchange ratio, please see the section entitled The Merger Agreement.
The closing of the first merger will occur no later than the second business day after the last of the conditions to the merger has been satisfied or waived, or at another time as OncoGenex and Achieve agree. OncoGenex and Achieve anticipate that the consummation of the first merger will occur promptly after the OncoGenex special meeting. However, because the merger is subject to a number of conditions, neither OncoGenex nor Achieve can predict exactly when the closing will occur or if it will occur at all. The closing of the second merger will occur promptly following the first merger. After completion of the first and second mergers, assuming that OncoGenex receives the required stockholder approval of OncoGenex Proposal No. 3, OncoGenex will be renamed Achieve Life Sciences, Inc.
Following the merger, the combined company (Achieve Life Sciences, Inc.) will be a clinical-stage company focused on clinical and commercial development of cytisine, a plant-based alkaloid with a high binding affinity to the nicotinic acetylcholine receptor. Cytisine is an established smoking cessation treatment that has been approved and marketed in Central and Eastern Europe for more than 15 years. It is believed that over 21 million people have used cytisine to help combat nicotine addiction, including approximately 2,000 patients in two Phase 3 clinical trials conducted in Europe and New Zealand and published in the New England Journal of Medicine. While third party trials of cytisine have been conducted that may support any future clinical trials by Achieve, Achieve has not yet submitted an IND to the FDA for cytisine or conducted clinical trials for cytisine in the United States or any other jurisdiction.
In addition to cytisine, the combined companys pipeline will also include apatorsen (OGX-427), a once-weekly intravenous drug designed to inhibit production of Hsp27 to disable cancer cells defenses and overcome treatment resistance. Positive Phase 2 results were recently reported following final analysis of the Borealis-2 trial of apatorsen in combination with docetaxel treatment that enrolled 200 patients with metastatic bladder cancer whose disease had progressed following first-line platinum-based chemotherapy. Six previous randomized Phase 2 trials of apatorsen in several cancer indications failed to meet their pre-defined clinical endpoints.
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In reaching its unanimous decision to approve the merger and the issuance of OncoGenex common stock pursuant to the Merger Agreement, the OncoGenex board of directors considered a number of factors, including, among others, the following:
| the historical and current information concerning OncoGenexs business, financial performance, financial condition, operations, management and competitive position, the prospects of OncoGenex and its product candidates, the nature of the biotechnology industry generally, including financial projections of OncoGenex under various scenarios and its short- and long-term strategic objectives; |
| that Achieves smoking cessation product candidate, cytisine, represents a sizeable market opportunity, and may provide new medical benefits for patients and returns for investors; |
| that the merger would provide existing OncoGenex stockholders a significant opportunity to participate in the potential growth of the combined company following the merger; |
| that the combined company will be led by an experienced senior management team and a board of directors with representation from each of the current management and boards of directors of OncoGenex and Achieve; |
| the failure of custirsen to meet the primary endpoint of improving overall survival in three completed phase 3 trials and the clinical development and sequential risks associated with continuing to develop apatorsen; and |
| the terms of the Merger Agreement and associated transactions, including the relative percentage ownership of OncoGenex stockholders and Achieve stockholders immediately following the completion of the merger, the reasonableness of the fees and expenses related to the merger and the likelihood that the merger will be completed. |
For more information on the OncoGenex board of directors reasons for the transaction, see the section entitled The MergerOncoGenex Reasons for the Merger.
In reaching its unanimous decision to approve the Merger Agreement and the related transactions, the Achieve board of directors considered a number of factors, including, among others, the following:
| information concerning Achieves business, financial performance (both past and prospective) and its financial condition, results of operation (both past and prospective), business and strategic objectives, as well as the risks associated with such objectives; |
| that the merger would provide Achieve with access to additional resources and personnel with significant clinical and regulatory experience; |
| that the merger would provide existing Achieve stockholders with greater liquidity by owning stock in a public company and would provide Achieve with access to the public capital markets, including sources of capital from a broader range of investors to support the clinical development of its product candidates than it could otherwise obtain if it continued to operate as a privately-held company; |
| that the combined company will be led by an experienced senior management team and a board of directors with representation from each of the current management and boards of directors of OncoGenex and Achieve; |
| that the merger would provide Achieve with the opportunity to utilize approximately $100 million in net operating losses from OncoGenexs Canadian subsidiary, OncoGenex Technologies Inc.; and |
| the terms of the Merger Agreement and associated transactions, including the relative percentage ownership of OncoGenex stockholders and Achieve stockholders immediately following the completion of the merger, the reasonableness of fees and expenses related to the merger and the likelihood that the merger will be completed. |
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For more information on the Achieve board of directors reasons for the transaction, see the section entitled The MergerAchieve Reasons for the Merger.
Opinion of the Financial Advisor to OncoGenexs Board of Directors
OncoGenexs board of directors engaged MTS Health Partners, L.P., which we refer to in this proxy statement/prospectus/information statement as MTS Health Partners, to provide financial advisory and investment banking services in connection with the board of directors consideration and evaluation of potential strategic alternatives. On January 5, 2017, MTS Securities, LLC, an affiliate of MTS Health Partners, which we refer to in this proxy statement/prospectus/information statement as MTS Securities, rendered its oral opinion to OncoGenexs board of directors, which opinion was confirmed in writing on the same date, that, as of the date of such opinion, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations of the review set forth in its written opinion, as of January 5, 2017, the exchange ratio in connection with the first merger, as provided in the Merger Agreement, was fair, from a financial point of view, to OncoGenex.
The full text of MTS Securities written opinion, which sets forth the assumptions made, procedures followed, matters considered, and qualifications and limitations of the review undertaken by MTS Securities in connection with such opinion, is attached as Annex D to this proxy statement/prospectus/information statement and is incorporated herein by reference. OncoGenex urges you to carefully read the MTS Securities opinion, together with the description of such opinion included elsewhere in this proxy statement/prospectus/information statement, in its entirety. MTS Securities provided its opinion for the information and assistance of OncoGenexs board of directors in connection with its consideration of the merger. MTS Securities opinion addressed solely the fairness, from a financial point of view, of the exchange ratio in connection with the first merger, as provided in the Merger Agreement, to OncoGenex. MTS Securities opinion does not address OncoGenexs underlying business decision to proceed with the merger or the relative merits of the merger compared to other alternatives available to OncoGenex. MTS Securities opinion did not constitute a recommendation to OncoGenexs board of directors, and is not a recommendation to any stockholder of OncoGenex, as to how to vote with respect to the first merger or take any other action in connection with the merger or otherwise. For a more complete discussion of the MTS Securities opinion, see the section entitled The MergerOpinion of the Financial Advisor to OncoGenexs Board of Directors.
Overview of the Merger Agreement and Agreements Related to the Merger Agreement
Merger Consideration
At the effective time of the first merger, each share of Achieve common stock outstanding immediately prior to the effective time of the first merger will automatically be converted into the right to receive a number of shares of OncoGenex common stock pursuant to an exchange ratio of 4,242.8904 (before giving effect to the reverse stock split), herein referred to as the exchange ratio, (which is subject to adjustment to account for the proposed reverse stock split, the payment of cash in lieu of fractional shares, and increases or decreases in Achieves fully-diluted capitalization and OncoGenexs outstanding capitalization).
Immediately after the first merger, based on the exchange ratio, Achieve stockholders will own approximately 75% of the outstanding capital stock of the combined company, and OncoGenex equity holders will own approximately 25% of the outstanding capital stock of the combined company. Adjustments to the exchange ratio are described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement.
There will be no adjustment to the total number of shares of OncoGenex common stock that Achieve stockholders will be entitled to receive for changes in the market price of OncoGenex common stock.
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Accordingly, the market value of the shares of OncoGenex common stock issued pursuant to the first merger will depend on the market value of the shares of OncoGenex common stock at the time the first merger closes, and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement. On May 2, 2017, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of OncoGenex common stock was $0.41 per share.
Treatment of OncoGenex Stock Options and Warrants
As of the effective time of the reverse stock split, OncoGenex will adjust and proportionately decrease the number of shares of OncoGenexs common stock reserved for issuance upon exercise of, and adjust and proportionately increase the exercise price of, all options and warrants to acquire OncoGenexs common stock outstanding immediately prior to the closing date at the reverse stock split ratio to be determined by OncoGenexs board of directors, in consultation with Achieves board of directors, which is not to exceed 1-for-20. All stock options and warrants to acquire shares of OncoGenexs common stock that are outstanding immediately prior to the effective time of the first merger will remain outstanding following the effective time of the second merger. In addition, as of the effective time of the reverse stock split, OncoGenex will adjust and proportionately decrease the total number of shares of OncoGenexs common stock that may be the subject of future grants under OncoGenexs stock option plans at the determined reverse stock split ratio, which is not to exceed 1-for-20.
Treatment of Achieve Stock Options and Warrants
As of the date of this proxy statement/prospectus/information statement, Achieve has no outstanding stock options or warrants. In the event Achieve issues or grants any stock options or warrants before the effective time of the first merger, the exchange ratio will be adjusted such that following the effective time of the first merger, holders of Achieve common stock will own in the aggregate approximately 75% of the outstanding capital stock of the combined company.
Conditions to the Completion of the First Merger
To consummate the first merger, OncoGenex stockholders must approve the merger and the issuance of shares of OncoGenex common stock in the merger. In addition, the Merger Agreement anticipates approval of an amendment to the certificate of incorporation of OncoGenex effecting the proposed reverse stock split, determined by OncoGenexs board of directors, in consultation with Achieves board of directors, at a ratio not to exceed 1-for-20, and an amendment to the certificate of incorporation effecting a change of the OncoGenex name to Achieve Life Sciences, Inc. Moreover, the Achieve stockholders must adopt the Merger Agreement thereby approving the merger. In addition to obtaining such stockholder approvals and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived. One of these closing conditions requires Achieves liabilities, other than expenses incurred in connection with the merger, not to exceed $1.2 million. Achieve may reduce its current liabilities through a variety of means, including raising funds (subject to consent from OncoGenex), repaying existing debt or converting liabilities into equity.
Potential Achieve Financing
Although there is no current agreement in place with any potential investor, Achieve is pursuing a financing in which it would issue securities, including additional shares of its common stock, in exchange for up to $5 million, which financing could occur between the date of this proxy statement/prospectus/information statement and the closing of the merger. The terms of such financing will require the consent of OncoGenex but will not be subject to the vote or approval of OncoGenex stockholders. Such financing would not dilute the ownership of the current OncoGenex stockholders, and therefore, any shares issued in such financing would cause an adjustment to the exchange ratio.
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No Solicitation
Each of OncoGenex and Achieve agreed that, subject to certain exceptions, OncoGenex and Achieve and any of their respective subsidiaries will not, nor will either party or any of its subsidiaries authorize or permit any of their or their subsidiaries directors, officers, employees, agents, attorneys, accountants, investment bankers, advisors and representatives to, directly or indirectly:
| solicit, initiate, encourage, induce or facilitate any acquisition proposal, as defined in the Merger Agreement; |
| furnish any information with respect to it to any person in connection with or in response to an acquisition proposal or an acquisition inquiry, as defined in the Merger Agreement; |
| engage in discussions or negotiations with any person with respect to any acquisition proposal or acquisition inquiry; |
| subject to certain exceptions, approve, endorse or recommend an acquisition proposal; |
| execute or enter into any letter of intent or any contract contemplating or otherwise relating to any acquisition transaction, as defined in the Merger Agreement; or |
| grant any waiver or release under any confidentiality, standstill or similar agreement, other than to either OncoGenex or Achieve. |
However, before obtaining the applicable OncoGenex or Achieve stockholder approvals required to consummate the merger, each party may furnish nonpublic information regarding such party to, and may enter into discussions or negotiations with, any person in response to a bona fide written acquisition proposal, which such partys board of directors determines in good faith, after consultation with such partys financial advisor and its outside legal counsel, constitutes or is reasonably likely to result in a superior offer, as defined in the Merger Agreement, if:
| neither such party nor any representative of such party has breached the no solicitation provisions of the Merger Agreement described above; |
| such party gives the other party at least one business days prior written notice of the identity of the third party and of that partys intention to furnish nonpublic information to, or enter into discussions or negotiations with, such third party before furnishing any nonpublic information or entering into discussions or negotiations with such third party; |
| such party receives from the third party an executed confidentiality agreement containing provisions at least as favorable to such party as those contained in the confidentiality agreement between OncoGenex and Achieve; and |
| substantially contemporaneously with furnishing of nonpublic information to a third party, such party furnishes the same information to the other party to the extent not previously furnished. |
Termination of the Merger Agreement
Either OncoGenex or Achieve can terminate the Merger Agreement under certain circumstances, which would prevent the merger from being consummated.
Termination Fees
If the Merger Agreement is terminated due to a breach of the no solicitation provisions of the Merger Agreement, the breaching party will be required to pay the other party a termination fee of $1.0 million and reimburse the other party for expenses incurred in connection with the merger, up to a maximum of $0.5 million. If the Merger Agreement is terminated for reasons other than a breach of the no solicitation provisions of the Merger Agreement by either party, either OncoGenex or Achieve may be required to pay the other party a termination
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fee of $0.5 million and reimburse the other party for expenses incurred in connection with the merger, up to a maximum of $0.5 million.
Contingent Value Rights
OncoGenex plans to issue contingent value rights, or CVRs, to holders of OncoGenex common stock as of immediately before completion of the first merger. One CVR will be issued for each share of OncoGenex common stock outstanding as of the record date for such issuance. Each CVR will be a non-transferable right to potentially receive certain cash, equity or other consideration received by the combined company in the event the combined company receives any such consideration during the five-year period after consummation of the first merger as a result of the achievement of certain clinical milestones, regulatory milestones, sales-based milestones and/or up-front payment milestones, or Milestones, relating to OncoGenexs apatorsen product candidate, upon the terms and subject to the conditions set forth in a CVR agreement to be entered into between OncoGenex, Achieve and Computershare Trust Company, N.A., as rights agent. The aggregate consideration to be distributed to the holders of the CVRs, if any, will be equal to 80% of the consideration received by the combined company as a result of the achievement of the Milestones less certain agreed to offsets, as determined pursuant to the CVR agreement. Under the CVR agreement, for a period of six months beginning on February 17, 2017, OncoGenex and the combined company will use certain defined efforts to enter into an agreement with a third party regarding the development and/or commercialization of apatorsen. At the expiration of this six-month period, if a third party has not entered into a term sheet for the development or commercialization of apatorsen, the combined company will no longer be contractually required to pursue an agreement regarding apatorsen and no consideration will be payable to the holders of CVRs.
OncoGenex is currently undertaking efforts to identify a third party to develop and, if approved, commercialize apatorsen, but has not yet identified such a party or set any Milestones. OncoGenex cannot give any assurance that it will be able to identify and enter into an agreement with a third party to develop and potentially commercialize apatorsen by August 17, 2017, or if it does, that any Milestones will be set or any consideration will ever be received by the combined company or distributed to the CVR holders. Therefore, OncoGenex stockholders will not be able to determine the value of the CVRs, if any, prior to the special meeting of OncoGenex stockholders since the value of the CVRs is contingent upon the occurrence of future events that are not yet known.
Support Agreements
Certain Achieve stockholders are each party to a support agreement with OncoGenex pursuant to which, among other things, each of these stockholders agreed, solely in its capacity as a stockholder, to vote all of its shares of Achieve capital stock in favor of the adoption of the Merger Agreement and to acknowledge that the adoption of the Merger Agreement is irrevocable. In addition, these Achieve stockholders agreed to not knowingly take any action that Achieve is not permitted to take under the no solicitation provisions of the Merger Agreement. The parties to the support agreements with OncoGenex are: Richard Stewart, Dr. Anthony Clarke, Susan Clarke, Timothy Clarke, Robert Schacter, Ronald Martell and Caroline Loewy.
The stockholders of Achieve that are party to a support agreement with OncoGenex owned an aggregate of 16,530 shares of Achieve common stock, representing approximately 78% of the outstanding shares of Achieve capital stock as of January 5, 2017. Therefore, holders of the number of shares of Achieve stock required to adopt the Merger Agreement and approve the merger and related transactions are contractually obligated to adopt the Merger Agreement. Following the effectiveness of the registration statement of which this proxy statement/prospectus/information statement is a part and pursuant to the Merger Agreement, stockholders of Achieve holding a sufficient number of shares to adopt the Merger Agreement and approve the merger and related transactions will execute written consents providing for such adoption and approval.
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Certain OncoGenex stockholders are each party to a support agreement with Achieve pursuant to which, among other things, each of these stockholders agreed, solely in its capacity as a stockholder, to vote all of its shares of OncoGenex common stock in favor of the approval of the Merger Agreement, the issuance of OncoGenex common stock in the first merger pursuant to the Merger Agreement, approval of the reverse stock split, the approval of any proposal to adjourn or postpone any meeting to a later date, if there are not sufficient votes for the approval of any of the foregoing on the date on which such meeting is held, and any other proposal included in this proxy statement/prospectus/information statement in connection with or related to the consummation of the merger that the OncoGenex board of directors has recommended that the OncoGenex stockholders vote in favor of, and against any acquisition proposal. In addition, these OncoGenex stockholders agreed to not knowingly take any action that OncoGenex is not permitted to take under the no solicitation provisions of the Merger Agreement.
The stockholders of OncoGenex that are party to a support agreement with Achieve owned an aggregate of 362,492 shares of OncoGenex common stock, representing approximately 1.2% of the outstanding OncoGenex common stock as of January 5, 2017. These stockholders include executive officers and directors of OncoGenex.
Management Following the Merger
Effective as of the closing of the merger, OncoGenexs executive officers are expected to be composed of members of the current Achieve and OncoGenex management teams:
Name |
Title |
|
Richard Stewart |
Chief Executive Officer | |
Dr. Anthony Clarke |
Chief Scientific Officer | |
Dr. Cindy Jacobs |
Chief Medical Officer | |
John Bencich |
Chief Financial Officer |
The special meeting of stockholders of OncoGenex will be held on , 2017 at , local time, at 1191 Second Avenue, Floor 10, Seattle, WA 98101, for the following purposes:
| to consider and vote upon a proposal to approve the merger and the issuance of OncoGenex common stock in the merger pursuant to the Merger Agreement; |
| to approve the amendment to the certificate of incorporation of OncoGenex to effect a reverse stock split of OncoGenex common stock, at a ratio not to exceed 1-for-20, with such specific ratio to be determined by OncoGenexs board of directors, in consultation with Achieves board of directors, following the special meeting; |
| to approve the amendment to the certificate of incorporation of OncoGenex to change the name OncoGenex Pharmaceuticals, Inc. to Achieve Life Sciences, Inc.; |
| to consider and vote upon an adjournment of the OncoGenex special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of OncoGenex Proposal Nos. 1, 2 and 3; and |
| to transact such other business as may properly come before the OncoGenex special meeting or any adjournment or postponement thereof. |
The approval of the merger and the issuance of OncoGenex common stock pursuant to the Merger Agreement by the stockholders of OncoGenex require the affirmative vote of the holders of a majority of the shares of OncoGenex common stock properly cast at the OncoGenex special meeting, presuming a quorum is present at the meeting. The approval of the reverse stock split and the change of OncoGenexs name require the affirmative vote of the holders of a majority of shares of OncoGenex common stock outstanding on the record date for the
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OncoGenex special meeting. The approval of the reverse stock split is required in order to authorize OncoGenex to implement the reverse stock split and ensure that the post-merger trading price of OncoGenexs common stock meets the minimum bid price required by the listing requirements of The NASDAQ Capital Market. Therefore, if the requisite stockholders of OncoGenex approve the merger and the issuance of OncoGenex common stock pursuant to the Merger Agreement but do not approve the reverse stock split, it is possible that the merger may not be consummated.
In addition to the requirement of obtaining such stockholder approval and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.
The Achieve Solicitation of Written Consents
Following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the Securities and Exchange Commission and pursuant to the conditions of the Merger Agreement, the Achieve stockholders who are party to the support agreements will each execute an action by written consent of the Achieve stockholders, or written consent, adopting the Merger Agreement, thereby approving the merger and related transactions. Therefore, holders of a sufficient number of shares of Achieve capital stock required to adopt the Merger Agreement will adopt the Merger Agreement, and no meeting of Achieve stockholders to adopt the Merger Agreement and approve the merger and related transactions will be held. Nevertheless, all Achieve stockholders will have the opportunity to elect to adopt the Merger Agreement, thereby approving the merger and related transactions, by signing and returning to Achieve a written consent.
The adoption of the Merger Agreement and the approval of the merger and related transactions by the stockholders of Achieve require the affirmative votes of the holders of a majority of the outstanding Achieve common stock. In addition to the requirement of obtaining such stockholder approval and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.
Interests of Certain Directors, Officers and Affiliates of OncoGenex and Achieve
In considering the recommendation of the OncoGenex board of directors with respect to issuing shares of OncoGenex common stock pursuant to the Merger Agreement and the other matters to be acted upon by OncoGenex stockholders at the OncoGenex special meeting, OncoGenex stockholders should be aware that certain members of the OncoGenex board of directors and executive officers of OncoGenex have interests in the merger that may be different from, or in addition to, interests they have as OncoGenex stockholders. For example, Scott Cormack, OncoGenexs Chief Executive Officer, will no longer serve as Chief Executive Officer upon the consummation of the merger. Consistent with the terms of Mr. Cormacks existing employment agreement and equity award agreements, upon the termination of Mr. Cormacks employment, assuming such termination occurred on March 22, 2017, he will receive benefits having an aggregate value of approximately $1.3 million, comprised of approximately $1.2 million in cash and approximately $0.1 million received upon the acceleration of outstanding equity and in connection with other benefits.
Additionally, certain of OncoGenexs existing executive officers and directors are expected to remain executive officers and directors of the combined company. John Bencich and Dr. Cindy Jacobs are expected to continue to serve as the Chief Financial Officer and Chief Medical Officer of the combined company, and Stewart Parker, Martin Mattingly and Scott Cormack are expected to continue as directors of the combined company.
As of December 31, 2016, directors and executive officers of OncoGenex owned 1.0% of the outstanding shares of OncoGenex common stock. OncoGenex directors and executive officers have entered into support agreements in connection with the merger. The support agreements are discussed in greater detail in the section entitled Agreements Related to the MergerSupport Agreements and Written Consent.
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In considering the recommendation of the Achieve board of directors with respect to approving the merger and related transactions by written consent, Achieve stockholders should be aware that certain members of the board of directors and executive officers of Achieve have interests in the merger that may be different from, or in addition to, interests they have as Achieve stockholders. For example, some of Achieves directors and executive officers are expected to become directors and executive officers of the combined company upon the closing of the merger while other Achieve directors and executive officers will not have roles in the combined company. Specifically, Richard Stewart and Dr. Anthony Clarke, both of whom are currently executive officers of and consultants to Achieve, are expected to become executive officers of the combined company upon the closing of the merger, with Mr. Stewart serving as the Chief Executive Officer and Dr. Clarke serving as the Chief Scientific Officer of the combined company. Additionally, Mr. Stewart and Dr. Clarke, both of whom are current directors of Achieve, are expected to be designated to serve on the board of directors of the combined company following the closing of the merger. Ronald Martell, the former Chief Executive Officer of Achieve and a director of Achieve, will not continue as the Chief Executive Officer of the combined company or as a director of the combined company and Mr. Martell will not continue to serve in any director, officer or other capacity with the combined company. Caroline Loewy, the former Chief Financial Officer of Achieve, will not continue as the Chief Financial Officer of the combined company and Ms. Loewy will not continue to serve in any director, officer or other capacity with the combined company. While neither Mr. Martell nor Ms. Loewy will serve in any director, officer or other capacity with the combined company, it is expected that both will be stockholders of the combined company following the closing of the merger. Mr. Martell and Ms. Loewy are expected to receive certain payments in connection with their separation, which have not yet been determined. As of December 31, 2016, directors and executive officers of Achieve, together with their affiliates, owned approximately 50.5% of the outstanding shares of Achieve capital stock. Achieve officers and directors, and their affiliates, have also entered into support agreements in connection with the merger. The support agreements are discussed in greater detail in the section entitled Agreements Related to the MergerSupport Agreements and Written Consent.
Considerations with Respect to U.S. Federal Income Tax Consequences of the Merger
Each of OncoGenex and Achieve intends that the first merger and second merger, taken together, qualify as a reorganization within the meaning of Section 368(a) of the Code. In general and subject to the qualifications and limitations set forth in the section entitled The MergerMaterial U.S. Federal Income Tax Consequences of the Merger, the material tax consequences to U.S. Holders (as defined herein) of Achieve common stock are expected to be as follows:
| an Achieve stockholder should not recognize gain or loss upon the exchange of Achieve common stock for OncoGenex common stock pursuant to the merger, except to the extent of cash received in lieu of a fractional share of OncoGenex common stock as described below; |
| an Achieve stockholder who receives cash in lieu of a fractional share of OncoGenex common stock in the merger should recognize capital gain or loss in an amount equal to the difference between the amount of cash received instead of a fractional share and the stockholders tax basis allocable to such fractional share; |
| an Achieve stockholders aggregate tax basis for the shares of OncoGenex common stock received in the merger (including any fractional share interest for which cash is received) should equal the stockholders aggregate tax basis in the shares of Achieve common stock surrendered upon completion of the merger, decreased by the amount of cash that it receives and increased by the amount of gain, if any, that it recognizes; and |
| the holding period of the shares of OncoGenex common stock received by an Achieve stockholder in the merger should include the holding period of the shares of Achieve common stock surrendered in exchange therefor provided the surrendered Achieve common stock is held as a capital asset (generally, property held for investment) at the time of the merger. |
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Tax matters are very complicated, and the tax consequences of the merger to a particular Achieve stockholder will depend on such stockholders circumstances. Accordingly, you should consult your tax advisor for a full understanding of the tax consequences of the merger to you, including the applicability and effect of federal, state, local and foreign income and other tax laws. For more information, please see the section entitled The MergerMaterial U.S. Federal Income Tax Consequences of the Merger.
Both OncoGenex and Achieve are subject to various risks associated with their businesses and their industries. In addition, the merger, including the possibility that the merger may not be completed, poses a number of risks to each company and its respective stockholders, including the following risks:
| the exchange ratio is not adjustable based on the market price of OncoGenex common stock so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed; |
| failure to complete the merger may result in OncoGenex and Achieve paying a termination fee or expenses to the other and could harm the common stock price of OncoGenex and future business and operations of each company; |
| if the conditions to the first merger are not met, the merger may not occur; |
| the merger may be completed even though material adverse changes may result from the announcement of the merger, industry-wide changes and other causes; |
| the combined company will need to raise additional capital by issuing securities or debt or through licensing arrangements, which may cause significant dilution to the combined companys stockholders or restrict the combined companys operations or proprietary rights; |
| some OncoGenex and Achieve executive officers and directors have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests; |
| the market price of the combined companys common stock may decline as a result of the merger; |
| the CVRs may not result in any cash payments to holders of CVRs; |
| OncoGenex and Achieve stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger; |
| during the pendency of the merger, OncoGenex and Achieve may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses; |
| certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement; and |
| because the lack of a public market for Achieve shares makes it difficult to evaluate the fairness of the merger, the stockholders of Achieve may receive consideration in the merger that is less than the fair market value of the Achieve shares and/or OncoGenex may pay more than the fair market value of the Achieve shares. |
These risks and other risks are discussed in greater detail under the section entitled Risk Factors. OncoGenex and Achieve both encourage you to read and consider all of these risks carefully.
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In the United States, OncoGenex must comply with applicable federal and state securities laws and the rules and regulations of The NASDAQ Capital Market in connection with the issuance of shares of OncoGenex common stock and the filing of this proxy statement/prospectus/information statement with the SEC. As of the date hereof, the registration statement of which this proxy statement/prospectus/information statement is a part has not become effective.
OncoGenex has filed an initial listing application for the combined company with The NASDAQ Capital Market pursuant to NASDAQ Stock Market LLC reverse merger rules. If such application is accepted, OncoGenex anticipates that OncoGenexs common stock will continue to be listed on The NASDAQ Capital Market following the closing of the merger under the trading symbol ACHV.
Anticipated Accounting Treatment
The merger will be treated by OncoGenex as a reverse merger under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States. For accounting purposes, Achieve is considered to be acquiring OncoGenex in the merger.
Appraisal Rights and Dissenters Rights
Holders of OncoGenex common stock are not entitled to appraisal rights in connection with the merger. Achieve stockholders are entitled to appraisal rights in connection with the merger under Delaware law. For more information about such rights, see the provisions of Section 262 of the Delaware General Corporation Law, or the DGCL, attached hereto as Annex E , and the section entitled The MergerAppraisal Rights and Dissenters Rights.
Comparison of Stockholder Rights
Both OncoGenex and Achieve are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each are currently, and will continue to be, governed by the DGCL. If the merger is completed, Achieve stockholders will become stockholders of OncoGenex, and their rights will be governed by the DGCL, the bylaws of OncoGenex and, assuming OncoGenex Proposal No. 2 is approved by OncoGenex stockholders at the OncoGenex special meeting, the certificate of incorporation of OncoGenex attached to this proxy statement/prospectus/information statement as Annex B . The rights of OncoGenex stockholders contained in the certificate of incorporation and bylaws of OncoGenex differ from the rights of Achieve stockholders under the certificate of incorporation and bylaws of Achieve, as more fully described under the section entitled Comparison of Rights of Holders of OncoGenex Stock and Achieve Stock.
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SELECTED HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION AND DATA
The following tables present summary historical financial data for OncoGenex and Achieve, summary unaudited pro forma condensed combined financial data for OncoGenex and Achieve, and comparative historical and unaudited pro forma per share data for OncoGenex and Achieve.
Selected Historical Consolidated Financial Data of OncoGenex
The selected consolidated statements of operations data for the years ended December 31, 2016, 2015 and 2014 and the selected consolidated balance sheet data as of December 31, 2016 and 2015 are derived from OncoGenexs audited consolidated financial statements included elsewhere in this proxy statement/prospectus/information statement. The selected consolidated statements of operations data for the years ended December 31, 2013 and 2012 and the selected consolidated balance sheet data as of December 31, 2014, 2013 and 2012 are derived from OncoGenexs audited consolidated financial statements which are not included in this proxy statement/prospectus/information statement. OncoGenexs historical results are not necessarily indicative of the results that may be expected in any future period.
The selected historical consolidated financial data below should be read in conjunction with the section titled OncoGenex Managements Discussion and Analysis of Financial Condition and Results of Operations, Risk FactorsRisks Related to OncoGenex and OncoGenexs consolidated financial statements and related notes included elsewhere in this proxy statement/prospectus/information statement.
December 31, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
(in thousands except share and per share amounts) | ||||||||||||||||||||
Statements of Loss Data: |
||||||||||||||||||||
Collaboration revenue |
$ | 5,062 | $ | 18,160 | $ | 27,116 | $ | 29,882 | $ | 20,095 | ||||||||||
Total expenses |
$ | 26,254 | $ | 36,913 | $ | 56,582 | $ | 65,209 | $ | 46,082 | ||||||||||
Net loss |
$ | (20,129 | ) | $ | (16,801 | ) | $ | (26,240 | ) | $ | (31,849 | ) | $ | (21,098 | ) | |||||
Basic and diluted loss per common share |
$ | (0.67 | ) | $ | (0.64 | ) | $ | (1.45 | ) | $ | (2.17 | ) | $ | (1.56 | ) | |||||
Shares used in calculation of net loss per share, basic and diluted |
29,949,432 | 26,147,344 | 18,098,799 | 14,683,389 | 13,522,723 |
December 31, | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||
Cash, cash equivalents and short-term investments |
$ | 25,463 | $ | 55,186 | $ | 47,057 | $ | 39,222 | $ | 75,383 | ||||||||||
Total assets |
$ | 27,470 | $ | 58,209 | $ | 56,291 | $ | 55,689 | $ | 82,016 | ||||||||||
Current liabilities |
$ | 8,455 | $ | 20,664 | $ | 22,218 | $ | 14,934 | $ | 11,556 | ||||||||||
Total liabilities |
$ | 8,504 | $ | 20,769 | $ | 22,232 | $ | 18,478 | $ | 15,809 | ||||||||||
Additional paid-in capital |
$ | 213,239 | $ | 211,590 | $ | 191,373 | $ | 168,242 | $ | 165,395 | ||||||||||
Accumulated deficit |
$ | (196,942 | ) | $ | (176,811 | ) | $ | (159,958 | ) | $ | (133,689 | ) | $ | (101,840 | ) | |||||
Stockholders equity |
$ | 18,966 | $ | 37,440 | $ | 34,059 | $ | 37,211 | $ | 66,207 |
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Selected Historical Consolidated Financial Data of Achieve
The selected consolidated statements of operations data for the year ended December 31, 2016 and period ended December 31, 2015 and the selected consolidated balance sheet data as of December 31, 2016 and 2015 are derived from Achieves audited consolidated financial statements included elsewhere in this proxy statement/prospectus/information statement. The audit report on the consolidated financial statements as of December 31, 2016 and 2015 and for the year ended December 31, 2016 and period ended December 31, 2015, which appears elsewhere herein, includes an explanatory paragraph related to Achieves ability to continue as a going concern. Achieves historical results are not necessarily indicative of the results that may be expected in any future period.
The selected historical consolidated financial data below should be read in conjunction with the section titled Achieve Managements Discussion and Analysis of Financial Condition and Results of Operations, Risk FactorsRisks Related to Achieves Financial Condition and Capital Requirements and Achieves consolidated financial statements and related notes included elsewhere in this proxy statement/prospectus/information statement.
December 31, | ||||||||
2016 | 2015 | |||||||
(in thousands) | ||||||||
Consolidated Statements of Loss Data: |
||||||||
Research and development |
$ | 286 | $ | 107 | ||||
General and administrative |
$ | 1,428 | $ | 1,116 | ||||
Total operating expenses |
$ | 1,714 | $ | 1,223 | ||||
Net loss |
$ | (1,234 | ) | $ | (828 | ) |
December 31, | ||||||||
2016 | 2015 | |||||||
(in thousands) | ||||||||
Consolidated Balance Sheet Data: |
||||||||
Cash and cash equivalents |
$ | 15 | $ | 67 | ||||
Total assets |
$ | 3,807 | $ | 4,078 | ||||
Total liabilities |
$ | 3,197 | $ | 2,238 | ||||
Additional paid-in capital |
$ | 2,667 | $ | 2,667 | ||||
Accumulated deficit |
$ | (2,062 | ) | $ | (828 | ) | ||
Total stockholders equity |
$ | 610 | $ | 1,840 |
Selected Unaudited Pro Forma Condensed Combined Financial Data of OncoGenex and Achieve
The following information does not give effect to the proposed reverse stock split of OncoGenex common stock described in OncoGenex Proposal No. 2.
The following unaudited pro forma condensed combined financial information gives effect to the transaction between OncoGenex and Achieve to be accounted for as a reverse acquisition, with Achieve being deemed the acquiring company for accounting purposes.
The unaudited pro forma condensed combined balance sheet as of December 31, 2016 assumes that the transaction took place on December 31, 2016 and combines the historical balance sheets of OncoGenex and Achieve as of such date. The unaudited pro forma condensed combined statement of operations for year ended December 31, 2016 assumes that the transaction took place as of January 1, 2016, and combines the historical results of OncoGenex and Achieve for the year. The historical financial statements of OncoGenex and Achieve have been adjusted to give pro forma effect to events that are (i) directly attributable to the transaction, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results.
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The unaudited pro forma condensed combined financial information, including the notes thereto, should be read in conjunction with the separate OncoGenex and Achieve historical financial statements, and their respective managements discussion and analysis of financial condition and results of operations. Achieves historical audited financial statements for the year ended December 31, 2016 and the period ended December 31, 2015 are included elsewhere in this proxy statement/prospectus/information statement. OncoGenexs historical audited financial statements for the years ended December 31, 2016 and December 31, 2015 are included elsewhere in this proxy statement/prospectus/information statement.
Year Ended
December 31, 2016 |
||||
(in thousands,
except per share data) |
||||
Unaudited Pro Forma Condensed Combined Statements of Operations: |
||||
Collaboration revenue |
$ | 5,062 | ||
Total operating expenses |
$ | 26,871 | ||
Net loss |
$ | (20,266 | ) | |
Basic and diluted net loss per common share |
$ | (0.17 | ) |
Comparative Historical and Unaudited Pro Forma per Share Data
The information below reflects the historical net loss and book value per share of OncoGenex common stock and the historical net loss and book value per share of Achieve common stock in comparison with the unaudited pro forma net loss and book value per share after giving effect to the proposed merger of OncoGenex with Achieve on a pro forma basis. The unaudited pro forma net loss and book value per share does not give effect to the proposed reverse stock split of OncoGenex common stock described in OncoGenex Proposal No. 2.
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You should read the tables below in conjunction with the audited financial statements of OncoGenex included in this proxy statement/prospectus/information statement and the audited financial statements of Achieve included in this proxy statement/prospectus/information statement and the related notes and the unaudited pro forma condensed combined financial information and notes related to such financial statements included elsewhere in this proxy statement/prospectus/information statement.
Year Ended
December 31, 2016 |
||||
OncoGenex Historical Per Common Share Data: |
||||
Basic and diluted net loss per share |
$ | (0.67 | ) | |
Book value per share |
$ | 0.63 | ||
Achieve Historical Per Common Share Data: |
||||
Basic and diluted net loss per share |
$ | (58.13 | ) | |
Book value per share |
$ | 28.73 | ||
Combined Company Per Common Share Data: |
||||
Basic and diluted net loss per share |
$ | (0.17 | ) | |
Book value per share |
$ | 0.14 |
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MARKET PRICE AND DIVIDEND INFORMATION
OncoGenex common stock is listed on The NASDAQ Capital Market under the symbol OGXI. The following table presents, for the periods indicated, the range of high and low per share sales prices for OncoGenex common stock as reported on The NASDAQ Capital Market for each of the periods set forth below. Achieve is a private company and its common stock and preferred stock are not publicly traded. These per share sales prices do not give effect to the proposed reverse stock split of OncoGenex common stock to be implemented prior to the consummation of the merger.
High | Low | |||||||
Year Ended December 31, 2015: |
||||||||
First quarter |
$ | 2.78 | $ | 1.92 | ||||
Second quarter |
3.10 | 1.74 | ||||||
Third quarter |
4.10 | 1.38 | ||||||
Fourth quarter |
2.80 | 1.11 | ||||||
Year Ended December 31, 2016: |
||||||||
First quarter |
$ | 1.23 | $ | 0.45 | ||||
Second quarter |
1.42 | 0.68 | ||||||
Third quarter |
1.03 | 0.46 | ||||||
Fourth quarter |
0.70 | 0.33 |
On May 2, 2017, the last reported sale price of OncoGenexs common stock on the NASDAQ Capital Market was $0.41 per share.
Because the market price of OncoGenex common stock is subject to fluctuation, the market value of the shares of OncoGenex common stock that Achieve stockholders will be entitled to receive in the merger may increase or decrease.
Assuming approval of OncoGenex Proposal No. 3 and successful application for initial listing with The NASDAQ Capital Market, following the consummation of the merger, OncoGenex common stock will continue to be listed on The NASDAQ Capital Market and will trade under OncoGenexs new name, Achieve Life Sciences, Inc. and trading symbol ACHV.
As of February 15, 2017, there were approximately 57 stockholders of record and there were approximately 9,508 beneficial stockholders of our common stock.
OncoGenex has never paid or declared, and does not anticipate declaring, or paying in the foreseeable future, any cash dividends on its common stock. Future determination as to the declaration and payment of dividends, if any, will be at the discretion of OncoGenexs board of directors and will depend on then existing conditions, including its operating results, financial conditions, contractual restrictions, capital requirements, business prospects and other factors its board of directed may deem relevant.
Achieve has never paid or declared any cash dividends on its common stock. If the merger does not occur, Achieve does not anticipate paying any cash dividends on its common stock in the foreseeable future, and Achieve intends to retain all available funds and any future earnings to fund the development and expansion of its business. Any future determination to pay dividends will be at the discretion of Achieves board of directors and will depend upon a number of factors, including its results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors Achieves board of directors deems relevant.
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The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement/prospectus/information statement, you should carefully consider the material risks described below before deciding how to vote your shares of stock. In addition, you should read and consider the risks associated with the business of OncoGenex because these risks may also affect the combined company. These risks can be found in OncoGenexs Annual Report on Form 10-K, as updated by subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC. You should also read and consider the other information in this proxy statement/prospectus/information statement and the other documents incorporated by reference into this proxy statement/prospectus/information statement. Please see the section entitled Where You Can Find More Information.
The exchange ratio is not adjustable based on the market price of OncoGenex common stock so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed.
The Merger Agreement has set the exchange ratio for the Achieve common stock, and the exchange ratio is only adjustable upward or downward based on increases or decreases in the number of shares of Achieves issued and outstanding capital stock and the number of shares of Achieve capital stock issuable upon the exercise of all issued and outstanding equity awards, the number of OncoGenexs issued and outstanding common stock, the payment of cash in lieu of fractional shares and the proposed reverse stock split, prior to completion of the merger as described in The MergerMerger Consideration. The pre-split exchange ratio is 4,242.8904, and the post-split exchange ratio will depend on the exact reverse stock split ratio that is ultimately determined by the OncoGenex board of directors in consultation with the Achieve board of directors and certain changes in the capitalization of the two companies. Any changes in the market price of OncoGenex common stock before the completion of the first merger will not affect the number of shares Achieve stockholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the first merger the market price of OncoGenex common stock declines from the market price on the date of the Merger Agreement, then Achieve stockholders could receive merger consideration with substantially lower value. Similarly, if before the completion of the first merger the market price of OncoGenex common stock increases from the market price on the date of the Merger Agreement, then Achieve stockholders could receive merger consideration with substantially more value for their shares of Achieve capital stock than the parties had negotiated for in the establishment of the exchange ratio. Because the exchange ratio does not adjust as a result of changes in the value of OncoGenex common stock, for each one percentage point that the market value of OncoGenex common stock rises or declines, there is a corresponding one percentage point rise or decline, respectively, in the value of the total merger consideration issued to Achieve stockholders.
Failure to complete the merger may result in OncoGenex and Achieve paying a termination fee or expenses to the other party and could harm the common stock price of OncoGenex and future business and operations of each company.
If the merger is not completed, OncoGenex and Achieve are subject to the following risks:
| if the Merger Agreement is terminated under certain circumstances, OncoGenex or Achieve will be required to pay certain transaction expenses of the other party, up to a maximum of $0.5 million; |
| if the Merger Agreement is terminated under certain circumstances, OncoGenex or Achieve will be required to pay the other party a termination fee of $0.5 million or $1.0 million, depending on the reasons for the termination; |
| the price of OncoGenex stock may decline and remain volatile; and |
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| costs related to the merger, such as legal and accounting fees which OncoGenex and Achieve estimate will total approximately $2.8 million and $0.7 million, respectively, the majority of which must be paid even if the merger is not completed. |
In addition, if the Merger Agreement is terminated and the board of directors of OncoGenex or Achieve determines to seek another business combination, there can be no assurance that either OncoGenex or Achieve will be able to find a partner willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the merger.
If the conditions to the first merger are not met, the merger may not occur.
Even if the merger is approved by the stockholders of OncoGenex and Achieve, specified conditions must be satisfied or waived to complete the merger. These conditions are set forth in the Merger Agreement and described in the section entitled The Merger AgreementConditions to the Completion of the Merger. OncoGenex and Achieve cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the merger may not occur or will be delayed, and OncoGenex and Achieve each may lose some or all of the intended benefits of the merger.
The merger may be completed even though material adverse changes may result from the announcement of the merger, industry-wide changes and other causes.
In general, either OncoGenex or Achieve can refuse to complete the merger if there is a material adverse change affecting the other party between January 5, 2017, the date of the Merger Agreement, and the closing. However, certain types of changes do not permit either party to refuse to complete the merger, even if such change could be said to have a material adverse effect on OncoGenex or Achieve, including:
| any effect, change, event, circumstance or development in general economic or political conditions generally affecting the industries in which Achieve or OncoGenex operate; |
| any act or threat of terrorism or war anywhere in the world, any armed hostilities or terrorist activities anywhere in the world, any threat or escalation of armed hostilities or terrorist activities anywhere in the world or any governmental or other response or reaction to any of the foregoing; |
| any changes in accounting requirements or principles or any change in applicable laws, rules or regulations or the interpretation thereof; |
| any effect resulting from the announcement or pendency of the merger or any related transactions; |
| with respect to OncoGenex, any change in the stock price or trading volume of OncoGenex common stock; |
| with respect to OncoGenex, the existence of actual litigation itself arising from allegations of a breach of a fiduciary duty relating to the Merger Agreement; |
| with respect to OncoGenex, the termination, sublease or assignment of OncoGenexs facility lease, or failure to do the foregoing; or |
| with respect to Achieve, any rejection by a governmental body of a registration or filing by Achieve relating to certain Achieve intellectual property rights. |
If adverse changes occur and OncoGenex and Achieve still complete the merger, the combined company stock price may suffer. This in turn may reduce the value of the merger to the stockholders of OncoGenex, Achieve or both.
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The combined company will need to raise additional capital by issuing securities or debt or through licensing arrangements, which may cause dilution to the combined companys stockholders or restrict the combined companys operations or proprietary rights.
The combined company may be required to raise additional funds sooner than currently planned. Additional financing may not be available to the combined company when it needs it or may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, such an issuance may cause significant dilution to the combined companys stockholders ownership and the terms of any new equity securities may have preferences over the combined companys common stock. Any debt financing the combined company enters into may involve covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined companys assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments. In addition, if the combined company raises additional funds through licensing arrangements, it may be necessary to grant licenses on terms that are not favorable to the combined company.
Some OncoGenex and Achieve executive officers and directors have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests.
Certain officers and directors of OncoGenex and Achieve participate in arrangements that provide them with interests in the merger that are different from yours, including, among others, the continued service as an officer or director of the combined company, severance and retention benefits, the acceleration of stock option and/or restricted stock unit vesting, continued indemnification and the potential ability to sell an increased number of shares of common stock of the combined company in accordance with Rule 144 under the Securities Act of 1933, as amended, or the Securities Act.
For example, Scott Cormack, OncoGenexs Chief Executive Officer, will no longer serve as Chief Executive Officer upon the consummation of the merger. Consistent with the terms of Mr. Cormacks existing employment agreement and equity award agreements, upon the termination of Mr. Cormacks employment, assuming such termination occurred on March 22, 2017, he will receive benefits having an aggregate value of approximately $1.3 million, comprised of approximately $1.2 million in cash and approximately $0.1 million received upon the acceleration of outstanding equity and in connection with other benefits. Additionally, certain executive officers and directors of OncoGenex will continue in their current roles at the combined company. For more information concerning the treatment of OncoGenex options in connection with the merger, see the section entitled The Merger AgreementTreatment of OncoGenex Stock Options and Warrants.
For example, some of Achieves directors and executive officers are expected to become directors and executive officers of the combined company upon the closing of the merger while other Achieve directors and executive officers will not have roles in the combined company. Specifically, Richard Stewart and Dr. Anthony Clarke, both of whom are currently executive officers of and consultants to Achieve, are expected to become executive officers of the combined company upon the closing of the merger, with Mr. Stewart serving as the Chief Executive Officer and Dr. Clarke serving as the Chief Scientific Officer of the combined company. Additionally, Mr. Stewart and Dr. Clarke, both of whom are current directors of Achieve, will be designated to serve on the board of directors of the combined company following the closing of the merger. Ronald Martell, the former Chief Executive Officer of Achieve and a director of Achieve, will not continue as the Chief Executive Officer of the combined company or as a director of the combined company and Mr. Martell will not continue to serve in any capacity with the combined company. Caroline Loewy, the former Chief Financial Officer of Achieve, will not continue as the Chief Financial Officer of the combined company and Ms. Loewy will not continue to serve in other capacity with the combined company. Mr. Martell and Ms. Loewy are expected to receive certain payments in connection with their separation, which have not yet been determined.
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The market price of the combined companys common stock following the merger may decline as a result of the merger.
The market price of the combined companys common stock may decline as a result of the merger for a number of reasons including if:
| investors react negatively to the prospects of the combined companys business and prospects from the merger; |
| the effect of the merger on the combined companys business and prospects is not consistent with the expectations of financial or industry analysts; or |
| the combined company does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts. |
The CVRs may not result in any cash or other payments to holders of CVRs.
Although OncoGenex currently plans to enter into the CVR agreement and issue CVRs to existing holders of OncoGenex common stock, if OncoGenex and Achieve agree, the terms of the CVR agreement as currently contemplated may be changed prior to OncoGenex entering into the CVR agreement and, consequently, there is no assurance that the CVRs will be issued at all or based on the terms currently set forth in the form of the CVR agreement. For more information regarding the CVRs, see the section entitled Agreements Related to the MergerCVR Agreement.
Additionally, OncoGenex and the combined company must identify and enter into a binding term sheet with a third party relating to the third partys development and potential commercialization of apatorsen by August 17, 2017 for the CVRs to have any value. OncoGenex and the combined company may be unable to identify and enter into an agreement with a third party to develop and potentially commercialize apatorsen by August 17, 2017, and if it does, the third party may not meet the requisite development milestones under the CVR agreement and CVR holders may never receive any value from the CVRs. If CVRs are issued, they will not be certificated or transferable and may not result in any cash payments to holders of CVRs. Under the CVR agreement, the combined company will have limited obligations to pursue, engage in, negotiate, enter into or consummate an actual or potential partnering agreement with respect to apatorsen. If any payment is made on the CVRs, it will not be made until the achievement of a milestone. Because the amount of any payment on the CVRs will not be able to be determined at the effective time of the merger, and may not be determined for a significant period of time thereafter, it may be difficult to value the CVRs.
The tax treatment of the CVRs is uncertain.
In the opinion of Fenwick and West LLP, OncoGenexs legal counsel, the distribution and issuance of CVRs to common stockholders of OncoGenex prior to completion of the first merger and under the terms expressed in the form of the CVR agreement attached as Annex F to this proxy statement/prospectus/information statement is more likely than not to be treated as a distribution of property with respect to OncoGenex common stock under the Code. However, there is no authority directly on point addressing the U.S. federal income tax treatment of contingent value rights with characteristics similar to the CVRs. Therefore, it is possible that the distribution and issuance of the CVRs may be treated as a distribution of equity with respect to its stock, an open transaction, or as a debt instrument for U.S. federal income tax purposes, and such questions are inherently factual in nature. For more information regarding the U.S. federal income tax consequences of the CVRs, see the section entitled Agreements Related to the MergerCRV AgreementTax Treatment of CVRs.
OncoGenex and Achieve stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger.
If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the merger, OncoGenex and Achieve stockholders will have experienced substantial dilution of their ownership
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interests in their respective companies without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the merger.
During the pendency of the merger, OncoGenex and Achieve may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.
Covenants in the Merger Agreement impede the ability of OncoGenex and Achieve to make acquisitions, subject to certain exceptions relating to fiduciary duties, or complete other transactions that are not in the ordinary course of business pending completion of the first merger. As a result, if the first merger is not completed, the parties may be at a disadvantage to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets or other business combination outside the ordinary course of business, with any third party, subject to certain exceptions. Any such transactions could be favorable to such partys stockholders.
Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
The terms of the Merger Agreement prohibit each of OncoGenex and Achieve from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except in certain circumstances when such partys board of directors determines in good faith, after consultation with its financial advisor and outside legal counsel, that an unsolicited alternative takeover proposal constitutes or is reasonably likely to result in a superior takeover proposal. In addition, if OncoGenex or Achieve terminate the Merger Agreement under certain circumstances, including terminating because of a decision of a board of directors to recommend an alternative proposal, OncoGenex or Achieve would be required to pay a termination fee of $0.5 million to the other party. If OncoGenex or Achieve is in breach of certain of the no solicitation obligations of the Merger Agreement, OncoGenex or Achieve, as applicable, will be required to pay the other party a termination fee of $1.0 million. In addition, in some circumstances, OncoGenex and Achieve are required to reimburse the other party for expenses incurred in connection with the merger, up to a maximum of $0.5 million. These termination fees and reimbursement obligations may discourage third parties from submitting alternative takeover proposals to OncoGenex or Achieve or their stockholders, and may cause the respective boards of directors to be less inclined to recommend an alternative proposal.
Because the lack of a public market for Achieve shares makes it difficult to evaluate the fairness of the merger, the stockholders of Achieve may receive consideration in the first merger that is less than the fair market value of the Achieve shares and/or OncoGenex may pay more than the fair market value of the Achieve shares.
The outstanding capital stock of Achieve is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Achieve. Because the percentage of OncoGenex equity to be issued to Achieve stockholders was determined based on negotiations between the parties, it is possible that the value of the OncoGenex common stock to be received by Achieve stockholders will be less than the fair market value of Achieve, or OncoGenex may pay more than the aggregate fair market value for Achieve.
Investing in OncoGenex 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 proxy statement/
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prospectus/information statement and in the other periodic and current reports and other documents it files with the Securities and Exchange Commission, before deciding to invest in its common stock. If any of the following risks materialize, OncoGenexs business, financial condition, results of operation and future prospects will likely be materially and adversely affected. In that event, the market price of its common stock could decline and you could lose all or part of your investment.
OncoGenex Risks Related to the Merger
There is no assurance that the proposed merger between OncoGenex and Achieve will be completed in a timely manner or at all. If the merger with Achieve is not consummated, OncoGenexs business could suffer materially and its stock price could decline.
The consummation of the proposed merger between OncoGenex and Achieve is subject to a number of closing conditions, including the approval by the stockholders of both OncoGenex and Achieve and other customary closing conditions. The parties are targeting a closing of the transaction in mid-2017. However, there can be no assurance that the proposed merger will be consummated on the desired timeframe, or at all.
If the proposed merger between OncoGenex and Achieve is not consummated, OncoGenex may be subject to a number of material risks, and its business and stock price could be adversely affected, as follows:
| it has incurred and expect to continue to incur significant expenses related to the proposed merger with Achieve even if the merger is not consummated; |
| it could be obligated to pay Achieve up to a $1.0 million termination fee and/or up to $0.5 million in merger related expenses in connection with the termination of the merger agreement, depending on the reason for the termination; |
| the market price of its common stock may decline to the extent that the current market price reflects a market assumption that the proposed merger will be completed; and |
| it may not be able to pursue an alternate merger transaction if the proposed merger with Achieve is not completed. |
If the merger is not completed, the board of directors of OncoGenex may decide to pursue a dissolution and liquidation of the company. In such an event, the amount of cash available for distribution to its stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.
There can be no assurance that the merger will be completed. If the merger is not completed, the board of directors of OncoGenex may decide to pursue a dissolution and liquidation of the company. In such an event, the amount of cash available for distribution to its stockholders will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as it continues to fund its operations. In addition, if its board of directors was to approve and recommend, and its stockholders were to approve, a dissolution and liquidation of the company, OncoGenex would be required under Delaware corporate law to pay out outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to its stockholders. OncoGenexs commitments and contingent liabilities may include severance obligations, regulatory and clinical obligations remaining under its clinical trials, fees and expenses related to the merger and non-cancelable lease obligations. As a result of this requirement, a portion of its assets may need to be reserved pending the resolution of such obligations. In addition, OncoGenex may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, its board of directors, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of its common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up of OncoGenex.
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The issuance of shares of OncoGenex common stock to Achieve stockholders in the pending merger will dilute substantially the voting power of OncoGenexs current stockholders.
If the pending merger is completed, each outstanding share of Achieve common stock will be converted into the right to receive approximately 4,242.8904 shares of OncoGenex common stock, subject to certain adjustments. Immediately following the merger, OncoGenex equityholders are expected to own approximately 25% of the outstanding capital stock of the combined company on a fully diluted basis, and the Achieve stockholders are expected to own approximately 75% of the outstanding capital stock of the combined company on a fully diluted basis. Accordingly, the issuance of shares of OncoGenexs common stock to Achieve stockholders in the merger will reduce significantly the relative voting power of each share of OncoGenex common stock held by its current equityholders. Consequently, OncoGenex equityholders as a group will have significantly less influence over the management and policies of the combined company after the merger than prior to the merger.
OncoGenex has incurred and will continue to incur significant transaction costs in connection with the merger.
OncoGenex has incurred and will continue to incur significant transaction costs in connection with the merger. It estimates that it will incur aggregate direct transaction costs of approximately $2.8 million associated with the merger and $0.5 million that it may pay on behalf of Achieve, as well as additional costs associated with the commencement of the combined companys operation as a public company, which cannot be estimated accurately at this time.
The pendency of the merger could have an adverse effect on the trading price of OncoGenex common stock and its business, financial condition, results of operations or business prospects.
While there have been no significant adverse effects to date, the pendency of the merger could disrupt OncoGenexs businesses in the following ways, including:
| the attention of OncoGenexs management may be directed toward completion of the merger and related matters and may be diverted from the day-to-day business operations, including identifying a collaboration partner to further the development of apatorsen and from other opportunities that otherwise might be beneficial to it; and |
| third parties may seek to terminate or renegotiate their relationships with OncoGenex as a result of the merger, whether pursuant to the terms of their existing agreements with it or otherwise. |
Should they occur, any of these matters could adversely affect the trading price of OncoGenex common stock or harm its financial condition, results of operations or business prospects.
As a result of the custirsen phase 3 trial results and the reductions in its workforce, OncoGenex has only 11 employees remaining. If OncoGenex is unable to retain the remaining employees, its ability to consummate the pending merger may be delayed or seriously jeopardized.
In February, October and November 2016, OncoGenex announced workforce reductions, which have reduced the headcount to 11 remaining employees. Its cash conservation activities may yield unintended consequences, such as attrition beyond the planned reductions in workforce and reduced employee morale, which may cause the remaining 11 employees to seek alternate employment. Competition among biotechnology companies for qualified employees is intense, and the ability to retain the remaining employees is critical to its ability to effectively manage OncoGenexs resources and to consummate the pending merger. Additional attrition could have a material adverse effect on its business, including delaying the completion of wind down activities related to its custirsen clinical trials and related operations and increasing the time and funds required. In addition, as a result of the reduction in its workforce, OncoGenex faces an increased risk of employment litigation.
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Risks Related to OncoGenexs Business
OncoGenex has incurred losses since inception and anticipates that it will continue to incur losses for the foreseeable future. It has never had any products available for commercial sale and it may never achieve or sustain profitability.
OncoGenex is a clinical-stage biopharmaceutical company, is not profitable, has incurred losses in each year since its inception and does not expect to become profitable in the foreseeable future. OncoGenex has never had any products available for commercial sale, and it has not generated any revenue from product sales nor does it anticipate that it will generate revenue from product sales in the near future. OncoGenexs revenue to date has been collaboration revenue under the Collaboration Agreement with Teva, which was terminated in April 2015. In addition, custirsen did not demonstrate its intended benefit in any phase 3 clinical trial and its development has been discontinued. Its other product candidate, apatorsen, is earlier in its development and will require a collaboration partner to fund the required additional development. OncoGenex has not yet submitted any products for approval by regulatory authorities, and it continues to incur research and development and general and administrative expenses related to its operations. OncoGenex expects to continue to incur losses for the foreseeable future. If it does not find a collaboration partner to fund additional development of apatorsen or apatorsen otherwise fails in clinical trials or does not gain regulatory approval, or if apatorsen does not achieve market acceptance, OncoGenex may never become profitable. Even if it achieves profitability in the future, OncoGenex may not be able to sustain profitability in subsequent periods.
OncoGenex cannot give any assurance that apatorsen will continue to be developed, receive regulatory approval or be successfully commercialized.
OncoGenex conducted seven randomized phase 2 clinical trials evaluating apatorsen in several cancer indications. All but one of the phase 2 clinical trials for apatorsen failed to meet their pre-defined clinical endpoints. Completing additional clinical trials will be required to establish the safety and efficacy of this product candidate. OncoGenex currently does not have sufficient capital to conduct additional clinical trials for apatorsen without collaborating with a strategic partner, raising additional funds or completing a strategic transaction committed to the development of apatorsen. OncoGenex is currently undertaking efforts to identify a third party to develop and, if approved, commercialize apatorsen. If it identifies such a third party by August 17, 2017 and its pending acquisition is completed, OncoGenex stockholders will receive contingent value rights, or CVRs, to receive 80% of the consideration, less certain offsets, received by the combined company during the five-year period after the completion of the merger as a result of the achievement of certain clinical milestones, regulatory milestones, sales-based milestones and/or up-front payment milestones relating to apatorsen. OncoGenex cannot give any assurance that it will be able to identify and enter into an agreement with a third party to develop and potentially commercialize apatorsen by August 17, 2017, or if it does, that any consideration will ever be received by the combined company or distributed to its stockholders. If OncoGenex is unable to enter into an agreement with a third party regarding the development of apatorsen by August 17, 2017, the development of apatorsen may be delayed or terminated.
If OncoGenex is able to enter into an agreement with a third party to develop apatorsen, the failure of apatorsen to be shown safe or effective in one or more indications could negatively impact the development of apatorsen in other indications, could result in the suspension or termination of apatorsen development and commercialization plans and could cause the CVRs to be of no or little value. Further, apatorsen consideration, if any, received beyond August 2022 would accrue to the benefit of the combined company stockholders generally and not to the CVR holders.
OncoGenexs clinical development program for apatorsen may not receive regulatory approval either if apatorsen fails to demonstrate that it is safe and effective in clinical trials and consequently fail to obtain necessary approvals from the regulatory agencies, or if it has inadequate financial or other resources to advance apatorsen through the clinical trial process. If competitive products developed by third parties show significant benefit in the cancer indications in which it is developing apatorsen, any planned supportive or primary registration trials
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may be delayed, altered or not initiated and apatorsen may never receive regulatory approval. Any failure to obtain regulatory approval of apatorsen could have a material and adverse effect on OncoGenexs business.
Because OncoGenex depends on financing from third parties for its operations, its business may fail if such financing becomes unavailable or is not available on commercially reasonable terms.
To date, OncoGenex has financed its operations primarily through the sale of its equity securities and from payments it received pursuant to the Collaboration Agreement with Teva. In April 2015, its Collaboration Agreement with Teva was terminated, and OncoGenex will not receive any future payments from Teva. OncoGenex believes that its existing capital resources and interest on such resources will be sufficient to meet its current operating requirements for at least the next 12 months. However, if the timeline to complete the recently announced merger takes longer than anticipated or is not completed, OncoGenex changes its development plans or elects to further develop apatorsen, cannot find third-party collaborators to fund further development of apatorsen, its trials proceed slower or take longer than expected to complete, it acquires rights to new product candidates, does not successfully defend litigation or engages in commercialization and product launch activities, it will need additional capital sooner than it expects. OncoGenexs future capital requirements will depend on many factors, including, without limitation:
| the timing of completion of the pending merger with Achieve; |
| whether OncoGenex modifies its development program for apatorsen, including terminating and starting new trials; |
| whether OncoGenex is able to enter into additional third-party collaborative partnerships to develop and/or commercialize apatorsen on terms that are acceptable to it, or at all; |
| the scope and results of its clinical trials; |
| its ability to forecast the cost of its ongoing development activities; |
| whether OncoGenex experiences delays in its development program of apatorsen, or experience slower-than-anticipated product development or rate of events; |
| conducting studies required to obtain regulatory approvals for apatorsen from regulatory agencies; |
| the availability of third parties to perform the key development tasks for apatorsen, including conducting preclinical studies and clinical trials and manufacturing apatorsen 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 opportunities to acquire additional product candidates arise and the costs of acquiring and developing those product candidates; |
| the costs to defend, and the results of, litigation; and |
| whether it engages in commercialization and product launch activities. |
If OncoGenex is unable to raise funds on acceptable terms when it becomes necessary to do so, it may not be able to continue developing apatorsen, acquire or develop additional product candidates or respond to competitive pressures or unanticipated requirements. For these reasons, any inability to raise additional funds when necessary could have a material adverse effect on OncoGenexs business.
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OncoGenex intends to partner with third-party collaborators with respect to the development and commercialization of apatorsen, and it cannot control whether it will be able to do so on favorable terms, if at all.
OncoGenex is currently undertaking efforts to identify and enter into an agreement with a third party to fund and undertake the development and potential commercialization of apatorsen. If it is not able to do so by August 2017 and the pending merger is completed, the CVRs will be terminated and the CVR holders will not realize any value from the CVRs.
OncoGenex will be competing with many other companies as it seeks partners for apatorsen and may not be able to compete successfully against those companies. If it is not able to enter into collaboration arrangements for apatorsen, OncoGenex would be required to undertake and fund further development, clinical trials, manufacturing and commercialization activities solely at its own expense and risk. If OncoGenex is unable to finance and/or successfully execute those expensive activities, or it delays such activities due to capital availability, its business could be materially and adversely affected, and potential future product launch could be materially delayed, be less successful, or it may be forced to discontinue clinical development of its product candidate.
Clinical trials may not demonstrate a clinical benefit of apatorsen.
Positive results from preclinical studies and clinical trials, including any exploratory results from the apatorsen clinical trials conducted to date should not be relied on as evidence that on-going, amended, or later-stage or large-scale clinical trials will succeed.
OncoGenex, or a collaboration partner, will be required to demonstrate with substantial evidence through well-controlled clinical trials that apatorsen is safe and effective for use in a diverse population before it or a collaboration partner can seek regulatory approvals for its commercial sale. Success in early clinical trials does not mean that future clinical trials will be successful because evaluation of apatorsen in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy to the satisfaction of regulatory agencies, despite having progressed through initial clinical trials. For example, all of OncoGenexs phase 3 clinical trials for custirsen failed to meet their clinical endpoints, even after encouraging results in earlier trials. Further, preliminary or top-line results from clinical trials may not be confirmed in final data, or may change materially.
Even after the completion of phase 3 clinical trials, regulatory agencies may disagree with OncoGenexs clinical trial design and its interpretation of data, and may require OncoGenex to conduct additional clinical trials to demonstrate the efficacy of apatorsen.
OncoGenex may choose to make amendments to ongoing studies for any reason including to analyze final top line data earlier than planned. Any future amendments may compromise the integrity of the clinical trial results and may not be acceptable to regulators.
OncoGenex relies on third parties to manufacture and supply apatorsen and other agents used in its clinical trials and potential future commercial use. A decrease in the availability or quality of apatorsen or agents could increase clinical trial costs, delay or halt clinical development or regulatory approval or commercialization of apatorsen, resulting in additional losses and depriving OncoGenex of potential product revenue.
OncoGenex does not own or operate manufacturing facilities, and it depends on third-party contract manufacturers for production of apatorsen and relies on other companies and their manufacturers for other agents used in all of its clinical trials. OncoGenex lacks the resources and the capability to manufacture apatorsen itself. To date, its product candidates, including apatorsen, have been manufactured in limited quantities for preclinical studies and clinical trials. All active pharmaceutical ingredients, or API, and drug product for its product candidates have been manufactured for OncoGenex by third parties pursuant to a purchase order or short-term contract that has been fulfilled.
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If, in the future, apatorsen is approved for commercial sale, OncoGenex or any pharmaceutical partner that has licensed apatorsen, if any, may need to manufacture apatorsen in commercial quantities. OncoGenex cannot provide assurance that the third-party manufacturers with which it has contracted in the past will have sufficient capacity to satisfy future manufacturing needs, that additional purchases of API or drug product will be negotiated with these or alternative manufacturers on terms favorable to it, if at all, or that the pharmaceutical partner that has licensed apatorsen, if any, will have sufficient capacity or expertise to satisfy future needs.
Third-party manufacturers may fail to perform under their contractual obligations, or may fail to deliver the required commercial quantities of bulk API or finished drug product on a timely basis and at commercially reasonable prices. OncoGenex has experienced manufacturing quality issues resulting in an unusable lot of one of its product candidates in the past. Any performance failure on the part of its contract manufacturers could delay clinical development or regulatory approval or commercialization of apatorsen, depriving OncoGenex of potential product revenue and resulting in additional losses. If an alternate manufacturer is required to be identified and qualified, clinical trials, regulatory submissions, required approvals or commercialization of apatorsen may be delayed or suspended, which may cause higher costs and could prevent successful commercialization of apatorsen. If one or more replacement manufacturers capable of production at a reasonably favorable cost, in adequate volumes, of adequate quality and on a timely basis, cannot be identified, demand for apatorsen likely cannot be met and clinical trials could be delayed or OncoGenex could lose potential revenue. The ability to replace an existing API manufacturer may be difficult because the number of potential manufacturers is limited to approximately five manufacturers, and regulatory agencies must inspect any replacement manufacturer and review information related to product produced at the manufacturer before they can begin manufacturing OncoGenexs product candidates. It may be difficult or impossible to identify and engage a replacement manufacturer on acceptable terms in a timely manner, if at all. OncoGenex expects to continue to depend on third-party contract manufacturers for the foreseeable future.
Apatorsen requires precise, high-quality manufacturing. Any of OncoGenexs contract manufacturers will be subject to ongoing periodic unannounced inspection by regulatory agencies to ensure strict compliance with current Good Manufacturing Practices, or cGMP, and other applicable government regulations and corresponding standards. If a contract manufacturer fails to achieve and maintain high manufacturing standards in compliance with cGMP regulations, manufacturing errors may be experienced resulting in patient injury or death, product recalls or withdrawals, delays or interruptions of production or failures in product testing or delivery, delay or prevention of filing or approval of marketing applications for apatorsen, cost overruns or other problems that could seriously affect OncoGenexs business.
Significant manufacturing scale-up may require additional validation studies, which the regulatory agencies must review and approve. Additionally, any third-party manufacturers retained to manufacture apatorsen on a commercial scale must pass regulatory agencies pre-approval inspection for conformance to cGMP regulations before approval of apatorsen can be obtained. If manufacturing capacity for apatorsen in conformance with cGMP regulations is not successfully increased, the regulatory approval or commercial launch of apatorsen may be delayed or there may be a shortage in supply.
OncoGenex also relies on third parties for the provision of other agents used in its clinical trials, and in some circumstances these agents are provided to it at no cost. OncoGenex has no assurance that these third-parties will continue to provide their products to it at no cost.
If its competitors develop and market products that are more effective, safer or less expensive than apatorsen, OncoGenexs clinical trials and commercial opportunities will be negatively affected.
The life sciences industry is highly competitive, and OncoGenex faces significant competition from many pharmaceutical, biopharmaceutical and biotechnology companies that are researching and marketing products designed to address cancer indications for which apatorsen is currently being developed or for which apatorsen may be developed in the future. It is aware of several other companies that are developing therapeutics that seek
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to promote tumor cell death. Several therapies have been recently approved by the FDA in indications for which apatorsen may be developed in the future, and OncoGenex expects more to be approved in the future.
Substantial advancements in the treatment of cancer have occurred in the past two years and new products from OncoGenexs competitors have been approved for marketing on the basis of showing a survival advantage. Apatorsen may be developed in the future by a collaboration partner in any number of cancer indications, including in bladder cancer. Any product OncoGenex may develop in the future is likely to face competition from other drugs and therapies. Many of its competitors have significantly greater financial, manufacturing, marketing and drug development resources than OncoGenex does. Large pharmaceutical companies, in particular, have extensive experience in clinical testing and in obtaining regulatory approvals for drugs. These companies also have significantly greater research and marketing capabilities than OncoGenex does. In addition, many universities and private and public research institutes are, or may become, active in cancer research, and develop products that may directly compete with OncoGenex. If its competitors market products that are more effective, safer or less expensive than its future product candidates, if any, or that reach the market sooner than its future product candidates, if any, OncoGenex may not achieve commercial success.
If new therapies become broadly used, additional clinical trials of apatorsen in combination with these new therapies may be required to demonstrate safety and efficacy of the combination. Additional trials will delay the development of apatorsen and increase OncoGenexs costs. The failure of apatorsen to work in combination with these new therapies would have an adverse effect on its business.
As new therapies are developed, these therapies will need to be assessed to determine whether to conduct clinical trials of apatorsen in combination with them to demonstrate safety and efficacy of the combination. If it is determined appropriate to conduct additional clinical trials of apatorsen in combination with these new therapies, the development of apatorsen will be delayed and OncoGenexs costs will be increased. If these clinical trials generate safety concerns or lack of efficacy, its business would be adversely affected.
OncoGenex relies, in part, on third parties to conduct its clinical trials for apatorsen and may rely on third parties to conduct future clinical trials, if any. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, regulatory approval for or commercialization of apatorsen may not be obtained.
To implement its product development strategies, OncoGenex relies on third parties, such as collaborators, contract research organizations, medical institutions, clinical investigators and contract laboratories, to conduct clinical trials of apatorsen. Although it relies on third parties to conduct its clinical trials, OncoGenex is responsible for ensuring that each of its clinical trials is conducted in accordance with its development plan and protocol. Moreover, regulatory agencies require OncoGenex 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. Its reliance on third parties does not relieve OncoGenex of these responsibilities and requirements. If the third parties conducting its 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, OncoGenex may need to enter into new arrangements with alternative third parties and its 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 its clinical trials to fail to meet regulatory requirements, which may require OncoGenex to repeat its clinical trials.
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OncoGenexs clinical trial may be suspended or terminated at any time, including by regulatory agencies, by a Data Safety Monitoring Board overseeing the clinical trial at issue, by a clinical trial site or investigator, or by it. Any failure or significant delay in completing its clinical trial for apatorsen could materially harm the commercial prospects for apatorsen.
OncoGenex does not know whether its clinical trial for apatorsen will proceed or be completed on schedule, if at all, or whether it will be able to identify a collaboration partner to fund and manage any future preclinical studies or clinical trials, as applicable. The completion of its clinical trial currently in progress could also be substantially delayed or prevented by several factors, including:
| delay or failure to complete the merger with Achieve; |
| the strategic development plan of the combined company following completion of the pending merger; |
| termination of the clinical trial by OncoGenex, by one or more clinical trial sites, investigators, data safety monitoring boards, granting or regulatory agencies; |
| delay or failure to obtain sufficient manufacturing supply of apatorsen, or expiration of its existing supply of apatorsen prior to completing its ongoing clinical trial; |
| lack of efficacy evidenced during the clinical trial; |
| slower than expected final analysis of the clinical trial data; |
| failure of patients to complete the clinical trial; |
| unforeseen safety issues; |
| inability or unwillingness of patients or medical investigators to follow the clinical trial protocol; |
| inability to monitor patients adequately during or after treatment; |
| introduction of competitive products that may impede its ability to retain patients in the clinical trial; and |
| delay in submission or acceptance of protocol amendments, if any. |
Apatorsen may cause undesirable and potentially serious side effects during clinical trials that could delay or prevent its regulatory approval or commercialization.
Adverse events have been reported for patients in all of the clinical trials evaluating apatorsen, and serious adverse events were reported for approximately half the patients in a Phase 1 clinical trial evaluating apatorsen in patients with solid tumors. Since patients in OncoGenexs clinical trials have advanced stages of cancer, OncoGenex expects that additional adverse events, including serious adverse events, will occur.
Undesirable side effects caused by apatorsen could cause OncoGenex or regulatory authorities to amend, interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by regulatory agencies for any or all targeted indications or decrease the competitive opportunity of apatorsen which may decrease sales potential. This, in turn, could prevent commercialization of apatorsen and generating revenue from its sale. In addition, if apatorsen receives marketing approval and OncoGenex or others later identify undesirable side effects caused by the product:
| the ongoing clinical trial may be terminated and further product development ceased; |
| regulatory authorities may withdraw their approval of the apatorsen; |
| apatorsen may be recalled, or a change in the way it is administered may be required, additional clinical trials may be required or a change in the labeling of apatorsen may be necessary; |
| apatorsen may become less competitive and sales may decrease; and |
| OncoGenexs reputation may suffer. |
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Any one or a combination of these events could prevent achievement or maintenance of market acceptance of apatorsen or could substantially increase the costs and expenses of commercializing the product, which in turn could delay or prevent the generation of significant revenue from the sale of the product. Historical events have raised questions about the safety of other companies marketed drugs and may result in increased cautiousness by regulatory agencies 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 commercialization of apatorsen.
If OncoGenex were to be successfully sued related to its products or operations, it could face substantial liabilities that may exceed its resources.
OncoGenex may be held liable if any of its products or operations cause injury or death or are found otherwise unsuitable during product testing, manufacturing, marketing or sale. These risks are inherent in the development of pharmaceutical products. OncoGenex currently maintains commercial general and umbrella liability policies with combined limits of $10.0 million per occurrence and in the aggregate, in addition to a $10.0 million per claim and annual aggregate product liability insurance policy related to its clinical trials consistent with industry standards. When necessary for its products, OncoGenex intends to obtain additional product liability insurance. Insurance coverage may be prohibitively expensive, may not fully cover potential liabilities or may not be available in the future. Inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of its products. If OncoGenex were to be sued for any injury caused by or associated with its products or operations, the litigation could consume substantial time and attention of OncoGenex management, and the resulting liability could exceed its total assets.
Even if regulatory approval to market apatorsen is received, the market may not be receptive to the product.
Even if apatorsen obtains regulatory approval, it may not gain market acceptance among physicians, patients, healthcare payors and/or the medical community. OncoGenex believes that the degree of market acceptance will depend on a number of factors, including:
| efficacy, safety and tolerability of apatorsen; |
| timing of market introduction of competitive products; |
| availability of coverage and reimbursement from government and other third-party payors; |
| potential advantages or disadvantages over alternative treatments; |
| strength of marketing and distribution support; |
| price of its apatorsen, both in absolute terms and relative to alternative treatments; and |
| sequencing of available products. |
If OncoGenexs future product candidates fail to achieve market acceptance, it may not be able to generate significant revenue or achieve or sustain profitability.
The successful commercialization of apatorsen will depend in part on the extent to which governmental authorities and health insurers establish adequate coverage and reimbursement levels and pricing policies.
Successful sales of apatorsen will depend, in part, on the extent to which coverage and reimbursement for the product will be available from government and health administration authorities, private health insurers and other third-party payors. To manage healthcare costs, many governments and third-party payors increasingly scrutinize the pricing of new products and require greater levels of evidence of favorable clinical outcomes and cost-
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effectiveness before extending coverage. In light of such challenges to prices, OncoGenex cannot be sure that coverage for apatorsen will be obtained or, if available, that the reimbursement rates will be adequate. If adequate levels of coverage and reimbursement for apatorsen cannot be attained, its marketability will be negatively and materially impacted.
Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers costs, including research, development, manufacture, sale and distribution. In addition, obtaining and maintaining adequate coverage and reimbursement status is time-consuming and costly. Third party payors may deny coverage and reimbursement status altogether of a given drug product, or cover the product but may also establish prices at levels that are too low to enable OncoGenex to realize an appropriate return on its investment in product development. Further, one payors determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. Because the rules and regulations regarding coverage and reimbursement change frequently, in some cases at short notice, even when there is favorable coverage and reimbursement, future changes may occur that adversely impact the favorable status.
The unavailability or inadequacy of third-party coverage and reimbursement could have a material adverse effect on the market acceptance of any of its future products and the future revenues OncoGenex may expect to receive from those products. In addition, it is unable to predict what additional legislation or regulation relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future, or what effect such legislation or regulation would have on its business.
OncoGenex may fail to acquire and develop additional products or product candidates at all or on commercially reasonable terms.
OncoGenex currently does not have internal discovery capabilities and depends on pharmaceutical and biotechnology companies and other researchers to sell or license products or product candidates to it. If it is unable to complete the merger with Achieve, OncoGenex may be required to identify alternative sources of product candidates.
To successfully build a product pipeline, OncoGenex would be required to identify, select and acquire pharmaceutical product candidates. Proposing, negotiating and implementing an economically viable product acquisition or license is a lengthy and complex process. OncoGenex competes for partnering arrangements and license agreements with pharmaceutical and biotechnology companies and academic research institutions. Its competitors may have stronger relationships with third parties with whom OncoGenex is interested in collaborating and/or may have more established histories of developing and commercializing products. As a result, its competitors may have a competitive advantage in entering into partnering arrangements with such third parties. In addition, even if OncoGenex finds promising product candidates, and generate interest in a partnering or strategic arrangement to acquire such product candidates, it may not be able to acquire rights to additional product candidates or approved products on terms that it finds acceptable, if at all. If OncoGenex fails to acquire and develop product candidates from others, it may be unable to grow its business.
OncoGenex expects that any product candidate that it acquires rights to will require additional development efforts prior to commercial sale, including extensive clinical evaluation and approval by regulatory agencies. All product candidates are subject to the risks of failure inherent in pharmaceutical product development, including the possibility that the product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. Even if the product candidates are approved, OncoGenex can make no assurance that it would be capable of economically producing the product or that the product would be commercially successful.
OncoGenex may be adversely affected if its controls over financial reporting fail or are circumvented.
OncoGenex regularly reviews and updates its internal controls, disclosure controls and procedures, and corporate governance policies. In addition, although not required, OncoGenex has chosen under the Sarbanes Oxley Act of
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2002 to report annually on its internal control over financial reporting. If it were to be determined that its internal control over financial reporting is not effective, such shortcoming could have an adverse effect on its business and financial results and the price of OncoGenex common stock could be negatively affected. This reporting requirement could also make it more difficult or more costly for it to obtain certain types of insurance, including director and officer liability insurance, and OncoGenex may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. Any system of internal controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulation concerning control and procedures could have a material effect on OncoGenexs business, results of operation and financial condition. Any of these events could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of its financial statements, which ultimately could negatively affect the market price of its shares, increase the volatility of OncoGenex stock price and adversely affect its ability to raise additional funding. The effect of these events could also make it more difficult for OncoGenex to attract and retain qualified persons to serve on its Board and its Board committees and as executive officers.
Risks Related to OncoGenexs Intellectual Property
OncoGenexs proprietary rights may not adequately protect apatorsen.
OncoGenexs commercial success will depend in part on its ability to obtain patents and/or regulatory exclusivity and maintain adequate protection for apatorsen in the United States and other countries. OncoGenex or a collaboration partner, if any, will be able to protect its proprietary rights from unauthorized use by third parties only to the extent that apatorsen is covered by valid and enforceable patents or are effectively maintained as trade secrets.
OncoGenex and/or a collaboration partner, if any, may apply for additional patents covering apatorsen as it deems appropriate. OncoGenex or its collaboration partner, if any, may, however, fail to apply for patents on important technologies or apatorsen in a timely fashion, if at all. Its existing patents and any future patents OncoGenex or its collaboration partner, if any, obtain may not be sufficiently broad to prevent others from practicing its technologies or from developing competing products and technologies. In addition, OncoGenex does not always control the patent prosecution of subject matter that it licenses from others. Accordingly, OncoGenex is sometimes unable to exercise a significant degree of control over such intellectual property as it would over its own.
Moreover, the patent positions of biopharmaceutical companies are highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. As a result, the validity and enforceability of OncoGenexs patents cannot be predicted with certainty. In addition, the U.S. Supreme Court has revised certain tests regarding granting patents and assessing the validity of patents to make it more difficult to obtain patents. As a consequence, issued patents may be found to contain invalid claims according to the revised standards. Some of its patents or those of collaborators may be subject to challenge and subsequent invalidation or significant narrowing of claim scope in a re-examination proceeding, or during litigation, under the revised criteria. OncoGenex cannot guarantee that:
| OncoGenex or its licensors were the first to make the inventions covered by each of its issued patents and pending patent applications; |
| OncoGenex or its licensors were the first to file patent applications for these inventions; |
| others will not independently develop similar or alternative technologies or duplicate any of its technologies; |
| any of OncoGenex or its licensors pending patent applications will result in issued patents; |
| any of OncoGenex or its licensors patents will be valid or enforceable; |
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| any patents issued to OncoGenex or its licensors and collaboration partners will provide OncoGenex with any competitive advantages, or will not be challenged by third parties; and |
| OncoGenex will develop additional proprietary technologies that are patentable, or the patents of others will not have an adverse effect on its business. |
The actual protection afforded by a patent varies on a product-by-product basis, from country to country and depends on many factors, including the type of patent, the scope of its coverage, the availability of regulatory related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patents. OncoGenexs ability or the ability of a collaboration partner, if any, to maintain and solidify its proprietary position for apatorsen will depend on its success in obtaining effective claims and enforcing those claims once granted. OncoGenexs issued patents and those that may issue in the future, or those licensed to it or collaboration partners, if any, may be challenged, invalidated, unenforceable or circumvented, and the rights granted under any issued patents may not provide it with proprietary protection or competitive advantages against competitors with similar products. Due to the extensive amount of time required for the development, testing and regulatory review of a potential product, it is possible that, before apatorsen can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.
OncoGenex also relies on trade secrets to protect some of its technology, especially where it is believed that patent protection is not appropriate or obtainable. However, trade secrets are difficult to maintain. While it uses reasonable efforts to protect its trade secrets, OncoGenex or its collaboration partners employees, consultants, contractors or scientific and other advisors may unintentionally or willfully disclose its proprietary information to competitors. Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming and uncertain. In addition, non-U.S. courts are sometimes less willing than U.S. courts to protect trade secrets. If its competitors independently develop equivalent knowledge, methods and know-how, OncoGenex would not be able to assert its trade secrets against them and its business could be harmed.
OncoGenex may not be able to protect its intellectual property rights throughout the world.
Filing, prosecuting and defending patents on apatorsen, when and if OncoGenex has any, in every jurisdiction would be prohibitively expensive. Competitors may use its technologies in jurisdictions where OncoGenex or its licensors have not obtained patent protection to develop their own products. These products may compete with its products, when and if OncoGenex has any, and may not be covered by any of OncoGenex or its licensors patent claims or other intellectual property rights.
The laws of some non-U.S. countries do not protect intellectual property rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology and/or pharmaceuticals, which could make it difficult for OncoGenex to stop the infringement of its patents. Proceedings to enforce its patent rights in foreign jurisdictions could result in substantial cost and divert OncoGenexs efforts and attention from other aspects of its business.
OncoGenex may become involved in disputes with past or potential future collaborators over intellectual property ownership, and publications by its research collaborators and scientific advisors could impair its ability to obtain patent protection or protect its proprietary information, which, in either case, could have a significant effect on its business.
Inventions discovered under research, material transfer or other such collaborative agreements may become jointly owned by OncoGenex and the other party to such agreements in some cases and the exclusive property of
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either party in other cases. Under some circumstances, it may be difficult to determine who owns a particular invention, or whether it is jointly owned, and disputes could arise regarding ownership of those inventions. These disputes could be costly and time consuming and an unfavorable outcome could have a significant adverse effect on its business if OncoGenex was not able to protect or license rights to these inventions. In addition, OncoGenexs research collaborators and scientific advisors generally have contractual rights to publish its data and other proprietary information, subject to its prior review. Publications by its research collaborators and scientific advisors containing such information, either with its permission or in contravention of the terms of their agreements with OncoGenex, may impair its ability to obtain patent protection or protect its proprietary information, which could significantly harm its business.
The intellectual property protection for apatorsen depends on third parties.
OncoGenex has exclusively licensed from UBC certain issued patents and pending patent applications covering the respective antisense sequences underlying apatorsen and its commercialization and use, and it has licensed from Ionis certain issued patents and pending patent applications directed to product compositions and chemical modifications used in apatorsen for commercialization, use and the manufacturing thereof. OncoGenex has also received a sublicense from Ionis under certain third-party patent portfolios directed to such modifications.
The patents and pending patent applications underlying OncoGenexs licenses do not fully cover all potential modifications and uses of apatorsen. In the case of patents and patent applications licensed from Ionis, OncoGenex does not have and has not had any control over the filing, prosecution or enforcement of these patents or patent applications. It cannot be certain that such prosecution efforts have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents. OncoGenex also cannot be assured that its licensors or their respective licensing partners will agree to enforce any such patent rights at its request or devote sufficient efforts to attain a desirable result. Any failure by its licensors or any of their respective licensing partners to properly protect the intellectual property rights relating to apatorsen could have a material adverse effect on OncoGenexs financial condition and results of operation.
If OncoGenex breaches any of the agreements under which it licenses rights to apatorsen or technology from third parties, it could lose license rights that are important to its business. Certain of OncoGenexs license agreements may not provide an adequate remedy for a breach by the licensor.
OncoGenex licenses the development and commercialization rights for apatorsen. Under such licenses, it is subject to various obligations such as sublicensing, royalty and milestone payments, annual maintenance fees, limits on sublicensing, insurance obligations and the obligation to use commercially reasonable best efforts to develop and exploit the licensed technology. If OncoGenex fails to comply with any of these obligations or otherwise breach these agreements, its licensors may have the right to terminate the license in whole or in part or to terminate the exclusive nature of the license. OncoGenex may also become involved in disputes with current or former licensors regarding the meaning of certain terms in the license agreements, including terms related to royalty and milestone payments and termination, which may result in costly and time consuming litigation. Loss of any of these licenses or the exclusivity rights provided by the licenses, or disputes with current or former licensors, could harm OncoGenexs financial condition and results of operations. In addition, certain of its license agreements with UBC eliminate OncoGenexs ability to obtain money damages in respect of certain claims against UBC.
The patent protection for apatorsen may expire before OncoGenex is able to maximize its commercial value, which may subject it to increased competition and reduce or eliminate its opportunity to generate product revenue.
The patents for apatorsen have varying expiration dates and, when these patents expire, OncoGenex may be subject to increased competition and it may not be able to recover its development costs. For example, certain of the U.S. patents directed to apatorsen and its use that have been licensed from UBC are expected to expire in
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2023. In some of the larger economic territories, such as the United States and Europe, patent term extension/restoration may be available to compensate for time taken during aspects of the product candidates regulatory review. OncoGenex cannot, however, be certain that an extension will be granted or, if granted, what the applicable time period or the scope of patent protection afforded during any extended period will be. In addition, even though some regulatory agencies may provide some other exclusivity for a product candidate under its own laws and regulations, OncoGenex may not be able to qualify the product candidate or obtain the exclusive time period.
If it is unable to obtain patent term extension/restoration or some other exclusivity, OncoGenex could be subject to increased competition and its opportunity to establish or maintain product revenue could be substantially reduced or eliminated. Furthermore, it may not have sufficient time to recover its development costs prior to the expiration of its U.S. and non-U.S. patents.
OncoGenex may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and it may be unable to protect its rights to, or use of, its technology.
If OncoGenex chooses to go to court to stop someone else from using the inventions claimed in its patents or its licensed patents, that individual or company has the right to ask the court to rule that these patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and would consume time and other resources even if OncoGenex was successful in stopping the infringement of these patents. In addition, there is a risk that the court will decide that these patents are invalid or unenforceable and that OncoGenex does not have the right to stop the other party from using the inventions. The U.S. Supreme Court has revised certain tests regarding granting patents and assessing the validity of patents to make it more difficult to obtain patents. Some of its issued patents may be subject to challenge and subsequent invalidation under the revised criteria. There is also the risk that, even if the validity or enforceability of these patents is upheld, the court will narrow the scope of OncoGenexs claim or will refuse to stop the other party on the grounds that such other partys activities do not infringe its rights.
If OncoGenex wishes to use the technology or compound claimed in issued and unexpired patents owned by others, it will need to obtain a license from the owner, enter into litigation to challenge the validity or enforceability of the patents or incur the risk of litigation in the event that the owner asserts that OncoGenex infringed its patents. The failure to obtain a license to technology or the failure to challenge an issued patent that OncoGenex may require to discover, develop or commercialize apatorsen may have a material adverse effect on it.
If a third party asserts that OncoGenex infringed its patents or other proprietary rights, OncoGenex could face a number of risks that could seriously harm its results of operations, financial condition and competitive position, including:
| patent infringement and other intellectual property claims, which would be costly and time consuming to defend, whether or not the claims have merit, and which could delay the regulatory approval process and divert managements attention from its business; |
| substantial damages for past infringement, which OncoGenex may have to pay if a court determines that apatorsen or its technologies infringe a competitors patent or other proprietary rights; |
| a court prohibiting OncoGenex from selling or licensing its technologies or future drugs unless the third party licenses its patents or other proprietary rights to OncoGenex on commercially reasonable terms, which it is not required to do; and |
| if a license is available from a third party, OncoGenex may have to pay substantial royalties or lump-sum payments or grant cross licenses to its patents or other proprietary rights to obtain that license. |
The biotechnology industry has produced a proliferation of patents, and it is not always clear to industry participants, including OncoGenex, which patents cover various types of products or methods of use. The
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coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If it is sued for patent infringement, OncoGenex would need to demonstrate that apatorsen or methods of use either do not infringe the patent claims of the relevant patent, and/or that the patent claims are invalid, and/or that the patent is unenforceable and it may not be able to do this. Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.
U.S. patent laws as well as the laws of some foreign jurisdictions provide for provisional rights in published patent applications beginning on the date of publication, including the right to obtain reasonable royalties, if a patent subsequently issues and certain other conditions are met.
Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing and because publications in the scientific literature often lag behind actual discoveries, OncoGenex cannot be certain that others have not filed patent applications for technology covered by its licensors issued patents or its pending applications or its licensors pending applications, or that OncoGenex or its licensors were the first to invent the technology.
Patent applications filed by third parties that cover technology similar to OncoGenexs technology may have priority over its or its licensors patent applications and could further require OncoGenex to obtain rights to issued patents covering such technologies. If another party files a U.S. patent application on an invention similar to OncoGenexs, OncoGenex may elect to participate in or be drawn into an interference proceeding declared by the U.S. Patent and Trademark Office to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of its U.S. patent position with respect to such inventions. Some of its competitors may be able to sustain the costs of complex patent litigation more effectively than OncoGenex can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on its ability to raise the funds necessary to continue its operations. OncoGenex cannot predict whether third parties will assert these claims against it or against the licensors of technology licensed to OncoGenex, or whether those claims will harm its business. If OncoGenex is forced to defend against these claims, whether they are with or without any merit and whether they are resolved in favor of or against it or its licensors, OncoGenex may face costly litigation and diversion of managements attention and resources. As a result of these disputes, it may have to develop costly non-infringing technology, or enter into licensing agreements. These agreements, if necessary, may be unavailable on terms acceptable to OncoGenex, if at all, which could seriously harm its business or financial condition.
OncoGenex may be subject to damages resulting from claims that it, or its employees or consultants, have wrongfully used or disclosed alleged trade secrets of third parties.
Many of OncoGenexs employees were previously employed, and certain of its consultants are currently employed, at universities or biotechnology or pharmaceutical companies, including its competitors or potential competitors. Although it has not received any claim to date, OncoGenex may be subject to claims that these employees or consultants or it has inadvertently or otherwise used or disclosed trade secrets or other proprietary information of these current or former employers. Litigation may be necessary to defend against these claims. If it fails in defending such claims, in addition to paying monetary damages, OncoGenex may lose valuable intellectual property rights or personnel. It may be subject to claims that employees of its partners or licensors of technology licensed by OncoGenex have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. It may become involved in litigation to defend against these claims. If it fails in defending such claims, in addition to paying monetary damages, OncoGenex may lose valuable intellectual property rights or personnel.
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Risks Related to OncoGenex Common Stock
The price for OncoGenex common stock is volatile.
The market prices for OncoGenex common stock and that of emerging life science companies generally have historically been highly volatile. For example, after the announcement of data from recent custirsen and apatorsen clinical trials, OncoGenex experienced significant decreases in its stock price. Future announcements concerning OncoGenex, its pending merger, the results of its clinical trials or its competitors may also have a significant effect on the market price of its common stock. The stock markets also experience significant price and volume fluctuation unrelated to the operating performance of particular companies. These market fluctuations may also adversely affect the market price of OncoGenex common stock.
An increase in the market price of OncoGenex common stock, which is uncertain and unpredictable, may be the sole source of gain from an investment in its common stock. An investment in its common stock may not be appropriate for investors who require dividend income. OncoGenex has never declared or paid cash dividends on its capital stock and does not anticipate paying any cash dividends on its capital stock in the foreseeable future. OncoGenex currently intends to retain all available funds and any future earnings to fund the development and growth of its business. As a result, capital appreciation, if any, of OncoGenex common stock will be the sole source of gain for stockholders for the foreseeable future. Accordingly, an investment in its common stock may not be appropriate for investors who require dividend income or investors who are not prepared to bear a significant risk of losses from such an investment.
The price of OncoGenex common stock does not meet the requirements for continued listing on The NASDAQ Capital Market. If it fails to regain compliance with the minimum listing requirements, OncoGenex common stock will be subject to delisting. OncoGenexs ability to complete the pending merger or publicly or privately sell equity securities and the liquidity of its common stock could be adversely affected if its common stock is delisted.
The continued listing standards of The NASDAQ Capital Market require, among other things, that the minimum bid price of a listed companys stock be at or above $1.00. If the minimum bid price is below $1.00 for a period of more than 30 consecutive trading days, the listed company will fail to be in compliance with The NASDAQ Capital Markets listing rules and, if it does not regain compliance within the grace period, will be subject to delisting. As previously reported, on August 22, 2016, OncoGenex received a notice from the NASDAQ Listing Qualifications Department notifying it that for 30 consecutive trading days, the bid price of OncoGenex common stock had closed below the minimum $1.00 per share requirement. In accordance with The NASDAQ Capital Markets listing rules, OncoGenex was afforded 180 calendar days, or until February 21, 2017, to regain compliance with the bid price requirement. In order to regain compliance, the bid price of its common stock must close at a price of at least $1.00 per share for a minimum of 10 consecutive trading days. On February 22, 2017, OncoGenex received a second notice from the NASDAQ Listing Qualifications Department notifying it that it had not regained compliance with the bid price requirement during the 180 calendar days, and that it may be eligible for an additional 180-day compliance period if OncoGenex meets the market value of publicly held shares requirement for continued listing, all other initial inclusion requirements for The NASDAQ Capital Market, except for the bid price requirement, and provide written notice that it intends to regain compliance with the bid price requirement during the second 180-day compliance period, by effecting a reverse stock split if necessary. OncoGenex believes it is eligible for the additional 180-day compliance period, and intends to meet the bid price requirement by effecting a reverse stock split upon the completion of its pending merger.
If OncoGenex fails to regain compliance, its common stock will be subject to delisting. Delisting from The NASDAQ Capital Market could adversely affect its ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade its securities and would negatively affect the value and liquidity of OncoGenex common stock. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities. Delisting would also prevent OncoGenex from satisfying a closing
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condition for the pending merger, and, in such event, Achieve may elect not to consummate the merger. In addition, the combined company must submit a new application for listing on The NASDAQ Capital Market after the merger pursuant to the reverse merger rules, and the combined company will need to meet NASDAQs minimum listing requirements.
OncoGenex is at risk of securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities, including in circumstances where such declines occur in close proximity to the announcement of clinical trial results, as well as following certain significant business transactions, such as the announcement of a merger. This risk is especially relevant for OncoGenex because it recently announced a pending merger with Achieve. Additionally, its stock price and those of other biotechnology and biopharmaceutical companies have experienced significant stock price volatility in recent years. If OncoGenex faces such litigation, it could result in substantial costs and a diversion of managements attention and resources, which could harm its business. Any stockholder litigation challenging the pending merger may also delay completion of the merger in the expected timeframe or altogether.
If OncoGenex raises additional capital, the terms of the financing transactions may cause dilution to existing stockholders or contain terms that are not favorable to it.
To date, OncoGenexs sources of cash have been limited primarily to proceeds from the private or public placement of its securities and reimbursement for custirsen-related development expenses from its prior strategic collaboration with Teva, which terminated in April 2015. In the future, OncoGenex may seek to raise additional financing through private placements or public offerings of its equity or debt securities. It cannot be certain that additional funding will be available on acceptable terms, if at all. To the extent that OncoGenex raises additional financing by issuing equity securities, it may do so at a price per share that represents a discount to the then-current per share trading price of its common stock and its stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants, such as limitations on OncoGenexs ability to incur additional indebtedness, limitations on its ability to acquire or license intellectual property rights and other operating restrictions that could adversely affect its ability to conduct its business.
Risks Related to OncoGenexs Industry
There is a high risk that OncoGenexs drug development activities will not result in commercial products.
OncoGenex or a collaborator, if any, will need to complete significant additional clinical trials before it or they can demonstrate that apatorsen is safe and effective to the satisfaction of regulatory agencies. Clinical trials are expensive and uncertain processes that take years to complete. Failure can occur at any stage of the process, and successful early clinical trials do not ensure that later clinical trials will be successful. In later-stage clinical trials, apatorsen may fail to show desired efficacy and safety traits despite having progressed through initial clinical trials. For example, all of OncoGenexs phase 3 clinical trials for custirsen and all but one of its phase 2 trials for apatorsen failed to meet their clinical endpoints, even after positive results in earlier trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier clinical trials. In addition, a clinical trial may prove successful with respect to a secondary objective, but fail to demonstrate clinically significant benefits with respect to a primary objective. Failure to satisfy a primary objective in a phase 3 clinical trial (registration trial) would generally mean that a product candidate would not receive regulatory approval.
The regulatory approval process is expensive, time consuming and uncertain and may prevent OncoGenex from obtaining approvals for the commercialization of some or all of its product candidates.
The research, testing, manufacturing, labeling, approval, selling, marketing and distribution of drug products are subject to extensive regulation by regulatory agencies, which regulations differ from country to country.
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OncoGenex is not permitted to market its product candidate in the United States until it receives approval of an application for market approval from regulatory agencies. OncoGenex has not submitted an application for or received marketing approval for its apatorsen. Obtaining approval of an application for market approval can be a lengthy, expensive and uncertain process. In addition, failure to comply with regulatory agencies requirements may, either before or after product approval, if any, subject OncoGenex to administrative or judicially imposed sanctions, including:
| restrictions on the products, manufacturers or manufacturing process; |
| warning letters; |
| civil and criminal penalties; |
| injunctions; |
| suspension or withdrawal of regulatory approvals; |
| product seizures, detentions or import bans; |
| voluntary or mandatory product recalls and publicity requirements; |
| total or partial suspension of production; |
| imposition of restrictions on operations, including costly new manufacturing requirements; and |
| refusal to approve pending applications for market approval or supplements to approved applications for market approval. |
Regulatory approval of an application for market approval or application for market approval supplement is not guaranteed, and the approval process is expensive and may take several years. Regulatory agencies also have substantial discretion in the drug approval process. Despite the time and expense exerted, failure can occur at any stage, and OncoGenex or a collaborator, if any, could encounter problems that could cause it or them to abandon clinical trials or to repeat or perform additional preclinical studies and clinical trials. The number of preclinical studies and clinical trials that will be required for regulatory agencies approval varies depending on the drug candidate, the disease or condition that the drug candidate is designed to address, and the regulations applicable to any particular drug candidate. Regulatory agencies can delay, limit or deny approval of a drug candidate for many reasons, including:
| a drug candidate may not be deemed safe or effective; |
| regulatory agencies may not find the data from preclinical studies and/or clinical trials sufficient; |
| regulatory agencies might not approve its third-party manufacturers processes or facilities; |
| regulatory agencies may change its approval policies or adopt new regulations; and |
| third-party products may enter the market and change approval requirements. |
Even if OncoGenex or a collaborator, if any, obtains regulatory approvals for apatorsen, the terms of approvals and ongoing regulation of apatorsen may limit how it or a collaborator, if any, manufactures and markets apatorsen, which could materially affect its ability to generate revenue.
If apatorsen is approved, it and its manufacturer will be subject to continual review. Any regulatory approval that OncoGenex or a collaborator, if any, receives for apatorsen is likely to be subject to limitations on the indicated uses for which the end product may be marketed, or include requirements for potentially costly post-approval follow-up clinical trials. In addition, if regulatory agencies approve apatorsen, the labeling, packaging, adverse event reporting, storage, advertising and promotion for the end product will be subject to extensive regulatory requirements. The manufacturers of apatorsen, when and if it has any, will also be required to comply with cGMP regulations, which include requirements relating to quality control and quality assurance, as well as the
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corresponding maintenance of records and documentation. Further, regulatory agencies must approve these manufacturing facilities before they can be used to manufacture OncoGenexs product, when and if apatorsen has any, and these facilities are subject to ongoing regulatory inspection. If the manufacturer fails to comply with the regulatory requirements of regulatory agencies, or if previously unknown problems with apatorsen are discovered, OncoGenex could be subject to administrative or judicially imposed sanctions, including:
| restrictions on the product, manufacturers or manufacturing process; |
| warning letters; |
| civil or criminal penalties or fines; |
| injunctions; |
| product seizures, detentions or import bans; |
| voluntary or mandatory product recalls and publicity requirements; |
| suspension or withdrawal of regulatory approvals; |
| total or partial suspension of production; |
| imposition of restrictions on operations, including costly new manufacturing requirements; and |
| refusal to approve pending applications for market approval or supplements to approved applications for market approval. |
In addition, regulatory agencies may change their policies and additional regulations may be enacted that could prevent or delay regulatory approval of apatorsen. OncoGenex cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States, Canada or abroad. If it is not able to maintain regulatory compliance, OncoGenex would likely not be permitted to market apatorsen and it may not achieve or sustain profitability.
If government and third-party payors fail to provide coverage and adequate reimbursement rates for apatorsen, OncoGenexs revenue and potential for profitability will be reduced.
In the United States and elsewhere, OncoGenexs product revenue will depend principally on the reimbursement rates established by third-party payors, including government health administration authorities, managed-care providers, public health insurers, private health insurers and other organizations. These third-party payors are increasingly challenging the price, and examining the cost-effectiveness, of medical products and services. In addition, significant uncertainty exists as to the reimbursement status, if any, of newly approved drugs, pharmaceutical products or product indications. OncoGenex or a collaborator, if any, may need to conduct post-marketing clinical trials in order to demonstrate the cost-effectiveness of apatorsen, if any. Such clinical trials may require it or a collaborator, if any, to commit a significant amount of management time and financial and other resources. If reimbursement of such product is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels, its revenue could be reduced.
In some countries other than the United States, particularly the countries of the European Union and Canada, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, obtaining pricing approval from governmental authorities can take six to 12 months or longer after the receipt of regulatory marketing approval of a product for an indication. To obtain reimbursement or pricing approval in some countries, OncoGenex or a collaborator, if any, may be required to conduct a clinical trial that compares the cost-effectiveness of apatorsen to other available therapies. If reimbursement of such product candidate is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels, its revenue could be reduced.
Domestic and foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare, including drugs. In the United States, there have been, and OncoGenex expects that there will
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continue to be, federal and state proposals to implement similar governmental control. In addition, increasing emphasis on managed care in the United States will continue to put pressure on the pricing of pharmaceutical products. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively, PPACA, became law in the United States. PPACA substantially changes the way healthcare is financed by both governmental and private insurers and significantly affects the pharmaceutical industry.
OncoGenex anticipates that the PPACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and downward pressure on the price for any approved product, and could seriously harm its prospects. In addition, the Medicare and Medicaid program and state healthcare laws and regulations may also be modified to change the scope of covered products and/or reimbursement methodology. Cost control initiatives could decrease the established reimbursement rates that OncoGenex receives for apatorsen in the future, which would limit its revenue and profitability. Legislation and regulations affecting the pricing of pharmaceutical products, including apatorsen, may change at any time, which could further limit or eliminate reimbursement rates for apatorsen or other product candidates.
Failure to obtain regulatory approval outside of the United States and Canada would prevent OncoGenex from marketing its product candidates abroad.
OncoGenex or a collaborator may market apatorsen outside of the United States and Canada. In order to market apatorsen in the European Union and many other non-North American markets, it or a collaborator, if any, must obtain separate regulatory approvals. OncoGenex has had limited interactions with non-North American regulatory authorities. Approval procedures vary among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Approval by the FDA or other regulatory authorities does not ensure approval by regulatory authorities in other countries, and approval by one or more non-North American regulatory authorities does not ensure approval by regulatory authorities in other countries or by the FDA. The non-North American regulatory approval process may include all of the risks associated with obtaining FDA approval. OncoGenex or a collaborator, if any, may not obtain non-North American regulatory approvals on a timely basis, if at all. It or a collaborator, if any, may not be able to file for non-North American regulatory approvals and may not receive necessary approvals to commercialize apatorsen in any market.
Risks Related to Achieves Financial Condition and Capital Requirements
Achieve has incurred losses since its inception, has a limited operating history on which to assess its business, and anticipates that it will continue to incur significant losses for the foreseeable future.
Achieve is a clinical development-stage specialty pharmaceutical company with a limited operating history. Achieve has incurred net losses in each year since its inception. The audit report on the consolidated financial statements as of December 31, 2016 and 2015 and for the year ended December 31, 2016 and period ended December 31, 2015, which appears elsewhere herein, includes an explanatory paragraph related to Achieves ability to continue as a going concern. As of December 31, 2016, Achieve had a cash balance of $15,000, an accumulated deficit of $1.8 million and a negative working capital balance of $3.1 million. One of the closing conditions of the merger with OncoGenex requires Achieves liabilities, other than expenses incurred in connection with the merger, not to exceed $1.2 million. Achieves management believes that Achieve may be able to convert some of the liabilities into equity prior to the consummation of the merger.
The ability of Achieve to continue as a going concern is uncertain and dependent on Achieves ability to consummate the merger and/or obtain additional financing. To date, Achieve has financed its operations through stockholder loans and debt financing. Achieves management believes that if the merger does not occur, existing Achieve shareholders have sufficient capital available to contribute to operate Achieve through December 31,
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2017, and intends to raise additional financing from alternative sources. However, Achieve will continue to require substantial additional capital to continue its clinical development and potential commercialization activities. Accordingly, Achieve will need to raise substantial additional capital to continue to fund its operations. The amount and timing of its future funding requirements will depend on many factors, including the pace and results of its clinical development efforts. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on its financial condition and its ability to develop cytisine.
Pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. Achieve has devoted substantially all of its financial resources to identify, acquire, and develop cytisine, including providing general and administrative support for its operations. To date, Achieve has financed its operations primarily through the sale of equity securities and convertible promissory notes. The amount of its future net losses will depend, in part, on the rate of its future expenditures and its ability to obtain funding through equity or debt financings, strategic collaborations, or grants.
Achieve expects to continue to incur significant expenses and increasing operating losses for the foreseeable future. Achieve further expects that its expenses will increase substantially if and as Achieve:
| continues the clinical development of cytisine; |
| advances cytisine development into larger, more expensive clinical trials; |
| initiates additional pre-clinical, clinical, or other trials or studies for cytisine; |
| seeks to attract and retain skilled personnel; |
| undertakes the manufacturing of cytisine or increases volumes manufactured by third parties; |
| seeks regulatory and marketing approvals and reimbursement for cytisine; |
| makes milestone, royalty or other payments under third-party license and/or supply agreements; |
| establishes a sales, marketing, and distribution infrastructure to commercialize any product for which Achieve may obtain marketing approval and market for itself; |
| continues efforts to discover new product candidates; |
| seeks to identify, assess, acquire, and/or develop other product candidates; |
| seeks to establish, maintain, protect, and expand its intellectual property portfolio; and |
| experiences any delays or encounters issues with the development and potential for regulatory approval of cytisine such as safety issues, clinical trial accrual delays, longer follow-up for planned studies, additional major studies, or supportive studies necessary to support marketing approval. |
Further, the net losses Achieve incurs may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of its results of operations may not be a good indication of its future performance.
Achieve has never generated any revenue from product sales and may never be profitable.
Achieve has no products approved for commercialization and has never generated any revenue from product sales. Achieves ability to generate revenue and achieve profitability depends on its ability, alone or with strategic collaborators, to successfully complete the development of, and obtain the regulatory and marketing approvals necessary to commercialize cytisine. Achieve does not anticipate generating revenue from product sales for the foreseeable future. Achieves ability to generate future revenue from product sales depends heavily on its success in many areas, including but not limited to:
| completing research and development of cytisine; |
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| obtaining regulatory and marketing approvals for cytisine; |
| manufacturing product and establishing and maintaining supply and manufacturing relationships with third parties that are commercially feasible, satisfy regulatory requirements and meet Achieves supply needs in sufficient quantities to satisfy market demand for cytisine, if approved; |
| marketing, launching and commercializing any product for which Achieve obtains regulatory and marketing approval, either directly or with a collaborator or distributor; |
| obtaining reimbursement or pricing for cytisine that supports profitability; |
| gaining market acceptance of cytisine as a treatment option; |
| addressing any competing products including the potential for generic cytisine products; |
| protecting and enforcing its intellectual property rights, if any, including patents, trade secrets, and know-how; |
| negotiating favorable terms in any collaboration, licensing, or other arrangements into which Achieve may enter; and |
| attracting, hiring, and retaining qualified personnel. |
Even if a product candidate that Achieve develops is approved for commercial sale, Achieve anticipates incurring significant costs associated with commercializing that candidate. Additionally, if Achieve is not able to generate sufficient revenue from the sale of any approved products to cover its operating costs, Achieve may never become profitable. If Achieve obtains regulatory approval to market a product candidate, its future revenue will depend upon the size of any markets in which its product candidates may receive approval, and its ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors, and adequate market share for its product candidates in those markets.
Cytisine is currently Achieves sole product candidate and there is no guarantee that Achieve will be able to successfully develop and commercialize cytisine.
Achieve is currently dependent on the potential development of a single product candidate, cytisine. Achieve is still developing its sole product candidate, and cytisine cannot be marketed or sold in the United States or in foreign markets until regulatory approval has been obtained from the U.S. Food and Drug Administration, or the FDA, or applicable foreign regulatory agencies. Achieve has not yet submitted an Investigational New Drug, or IND, application or a New Drug Application, or NDA, for cytisine, and the process of obtaining regulatory approval is expensive and time consuming. The FDA and foreign regulatory authorities may never approve cytisine for sale and marketing, and even if cytisine is ultimately approved, regulatory approval may be delayed or limited in the United States or in other jurisdictions. Even if Achieve is authorized to sell and market cytisine in one or more markets, there is no assurance that Achieve will be able to successfully market cytisine or that cytisine will achieve market acceptance sufficient to generate profits. Failure to develop cytisine, to obtain regulatory approval for cytisine, to successfully market cytisine, or to generate profits from the sale of cytisine would have material adverse effects on Achieves business, financial condition, and results of operations.
Achieve is dependent upon a single company for the manufacture and supply of cytisine.
Achieves single product candidate, cytisine, has been in-licensed from a third party. Achieve is required to continue to contract with Sopharma AD, or Sopharma, to continue Achieves development and commercialization, if any, of cytisine pursuant to a supply agreement with Sopharma. If the supply agreement with Sopharma is terminated, Achieve will need to develop or acquire alternative supply and manufacturing capabilities for cytisine, which it may not be able to do on commercially viable terms or at all.
If Achieve is unable to successfully commercialize cytisine due to failure to obtain regulatory approval or due to other risk factors outlined herein, Achieves business, financial condition, and results of operations will be materially harmed as cytisine is currently Achieves sole product candidate.
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Raising additional capital may cause dilution to Achieves stockholders, restrict its operations or require Achieve to relinquish rights.
To the extent that Achieve raises additional capital through the sale of equity, convertible debt or other securities convertible into equity, the ownership interest of Achieves stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect rights of Achieves stockholders. Debt financing, if available at all, would likely involve agreements that include covenants limiting or restricting Achieves ability to take specific actions, such as incurring additional debt, making capital expenditures, making additional product acquisitions, or declaring dividends. If Achieve is unable to obtain funding on a timely basis, or on terms acceptable to Achieve, or at all, Achieve may be required to delay or discontinue one or more of its development programs or the commercialization of its product candidate or be unable to expand its operations or otherwise capitalize on potential business opportunities, which could materially harm Achieves business, financial condition, and results of operations.
Achieves principal stockholders own a significant percentage of its stock and will be able to exert significant control over matters of the combined company subject to stockholder approval.
Achieves principal stockholders and their affiliates currently beneficially own approximately 85.9% of Achieves outstanding voting stock. Therefore, these stockholders have the ability, and may continue to have the ability, to influence Achieve through this ownership position. These stockholders are able to determine some or all matters involving Achieve that require stockholder approval. For example, these stockholders, acting together, are able to control elections of directors, amendments of organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This control may prevent or discourage unsolicited acquisition proposals or offers for Achieves common stock.
Achieve may not have sufficient resources to meet the financial reporting requirements of public companies.
Achieve has to date operated as a private company and as a private company, has not been required to comply with the regulations or incur the costs associated with being a public company, including in particular the financial reporting requirements of a public company. While Achieve intends to use the resources of OncoGenexs already existing team with respect to public company financial reporting requirements, Achieves reporting systems will have to satisfy public company requirements. Complying with these requirements may require increased management time and attention, and potentially require the retention of additional employees, contractors, or third party professionals such as attorneys and accountants, to support the combined company in its financial reporting obligations. If these requirements are not met, or compliance with them diverts managements attention from other business concerns, they could have a material adverse effect on the combined companys business, prospects, financial condition and operating results.
Risks Related to the Development of Achieves Product Candidates
Results of earlier clinical trials of cytisine are not necessarily predictive of future results, and any advances of cytisine into clinical trials may not have favorable results or receive regulatory approval.
Even if Achieves clinical trials are completed as planned, Achieve cannot be certain that their results will be consistent with the results of the earlier clinical trials of cytisine. Positive results in pre-clinical testing and past clinical trials with respect to the safety and efficacy of cytisine do not ensure that results from subsequent clinical trials will also be positive, and Achieve cannot be sure that the results of subsequent clinical trials will replicate the results of prior clinical trials and pre-clinical testing. This failure may cause Achieve to abandon cytisine, which would negatively affect Achieves ability to generate any product revenues.
Clinical trials are costly, time consuming and inherently risky, and Achieve may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.
Clinical development is expensive, time consuming and involves significant risk. Achieve cannot guarantee that any clinical trial will be conducted as planned or completed on schedule, if at all. A failure of one or more
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clinical trials can occur at any stage of development. Events that may prevent successful or timely completion of clinical development include, but are not limited to:
| inability to generate satisfactory pre-clinical, toxicology, or other in vivo or in vitro data or diagnostics to support the initiation or continuation of clinical trials; |
| delays in reaching agreement on acceptable terms with clinical research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites; |
| delays in obtaining required institutional review board, or IRB, approval at each clinical trial site; |
| failure to permit the conduct of a clinical trial by regulatory authorities, after review of an investigational new drug or equivalent foreign application or amendment; |
| delays in recruiting qualified patients in its clinical trials; |
| failure by clinical sites or CROs or other third parties to adhere to clinical trial requirements; |
| failure by clinical sites, CROs or other third parties to perform in accordance with the good clinical practices requirements of the FDA or applicable foreign regulatory guidelines; |
| patients terminating enrollment in Achieves clinical trials; |
| adverse events or tolerability issues significant enough for the FDA or other regulatory agencies to put any or all clinical trials on hold; |
| animal toxicology issues significant enough for the FDA or other regulatory agencies to disallow investigation in humans; |
| occurrence of adverse events associated with Achieves product candidate; |
| changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; |
| the cost of clinical trials of cytisine; |
| negative or inconclusive results from Achieves clinical trials which may result in Achieves deciding, or regulators requiring Achieve, to conduct additional clinical trials or abandon development programs in other ongoing or planned indications for cytisine; and |
| delays in the time for manufacture of sufficient quantities of cytisine for use in clinical trials. |
Any inability to successfully complete clinical development and obtain regulatory approval for cytisine could result in additional costs to Achieve or impair its ability to generate revenue. In addition, if Achieve makes manufacturing or formulation changes to cytisine, Achieve may need to conduct additional pre-clinical trials or the results obtained from such new formulation may not be consistent with previous results obtained. Clinical trial delays could also shorten any periods during which its products have patent protection and may allow competitors to develop and bring products to market before Achieve does, which could impair its ability to successfully commercialize cytisine and may harm its business and results of operations.
Cytisine may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial viability of an approved label, or result in significant negative consequences following marketing approval, if any.
Undesirable side effects caused by cytisine could cause Achieve or regulatory authorities to interrupt, delay, or terminate clinical trials or even if approved, result in a restrictive label or delay regulatory approval by the FDA or comparable foreign authorities.
Additionally, even if cytisine receives marketing approval, and Achieve or others later identify undesirable side effects caused by cytisine, potentially significant negative consequences could result, including but not limited to:
| regulatory authorities may withdraw approvals of cytisine; |
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| regulatory authorities may require additional warnings on the cytisine label; |
| Achieve may be required to create a Risk Evaluation and Mitigation Strategy, or REMS, plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers, and/or other elements to assure safe use; |
| Achieve could be sued and held liable for harm caused to patients; and |
| Achieves reputation may suffer. |
Any of these events could prevent Achieve from achieving or maintaining market acceptance of cytisine, even if approved, and could significantly harm its business, results of operations, and prospects.
Achieves product development program may not uncover all possible adverse events that patients who take cytisine or its other product candidates may experience. The number of subjects exposed to cytisine or its other product candidates and the average exposure time in the clinical development program may be inadequate to detect rare adverse events, or chance findings, that may only be detected once the product is administered to more patients and for greater periods of time.
Clinical trials by their nature utilize a sample of the potential patient population. However, Achieve cannot be fully assured that rare and severe side effects of cytisine will be uncovered. Such rare and severe side effects may only be uncovered with a significantly larger number of patients exposed to cytisine. If such safety problems occur or are identified after cytisine reaches the market in the United States, or if such safety problems occur or are identified in foreign markets where cytisine is currently marketed, the FDA may require that Achieve amend the labeling of cytisine or recall it, or may even withdraw approval for cytisine.
If the use or misuse of cytisine harms patients, or is perceived to harm patients even when such harm is unrelated to cytisine, Achieves regulatory approvals, if any, could be revoked or otherwise negatively impacted and Achieve could be subject to costly and damaging product liability claims. If Achieve is unable to obtain adequate insurance or is required to pay for liabilities resulting from a claim excluded from, or beyond the limits of, its insurance coverage, a material liability claim could adversely affect its financial condition.
The use or misuse of cytisine in clinical trials and the sale of cytisine if marketing approval is obtained, exposes Achieve to the risk of potential product liability claims. Product liability claims might be brought against Achieve by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with its product. There is a risk that cytisine may induce adverse events. If Achieve cannot successfully defend against product liability claims, it could incur substantial liability and costs. During the course of treatment, patients may suffer adverse events for reasons that may be related to cytisine. Such events could subject Achieve to costly litigation, require it to pay substantial amounts of money to injured patients, delay, negatively impact or end its opportunity to receive or maintain regulatory approval to market cytisine, if any, or require Achieve to suspend or abandon its commercialization efforts. Even in a circumstance in which an adverse event is unrelated to cytisine, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may delay Achieves regulatory approval process or impact and limit the type of regulatory approvals cytisine receives or maintains. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on Achieves business, financial condition or results of operations.
If Achieve obtains marketing approval for cytisine, it will need to expand its insurance coverage to include the sale of commercial products. There is no way to know if Achieve will be able to continue to obtain product liability coverage and obtain expanded coverage if it requires it, in sufficient amounts to protect it against losses due to liability, on acceptable terms, or at all. Achieve may not have sufficient resources to pay for any liabilities resulting from a claim excluded from, or beyond the limits of, its insurance coverage. Where Achieve has provided indemnities in favor of third parties under its agreements with them, there is also a risk that these third
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parties could incur liability and bring a claim under such indemnities. An individual may bring a product liability claim against Achieve alleging that cytisine causes, or is claimed to have caused, an injury or is found to be unsuitable for consumer use. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. Any product liability claim brought against Achieve, with or without merit, could result in:
| withdrawal of clinical trial volunteers, investigators, patients or trial sites or limitations on approved indications; |
| the inability to commercialize, or if commercialized, decreased demand for, cytisine; |
| if commercialized, product recalls, withdrawals of labeling, marketing or promotional restrictions or the need for product modification; |
| initiation of investigations by regulators; |
| loss of revenues; |
| substantial costs of litigation, including monetary awards to patients or other claimants; |
| liabilities that substantially exceed Achieves product liability insurance, which Achieve would then be required to pay itself; |
| an increase in Achieves product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, if at all; |
| the diversion of managements attention from Achieves business; and |
| damage to Achieves reputation and the reputation of its products and its technology. |
Product liability claims may subject Achieve to the foregoing and other risks, which could have a material adverse effect on its business, financial condition or results of operations.
The development of Achieves product candidate is dependent upon securing sufficient quantities of cytisine from the Laburnum anagyroides plant, which plant grows in a limited number of locations outside of the United States.
The therapeutic component of Achieves product candidate, cytisine, is derived from the seeds of the Laburnum anagyroides plant, which grows in the mountains of Southern Europe. Achieve currently secures cytisine exclusively from Sopharma, a Bulgarian third-party supplier. Achieves current supply agreement with Sopharma expires on February 1, 2030, unless extended by mutual agreement of Achieve and Sopharma. There can be no assurances that Laburnum anagyroides will continue to grow in sufficient quantities to meet commercial supply requirements or that the countries from which Achieve can secure Laburnum anagyroides will continue to allow the exportation of cytisine. Sopharma currently has planted approximately 600,000 laburnum trees, saplings and seedlings in multiple locations in Central and Eastern Bulgaria. Each tree takes approximately four to five years to reach maturity for harvesting and has a productive life expectancy of 20 to 25 years. Although Sopharma has plans to plant significant numbers of additional trees, there is no guarantee that they will do so or that the trees will produce the anticipated yield of cytisine. In the event Achieve is no longer able to obtain cytisine from Sopharma, or in sufficient quantities, Achieve may not be able to produce its proposed products and its business will be adversely affected.
Achieves business may be negatively affected by weather conditions and the availability of natural resources, as well as by climate change.
In recent years, extreme weather events and changing weather patterns such as storms, flooding, drought, and temperature changes, appear to have become more common. The production of cytisine from the Laburnum
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anagyroides plant depends on the availability of natural resources, including sufficient rainfall. Achieves exclusive supplier of cytisine, Sopharma, could be adversely affected if it experiences a shortage of fresh water due to droughts or other weather conditions. As a result of such events, Achieve could experience cytisine shortages from Sopharma, all of which could have a material adverse effect on its business, financial condition and results of operations.
In addition, the manufacturing and other operations of Sopharma are located near earthquake fault lines in Sofia, Bulgaria. In the event of a major earthquake, Achieve could experience business interruptions from the disruption of its cytisine supplies, which could have a material adverse effect on Achieves business, financial condition and results of operations.
Achieve may conduct clinical trials internationally, which may trigger additional risks.
If Achieve decides to conduct clinical trials in Europe or other countries outside of the United States, Achieve will have additional regulatory requirements that Achieve will have to meet in connection with its manufacturing, distribution, use of data and other matters. The failure of Achieve to meet such regulatory requirements could delay its clinical trials, the approval, if any, of cytisine by the FDA, or the commercialization of cytisine, or result in higher costs or deprive Achieve of potential product revenues.
Achieve may use its financial and human resources to pursue a particular research program or product candidate and fail to capitalize on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.
Because Achieve has limited financial and human resources, it may forego or delay pursuit of opportunities with some programs or product candidates or for other indications that later prove to have greater commercial potential. Achieves resource allocation decisions may cause it to fail to capitalize on viable commercial products or more profitable market opportunities. Achieves spending on current and future research and development programs and future product candidates for specific indications may not yield any commercially viable products. Achieve may also enter into additional strategic collaboration agreements to develop and commercialize some of its programs and potential product candidates in indications with potentially large commercial markets. If Achieve does not accurately evaluate the commercial potential or target market for a particular product candidate, it may relinquish valuable rights to that product candidate through strategic collaborations, licensing or other royalty arrangements in cases in which it would have been more advantageous for Achieve to retain sole development and commercialization rights to such product candidate, or Achieve may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.
Risks Related to Regulatory Approval of Cytisine and Other Legal Compliance Matters
If Achieve does not obtain the necessary regulatory approvals in the United States and/or other countries, Achieve will not be able to sell cytisine.
Achieve will need approval from the FDA, to commercialize cytisine in the United States and approvals from similar regulatory authorities in foreign jurisdictions to commercialize cytisine in those jurisdictions. In order to obtain FDA approval of cytisine, Achieve must submit first an IND application and then an NDA to the FDA, demonstrating that cytisine is safe, pure and potent, and effective for its intended use. This demonstration requires significant research including completion of clinical trials. Satisfaction of the FDAs regulatory requirements typically takes many years, depending upon the type, complexity and novelty of the product candidate and requires substantial resources for research, development and testing. Achieve cannot predict whether its clinical trials will demonstrate the safety and efficacy of cytisine or if the results of any clinical trials will be sufficient to advance to the next phase of development or for approval from the FDA. Achieve also cannot predict whether its research and clinical approaches will result in data that the FDA considers safe and
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effective for the proposed indications of cytisine. The FDA has substantial discretion in the product approval process. The approval process may be delayed by changes in government regulation, future legislation or administrative action or changes in FDA policy that occur prior to or during Achieves regulatory review. While Achieve intends to begin a pivotal Phase 3 trial in the first half of 2018, the FDA may require Achieve to conduct additional Phase 3 trials, including if it deems the earlier trials involving cytisine to be insufficient or not available to support a single additional Phase 3 trial. Even if Achieve complies with all FDA requests, the FDA may ultimately reject one or more of its applications. Achieve may never obtain regulatory approval for cytisine. Failure to obtain approval from the FDA or comparable regulatory authorities in foreign jurisdictions to commercialize cytisine will leave Achieve without saleable products and therefore without any source of revenues. In addition, the FDA may require Achieve to conduct additional clinical testing or to perform post-marketing studies, as a condition to granting marketing approval of a product or permit continued marketing, if previously approved. If conditional marketing approval is obtained, the results generated after approval could result in loss of marketing approval, changes in product labeling, and/or new or increased concerns about the side effects or efficacy of a product. The FDA has significant post-market authority, including the explicit authority to require post-market studies and clinical trials, labeling changes based on new safety information and compliance with FDA-approved risk evaluation and mitigation strategies. The FDAs exercise of its authority has in some cases resulted, and in the future could result, in delays or increased costs during product development, clinical trials and regulatory review, increased costs to comply with additional post-approval regulatory requirements and potential restrictions on sales of approved products. In foreign jurisdictions, the regulatory approval processes generally include the same or similar risks as those associated with the FDA approval procedures described above. Achieve cannot be certain that it will receive the approvals necessary to commercialize cytisine for sale either within or outside the United States.
Even if Achieve obtains regulatory approval for cytisine, Achieve will remain subject to ongoing regulatory requirements in connection with the sale and distribution of cytisine.
Even if cytisine is approved by the FDA or comparable foreign regulatory authorities, Achieve will be subject to ongoing regulatory requirements with respect to manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing clinical trials, and submission of safety, efficacy and other post-approval information, including both federal and state requirements in the United States and the requirements of comparable foreign regulatory authorities. Compliance with such regulatory requirements will likely be costly and the failure to comply would likely result in penalties, up to and including, the loss of such approvals from the FDA or comparable foreign regulatory authorities.
Manufacturers and manufacturers facilities are required to continuously comply with FDA and comparable foreign regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices, or cGMP, regulations and corresponding foreign regulatory manufacturing requirements. As such, Achieve, Sopharma and other contract manufacturers, if any, will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any NDA or marketing authorization application.
Ongoing post-approval monitoring and clinical trial obligations may be costly to Achieve and the failure to meet such obligations may result in the withdrawal of such approvals.
Any regulatory approvals that Achieve receives for cytisine, if any, may be subject to limitations on the approved indicated uses for which cytisine may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of cytisine. Achieve will be required to report adverse reactions and production problems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing product safety issues could result in delays in product development or commercialization, or increased costs to assure compliance. If its original marketing approval for cytisine was obtained through an accelerated approval pathway, Achieve could be required to conduct a successful post-marketing clinical trial in order to confirm the clinical benefit for
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its products. An unsuccessful post-marketing clinical trial or failure to complete such a trial could result in the withdrawal of marketing approval.
If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, the regulatory agency may impose restrictions on that product or Achieve, including requiring withdrawal of the product from the market. If Achieve fails to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:
| issue warning letters; |
| impose civil or criminal penalties; |
| suspend or withdraw regulatory approval; |
| suspend any of Achieves ongoing clinical trials; |
| refuse to approve pending applications or supplements to approved applications submitted by Achieve; |
| impose restrictions on Achieves operations, including closing its contract manufacturers facilities; or |
| require a product recall. |
Any government investigation of alleged violations of law would be expected to require Achieve to expend significant time and resources in response and could generate adverse publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect its ability to develop and commercialize its products and the value of Achieve and its operating results would be adversely affected.
Achieve may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, and health information privacy and security laws. If Achieve is unable to comply, or has not fully complied, with such laws, it could face substantial penalties.
If Achieve obtains FDA approval for any of cytisine and begins commercializing it in the United States, Achieves operations may be subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws may impact, among other things, its proposed sales, marketing, and education programs. In addition, Achieve may be subject to patient privacy regulation by both the federal government and the states in which Achieve conduct its business. The laws that may affect its ability to operate include:
| the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; |
| federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent; |
| the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters; |
| HIPAA, as amended by the Health Information Technology and Clinical Health Act, and its implementing regulations, which imposes specified requirements relating to the privacy, security, and transmission of individually identifiable health information; |
| HIPAA, as amended by the Health Information Technology and Clinical Health Act, and its implementing regulations, which imposes specified requirements relating to the privacy, security, and transmission of individually identifiable health information; |
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| the federal physician sunshine requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the Health Care Reform Law, requires manufacturers of products, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations; and |
| state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including governmental and private payors, to comply with the pharmaceutical industrys voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require product manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, and state laws governing the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. |
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of Achieves business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the Health Care Reform Law, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the Health Care Reform Law provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
If Achieves operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to Achieve, Achieve may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare and Medicaid, imprisonment, and the curtailment or restructuring of its operations, any of which could adversely affect its ability to operate Achieves business and its results of operations.
Healthcare legislative and executive reform measures may have a material adverse effect on Achieves business, financial condition or results of operations.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Health Care Reform Law was passed, which substantially changes the way health care is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The Health Care Reform Law, among other things, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for products that are inhaled, infused, instilled, implanted, or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of specified branded prescription products, and promotes a new Medicare Part D coverage gap discount program.
On January 20, 2017, President Donald Trump issued an Executive Order to initiate the repeal of the Health Care Reform Law and Achieve expects that additional state and federal healthcare measures under the Trump administration will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand or lower pricing for cytisine, or additional pricing pressures. Currently, the Health Care Reform Law provides coverage for smoking cessation-related activities, including two counseling attempts for smoking cessation per year and
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prescription drugs for smoking cessation, but not over-the-counter treatments. If these provisions are repealed, in whole or in part, Achieves business, financial condition, or results of operations could be negatively affected.
The United Kingdom is currently a member state of the European Union. However, the United Kingdom has signaled its intention to withdraw from the European Union (commonly known as BREXIT). If BREXIT, which is likely to occur in 2019, does occur, the United Kingdom will no longer be a member state within the European Union. Since a significant portion of the regulatory framework in the United Kingdom is derived from the regulations of the European Union, BREXIT could materially change the regulatory framework applicable to the approval of cytisine, which could have a material adverse effect on Achieve and its operations. BREXIT may also result in other significant regulatory and legislative changes in the United Kingdom, which could, for example, affect the pricing of pharmaceutical products in the United Kingdom, which could in turn result in diminished performance for Achieve. Even if the substance of regulatory changes resulting from BREXIT does not have a significant impact on Achieves operations, it is reasonable to expect that Achieve would incur potentially significant costs in connection with complying with any new regulations. Further, the European Medicines Agency is currently located in the United Kingdom. It is possible that BREXIT would result in the relocation of the European Medicines Agency or disruption to the European Medicines Agencys review process, either of which could have an adverse effect on Achieves operations in the United Kingdom and the European Union.
BREXIT may also have adverse effects on potential customers and collaborators of Achieve, which could indirectly have an adverse effect on Achieve.
Risks Related to Achieves Business Operations
It is difficult to evaluate Achieves current business, predict Achieves future prospects and forecast Achieves financial performance and growth.
To date Achieves business activities have been focused primarily on the development and regulatory approval of cytisine and its various alternative forms. Although Achieve has not generated revenue to date, Achieve expects that, after any regulatory approval, any receipt of revenue will be attributable to sales of cytisine, primarily in the United States, the European Union (including the United Kingdom) and Japan. Because Achieve devotes substantially all of its resources to the development of cytisine and relies on cytisine as its sole source of potential revenue for the foreseeable future, any factors that negatively impact this product, or result in decreasing product sales, would materially and adversely affect Achieves business, financial condition and results of operations.
Achieves future success depends in part on its ability to attract, retain, and motivate other qualified personnel.
Achieve currently has a limited number of personnel. Achieve expects to need additional scientific, technical, operational, financial and other personnel. Recruiting and retaining other qualified employees, consultants, and advisors for Achieves business will be important to achieve success. Achieve may not be able to attract and retain personnel on acceptable terms, if at all, given the competition among numerous pharmaceutical and biotechnology companies for individuals with similar skill sets. In addition, failure to succeed in development and commercialization of cytisine may make it more challenging to recruit and retain qualified personnel. The inability to recruit and retain qualified personnel, or the loss of the services of its current personnel may impede the progress of Achieves research, development, and commercialization objectives and would negatively impact Achieves ability to succeed in its product development strategy.
Achieve will need to expand its organization and Achieve may experience difficulties in managing this growth, which could disrupt its operations.
Its management may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a substantial amount of time to managing these growth activities. Achieve may not be able to
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effectively manage the expansion of its operations, which may result in weaknesses in its infrastructure, operational mistakes, loss of business opportunities, loss of employees, and reduced productivity among remaining employees. Achieves expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If its management is unable to effectively manage its growth, its expenses may increase more than expected, its ability to generate and/or grow revenue could be reduced and Achieve may not be able to implement its business strategy. Achieves future financial performance and its ability to commercialize product candidates and compete effectively will depend, in part, on its ability to effectively manage any future growth.
Risks Related to Achieves Reliance on Third Parties
Achieve expects to continue to rely on third parties to manufacture cytisine for use in clinical trials, and Achieve intends to exclusively rely on Sopharma to produce and process cytisine, if approved. Achieves commercialization of cytisine could be stopped, delayed or made less profitable if Sopharma fails to obtain approval of government regulators, fails to provide Achieve with sufficient quantities of product, or fails to do so at acceptable quality levels or prices.
Achieve does not currently have nor does it currently plan to develop the infrastructure or capability internally to manufacture its clinical supplies for use in the conduct of Achieves clinical trials, and Achieve lacks the resources and the capability to manufacture cytisine on a clinical or commercial scale. Achieve currently exclusively relies on Sopharma to manufacture cytisine for use in clinical trials and plans to continue relying on Sopharma to manufacture cytisine on a commercial scale, if approved.
Achieves reliance on Sopharma exposes Achieve to the following additional risks:
| Sopharma might be unable to timely manufacture cytisine or produce the quantity and quality required to meet Achieves clinical and commercial needs, if any; |
| Achieve may be unable to identify manufacturers other than Sopharma on acceptable terms or at all; |
| Sopharma may not be able to execute Achieves manufacturing procedures appropriately; |
| Sopharma may not perform as agreed or may not remain in the contract manufacturing business for the time required to supply its clinical trials or to successfully produce, store and distribute its products; |
| Sopharma is or will be subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with cGMPs and other government regulations and corresponding foreign standards. Achieve does not have control over Sopharmas compliance with these regulations and standards; |
| Achieve may not own, or may have to share, the intellectual property rights to any improvements made by Sopharma in the manufacturing process for cytisine; |
| Achieve does not own the intellectual property rights to cytisine, and Sopharma could license such rights to third parties or begin supplying other third parties with cytisine; and |
| Sopharma could breach or terminate their agreement with Achieve. |
Each of these risks could delay Achieves clinical trials, the approval, if any of cytisine by the FDA or the commercialization of cytisine or result in higher costs or deprive Achieve of potential product revenue.
The manufacture of medical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of medical products often encounter difficulties in production, particularly in scaling up and validating initial production and absence of contamination. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified
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personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if contaminants are discovered in the supply of cytisine or in the Sopharma manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Achieve cannot be assured that any stability or other issues relating to the manufacture of cytisine will not occur in the future. Additionally, Sopharma may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or political instability in the countries in which Sopharma conducts its operations. If Sopharma were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, Achieves ability to provide its product candidates to patients in clinical trials could be delayed or suspended. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require Achieve to commence new clinical trials at additional expense or terminate clinical trials completely. Similar political instability could also harm the commercial production and supply of cytisine in the event that cytisine is ultimately approved for commercial sale.
Achieve relies on third parties to conduct its clinical trials and perform other services. If these third parties do not successfully perform and comply with regulatory requirements, Achieve may not be able to successfully complete clinical development, obtain regulatory approval or commercialize cytisine and its business could be substantially harmed.
Achieve plans to rely upon third-party CROs to conduct, monitor and manage its ongoing clinical programs. Achieve relies on these parties for execution of clinical trials and manages and controls only some aspects of their activities. Achieve remains responsible for ensuring that each of its trials is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and its reliance on the CROs does not relieve Achieve of its regulatory responsibilities. Achieve and its CROs and other vendors are required to comply with all applicable laws, regulations and guidelines, including those required by the FDA and comparable foreign regulatory authorities for all of its product candidates in clinical development. If Achieve or any of its CROs or vendors fail to comply with applicable laws, regulations and guidelines, the results generated in its clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require Achieve to perform additional clinical trials before approving its marketing applications. Achieve cannot be assured that its CROs and other vendors will meet these requirements, or that upon inspection by any regulatory authority, such regulatory authority will determine that efforts, including any of its clinical trials, comply with applicable requirements. Its failure to comply with these laws, regulations and guidelines may require Achieve to repeat clinical trials, which would be costly and delay the regulatory approval process.
If any of Achieves relationships with these third-party CROs terminate, Achieve may not be able to enter into arrangements with alternative CROs in a timely manner or do so on commercially reasonable terms. In addition, Achieves CROs may not prioritize Achieves clinical trials relative to those of other customers and any turnover in personnel or delays in the allocation of CRO employees by the CRO may negatively affect its clinical trials. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, continued development of cytisine may be delayed or terminated and Achieve may not be able to meet its current plans with respect to cytisine. CROs may also involve higher costs than anticipated, which could negatively affect Achieves financial condition and operations.
Achieve may not be able to establish or maintain the third-party relationships that are necessary to develop or potentially commercialize cytisine.
Achieves business plan relies heavily on third party collaborators, partners, licensees, clinical research organizations, clinical investigators, vendors or other third parties to support its research and development efforts and to conduct clinical trials for cytisine. Achieve cannot guarantee that it will be able to successfully negotiate agreements for, or maintain relationships with, these third parties on a commercially reasonable basis, if at all. If Achieve fails to establish or maintain such third-party relationships as anticipated, its business could be adversely effected.
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Achieve may be unable to realize the potential benefits of any collaborations which it may enter into with other companies for the development and commercialization of cytisine.
Achieve may enter into a collaboration with third parties concerning the development and/or commercialization of cytisine; however, there is no guarantee that any such collaboration will be successful. Collaborations may pose a number of risks, including:
| collaborators often have significant discretion in determining the efforts and resources that they will apply to the collaboration, and may not commit sufficient resources to the development, marketing or commercialization of cytisine; |
| collaborators may not perform their obligations as expected; |
| any such collaboration may significantly limit Achieves share of potential future profits from the associated program, and may require it to relinquish potentially valuable rights to cytisine, or other potential products or proprietary technologies or grant licenses on terms that are not favorable to Achieve; |
| collaborators may cease to devote resources to the development or commercialization of cytisine if the collaborators view cytisine as competitive with their own products or product candidates; |
| disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the course of development, might cause delays or termination of the development or commercialization of cytisine, and might result in legal proceedings, which would be time consuming, distracting and expensive; |
| collaborators may be impacted by changes in their strategic focus or available funding, or business combinations involving them, which could cause them to divert resources away from the collaboration; |
| collaborators may infringe the intellectual property rights of third parties, which may expose Achieve to litigation and potential liability; |
| the collaborations may not result in Achieve achieving revenues to justify such transactions; and |
| collaborations may be terminated and, if terminated, may result in a need for Achieve to raise additional capital to pursue further development or commercialization of cytisine. |
As a result, a collaboration may not result in the successful development or commercialization of cytisine.
Achieve enters into various contracts in the normal course of its business in which Achieve indemnifies the other party to the contract. In the event Achieve has to perform under these indemnification provisions, it could have a material adverse effect on its business, financial condition and results of operations.
In the normal course of business, Achieve enters into academic, commercial, service, collaboration, licensing, consulting and other agreements that contain indemnification provisions. With respect to Achieves academic and other research agreements, Achieve typically indemnifies the institution and related parties from losses arising from claims relating to the products, processes or services made, used, sold or performed pursuant to the agreements for which Achieve has secured licenses, and from claims arising from Achieves or its sublicensees exercise of rights under the agreement. With respect to Achieves collaboration agreements, Achieve indemnifies its collaborators from any third-party product liability claims that could result from the production, use or consumption of the product, as well as for alleged infringements of any patent or other intellectual property right by a third party. With respect to consultants, Achieve indemnifies them from claims arising from the good faith performance of their services.
Should Achieves obligation under an indemnification provision exceed applicable insurance coverage or if Achieve were denied insurance coverage, Achieves business, financial condition and results of operations could be adversely affected. Similarly, if Achieve is relying on a collaborator to indemnify Achieve and the
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collaborator is denied insurance coverage or the indemnification obligation exceeds the applicable insurance coverage, and if the collaborator does not have other assets available to indemnify Achieve, its business, financial condition and results of operations could be adversely affected.
Risks Related to Commercialization of Cytisine
Achieve faces substantial competition and its competitors may discover, develop or commercialize products faster or more successfully than Achieve.
The development and commercialization of new products is highly competitive. Achieve faces competition from major pharmaceutical companies, specialty pharmaceutical companies, biotechnology companies, universities and other research institutions worldwide with respect to cytisine and the other product candidates that it may seek to develop or commercialize in the future. Achieve is aware that many companies have therapeutics marketed or in development for smoking cessation, including, Pfizer Inc., GlaxoSmithKline Plc, Merck & Co., Novartis, Invion, Embera Neurotherapeutics, Redwood Scientific Technologies, Inc., 22nd Century Group, Inc., Quit4Good, Chrono Therapeutics, NAL Pharmaceuticals, Selecta Biosciences, Aradigm and others.
Many of Achieves competitors have substantially greater financial, name recognition, manufacturing, marketing, research, technical and other resources than Achieve. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in its competitors. Further, Achieves competitors may develop new products that are safer, more effective or more cost-efficient than cytisine. Large pharmaceutical companies in particular have extensive expertise in pre-clinical and clinical testing and in obtaining regulatory approvals for products. In addition, academic institutions, government agencies, and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products or technologies. These organizations may also establish exclusive collaborative or licensing relationships with Achieves competitors. Failure of cytisine to effectively compete against established treatment options or in the future with new products currently in development would harm Achieves business, financial condition, results of operations and prospects.
The commercial success of cytisine will depend upon the degree of market acceptance by physicians, patients, third-party payors, and others in the medical community. Failure to obtain or maintain adequate reimbursement or insurance coverage for products, if any, could limit Achieves ability to market cytisine and decrease its ability to generate revenue.
Even with the approvals from the FDA and comparable foreign regulatory authorities, the commercial success of cytisine will depend in part on the health care providers, patients, and third-party payors accepting cytisine as medically useful, cost-effective, and safe. Cytisine may not gain market acceptance by physicians, patients and third-party payors. The degree of market acceptance of cytisine will depend on a number of factors, including but not limited to:
| the efficacy, if any, of cytisine as demonstrated in clinical trials and potential advantages over competing treatments, if any; |
| the clinical indications for which approval is granted, if any, including any limitations or warnings contained in cytisines approved labeling; |
| the cost of treatment; |
| the perceived ratio of risk and benefit of these therapies by physicians and the willingness of physicians to recommend the product to patients based on such risks and benefits; |
| the marketing, sales and distribution support for cytisine; |
| the publicity concerning cytisine or competing products and treatments; |
| the pricing and availability of third-party insurance coverage and reimbursement; and |
| negative perceptions or experiences with Achieves competitors products may be ascribed to cytisine. |
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Even if cytisine displays a favorable efficacy and safety profile upon approval, market acceptance of cytisine remains uncertain. Efforts to educate the medical community and third-party payors on the benefits of cytisine, if any, may require significant investment and resources and may never be successful. Additionally, third-party payors, including governmental and private insurers, may also encourage the use of generic products instead of cytisine, which require a prescription. If its products fail to achieve an adequate level of acceptance by physicians, patients, third-party payors, and other health care providers, Achieve will not be able to generate sufficient revenue to become or remain profitable.
The pricing, coverage, and reimbursement of cytisine, if any, must be sufficient to support Achieves commercial efforts and other development programs and the availability and adequacy of coverage and reimbursement by third-party payors, including governmental and private insurers, are essential for most patients to be able to afford treatments. Sales of cytisine, if any, will depend substantially, both domestically and abroad, on the extent to which the costs of cytisine will be paid for or reimbursed by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or government payors and private payors. If coverage and reimbursement are not available, or are available only in limited amounts, Achieve may have to subsidize or provide cytisine for free or Achieve may not be able to successfully commercialize cytisine.
In addition, there is significant uncertainty related to the insurance coverage and reimbursement for newly approved products. In the United States, the principal decisions about coverage and reimbursement for new products are typically made by CMS, an agency within the U.S. Department of Health and Human Services, as CMS decides whether and to what extent a new product will be covered and reimbursed under Medicare. Private payors tend to follow the coverage reimbursement policies established by CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for novel product candidates such as cytisine and what reimbursement codes cytisine may receive if approved.
Outside the United States, selling operations are generally subject to extensive governmental price controls and other price-restrictive regulations, and Achieve believes the increasing emphasis on cost-containment initiatives in Europe, Canada, and other countries has and will continue to put pressure on the pricing and usage of products. In many countries, the prices of products are subject to varying price control mechanisms as part of national health systems. Price controls or other changes in pricing regulation could restrict the amount that Achieve is able to charge for its products, if any. Accordingly, in markets outside the United States, the potential revenue may be insufficient to generate commercially reasonable revenue and profits.
Moreover, increasing efforts by governmental and private payors in the United States and abroad to limit or reduce healthcare costs may result in restrictions on coverage and the level of reimbursement for new products and, as a result, they may not cover or provide adequate payment for its products. Achieve expects to experience pricing pressures in connection with products due to the increasing trend toward managed healthcare, including the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription products has and is expected to continue to increase in the future. As a result, profitability of cytisine, if any, may be more difficult to achieve even if regulatory approval is received.
Sopharma may breach its supply agreement with Achieve and sell cytisine into Achieves territories or permit third parties to export cytisine into Achieves territories and negatively affect Achieves commercialization efforts of its products in its territories.
Achieve is currently dependent on the exclusivity provisions of its supply agreement with Sopharma to conduct its business and to prevent Sopharma from competing, directly and indirectly, with Achieve in the United States and Western Europe. If Sopharma were to breach the exclusivity provisions of the supply agreement with Achieve and sell or distribute cytisine directly into Achieves territories or permit third parties to export cytisine into Achieves territories, among other things, the increase in competition within Achieves anticipated markets could have a material adverse effect on Achieves business, results of operations and financial condition.
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The illegal distribution and sale by third parties of counterfeit versions of cytisine, stolen products, or alternative third party distribution and sale of cytisine could have a negative impact on Achieves financial performance or reputation.
Cytisine is not patentable in the United States as it is a naturally occurring substance. As such, third parties are able to manufacture, sell or distribute cytisine without royalties or other payments to Achieve and compete with Achieves products in the United States and potentially worldwide and negatively impact Achieves commercialization efforts of its products. Other than regulatory exclusivity or other limitations, there may be little to nothing to stop these third parties from manufacturing, selling or distributing cytisine. Because Achieve has no ability to set rigorous safety standards or control processes over third party manufacturers, sellers or distributors of cytisine, excluding Sopharma, these formulations of cytisine may be unsafe or cause adverse effects to patients and negatively impact the reputation of cytisine as a safe and effective smoking cessation aid.
Third parties could illegally distribute and sell counterfeit versions of cytisine, especially on online marketplaces, which do not meet the rigorous manufacturing and testing standards under cGMP. Counterfeit products are frequently unsafe or ineffective, and may even be life-threatening. Counterfeit medicines may contain harmful substances, the wrong dose of the active pharmaceutical ingredient or no active pharmaceutical ingredients at all. However, to distributors and users, counterfeit products may be visually indistinguishable from the authentic version.
Reports of adverse reactions to counterfeit products, increased levels of counterfeiting, or unsafe cytisine products could materially affect patient confidence in Achieves cytisine product. It is possible that adverse events caused by unsafe counterfeit or other non-Achieve cytisine products will mistakenly be attributed to Achieves cytisine product. In addition, thefts of inventory at warehouses, plants or while in-transit, which are not properly stored and which are sold through unauthorized channels could adversely impact patient safety, Achieves reputation, and Achieves business. Public loss of confidence in the integrity in cytisine as a result of counterfeiting, theft, or improper manufacturing processes could have a material adverse effect on Achieves business, results of operations, and financial condition.
It is illegal to sell unapproved prescription medicines in the United States. Sopharmas cytisine brand, Tabex, is currently approved for sale in certain Central and Eastern European countries. Cytisine has not yet received a marketing approval from the FDA or the European Medicines Agency, and Achieve intends to conduct the requisite clinical trials to obtain approval for the marketing of cytisine in the United States and in Europe. Achieve is aware that products purporting to be Tabex are available, via third party internet sites, for importation in the United States and European Union. Achieve has no control over the authenticity of products purchased through these sites, which may be counterfeit or sourced from distributors in Central and Eastern Europe without authorization to sell into the United States or European Union.
Achieve may attempt to form collaborations in the future with respect to cytisine, but it may not be able to do so, which may cause it to alter its development and commercialization plans.
Achieve may attempt to form strategic collaborations, create joint ventures or enter into licensing arrangements with third parties with respect to its programs that it believes will complement or augment its existing business. Achieve may face significant competition in seeking appropriate strategic collaborators, and the negotiation process to secure appropriate terms is time consuming and complex. Achieve may not be successful in its efforts to establish such a strategic collaboration for cytisine on terms that are acceptable to it, or at all. This may be because cytisine may be deemed to be at too early of a stage of development for collaborative effort, its research and development pipeline may be viewed as insufficient, the competitive or intellectual property landscape may be viewed as too intense or risky, or cytisines patent protection insufficient, and/or third parties may not view cytisine as having sufficient potential for commercialization, including the likelihood of an adequate safety and efficacy profile.
Any delays in identifying suitable collaborators and entering into agreements to develop and/or commercialize cytisine could delay the development or commercialization of cytisine, which may reduce its competitiveness
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even if it reaches the market. Absent a strategic collaborator, Achieve would need to undertake development and/or commercialization activities at its own expense. If Achieve elects to fund and undertake development and/or commercialization activities on its own, it may need to obtain additional expertise and additional capital, which may not be available to it on acceptable terms or at all. If Achieve is unable to do so, it may not be able to develop its product candidates or bring them to market and its business may be materially and adversely affected.
Achieve may not be successful in any efforts to identify, license, discover, develop, or commercialize additional product candidates.
Although a substantial amount of Achieves effort will focus on clinical testing, approval, and potential commercialization of cytisine, Achieves sole product candidate, the success of Achieves business is also expected to depend in part upon its ability to identify, license, discover, develop, or commercialize additional product candidates. Research programs to identify new product candidates require substantial technical, financial, and human resources. Achieve may focus its efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful. Achieves research programs or licensing efforts may fail to yield additional product candidates for clinical development and commercialization for a number of reasons, including but not limited to the following:
| Achieves research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates; |
| Achieve may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates; |
| its product candidates may not succeed in pre-clinical or clinical testing; |
| its potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval; |
| competitors may develop alternatives that render Achieves product candidates obsolete or less attractive; |
| product candidates Achieve develops may be covered by third parties patents or other exclusive rights; |
| the market for a product candidate may change during Achieves program so that such a product may become unreasonable to continue to develop; |
| a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and |
| a product candidate may not be accepted as safe and effective by patients, the medical community, or third-party payors. |
If any of these events occur, Achieve may be forced to abandon its development efforts for a program or programs, or Achieve may not be able to identify, license, discover, develop, or commercialize additional product candidates, which would have a material adverse effect on its business, financial condition or results of operations and could potentially cause Achieve to cease operations.
Risks Related to Achieves Intellectual Property
Achieve may not be successful in obtaining or maintaining necessary rights to cytisine, product compounds and processes for its development pipeline through acquisitions and in-licenses.
Presently, Achieve has rights to the intellectual property through trade secrets, licenses from third parties and patent applications that Achieve owns. Achieves product candidates may require specific formulations to work effectively and efficiently and these rights may be held by others. Achieve may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties
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that it identifies. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that Achieve may consider attractive. These established companies may have a competitive advantage over Achieve due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive Achieve to be a competitor may be unwilling to assign or license rights to it. Achieve also may be unable to license or acquire third-party intellectual property rights on terms that would allow it to make an appropriate return on its investment. If Achieve is unable to successfully obtain rights to third-party intellectual property rights, its business, financial condition and prospects for growth could suffer.
If Achieve is unable to maintain effective proprietary rights for its product candidates or any future product candidates, Achieve may not be able to compete effectively in its proposed markets.
Achieve currently relies primarily on trade secret protection and on confidentiality agreements to protect proprietary know-how that is not patentable or that Achieve elects not to patent, processes for which patents are difficult to enforce and any other elements of its product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. Trade secrets can be difficult to protect, however, and even where they are protected they generally provide less intellectual property protection to the holder of the trade secret than to a holder of a patent. Achieve seeks to protect its proprietary technology and processes, in part, by entering into confidentiality agreements with its employees, consultants, scientific advisors, and contractors. Achieve also seeks to preserve the integrity and confidentiality of its data and trade secrets by maintaining physical security of its premises and physical and electronic security of its information technology systems. While Achieve has confidence in these individuals, organizations and systems, agreements or security measures may be breached, and Achieve may not have adequate remedies for any breach. In addition, its trade secrets may otherwise become known or be independently discovered by competitors.
Although Achieve expects all of its employees and consultants to assign their inventions to Achieve, and all of its employees, consultants, advisors, and any third parties who have access to its proprietary know-how, information, or technology to enter into confidentiality agreements, Achieve cannot provide any assurances that all such agreements have been duly executed or that its trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to its trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of Achieves trade secrets could impair its competitive position and may have a material adverse effect on its business, financial condition or results of operations. Additionally, if the steps taken to maintain its trade secrets are deemed inadequate, Achieve may have insufficient recourse against third parties for misappropriating the trade secret.
Third-party claims of intellectual property infringement may prevent or delay Achieves development and commercialization efforts.
Achieve is currently developing cytisine for smoking cessation. Achieves commercial success depends in part on its ability to develop, manufacture, market and sell its product candidates and use its proprietary technology without infringing the patent rights of third parties. Achieve is not aware of any patents or patent applications that would prevent the development, manufacture or marketing of cytisine for smoking cessation.
Achieve is aware of U.S. and foreign patents and pending patent applications owned by third parties that cover certain other therapeutic uses of cytisine. Achieve is currently monitoring these patents and patent applications. Achieve may in the future pursue available proceedings in the U.S. and foreign patent offices to challenge the validity of these patents and patent applications. In addition, or alternatively, Achieve may consider whether to seek to negotiate a license of rights to technology covered by one or more of such patents and patent applications for these certain additional therapeutic uses. If any third party patents or patent applications cover its product candidates or technologies in other therapeutic uses, Achieve may not be free to manufacture or market its
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product candidates for additional therapeutic uses, absent such a license, which may not be available to Achieve on commercially reasonable terms, or at all.
It is also possible that Achieve has failed to identify relevant third-party patents or applications. For example, applications filed before November 29, 2000 and applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Moreover, it is difficult for industry participants, including Achieve, to identify all third-party patent rights that may be relevant to its product candidates and technologies because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Achieve may fail to identify relevant patents or patent applications or may identify pending patent applications of potential interest but incorrectly predict the likelihood that such patent applications may issue with claims of relevance to its technology. In addition, Achieve may be unaware of one or more issued patents that would be infringed by the manufacture, sale or use of a current or future product candidate, or Achieve may incorrectly conclude that a third-party patent is invalid, unenforceable or not infringed by its activities. Additionally, pending patent applications that have been published can, subject to specified limitations, be later amended in a manner that could cover Achieves technologies, its product candidates or the use of its product candidates.
There have been many lawsuits and other proceedings involving patent and other intellectual property rights in the pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, and reexamination proceedings before the USPTO and corresponding foreign patent offices. U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which Achieve is developing product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that its product candidates may be subject to claims of infringement of the patent rights of third parties.
Parties making claims against Achieve may obtain injunctive or other equitable relief, which could effectively block its ability to further develop and commercialize one or more of its product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from its business. In the event of a successful claim of infringement against Achieve, Achieve may have to pay substantial damages, including treble damages and attorneys fees for willful infringement, pay royalties, redesign its infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
Achieve intends to rely on patent rights for certain aspects of its product candidates and certain future product candidates. If Achieve is unable to obtain or maintain an adequate proprietary position from this approach, Achieve may not be able to compete effectively in its markets.
Although Achieve relies or will rely primarily on trade secret protection as part of its intellectual property rights strategies, Achieve also intends to rely on patent rights to protect certain aspects of its technologies and upon the patent rights of third parties from which it licenses certain of its technologies.
Achieve has sought to protect its proprietary position by filing patent applications in the United Kingdom and intends to file patent applications in the United States related to future product candidates. This process is expensive and time consuming, and Achieve may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or at all. It is also possible that Achieve will fail to identify patentable aspects of its research and development output before it is too late to obtain patent protection.
The patent position of pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain unsolved. The patent applications that Achieve owns may fail to result in issued patents with claims that cover its product candidates in the United States or in other foreign countries. There is no assurance that all potentially relevant prior art relating to its patent applications or its patents (once issued) has been found, which can invalidate a patent or prevent a patent from issuing from a
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pending patent application. Even if patents do successfully issue, and even if such patents cover Achieves future product candidates, third parties may challenge their validity, enforceability, or scope, which may result in such patents being narrowed, found unenforceable or invalidated. Furthermore, even if they are unchallenged, Achieves patents and patent applications may not adequately protect its intellectual property, provide exclusivity for its future product candidates, or prevent others from designing around the Achieve claims. Any of these outcomes could impair Achieves ability to prevent competition from third parties, which may have an adverse impact on its business.
Achieve cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful opposition to these patents or any other patents owned by or licensed to Achieve after patent issuance could deprive Achieve of rights necessary for the successful commercialization of any future product candidates that Achieve may develop. Further, if Achieve encounters delays in regulatory approvals, the period of time during which Achieve could market a future product candidate under patent protection could be reduced.
If Achieve cannot obtain and maintain effective protection of exclusivity from its regulatory efforts and intellectual property rights, including patent protection or data exclusivity, for its product candidates, Achieve may not be able to compete effectively and its business and results of operations would be harmed.
Changes in patent law could diminish the value of patents in general, thereby impairing Achieves ability to protect its product candidates.
Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity, and is therefore costly, time-consuming, and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to Achieves ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents once obtained, if any. Depending on decisions by the U.S. Congress, the federal courts and the U.S. Patent and Trademark Office, or the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken Achieves ability to obtain new patents or to enforce its existing patents and patents that Achieve might obtain in the future.
In a recent case, Assoc. for Molecular Pathology v. Myriad Genetics, Inc. , the U.S. Supreme Court held that certain claims to naturally-occurring substances are not patentable. Cytisine is a naturally-occurring product and is not patentable. Achieves intellectual property strategy involves novel formulations of cytisine and there is no guarantee that such patents will be issued or if issued, will be broad enough to prevent competitors from developing competing cytisine products. Although Achieve does not believe that any patents that may issue from Achieves pending patent applications directed at its product candidates, if issued in their currently pending forms, as well as patent rights licensed by Achieve, will be found invalid based on this decision, Achieve cannot predict how future decisions by the courts, the U.S. Congress or the USPTO may impact the value of Achieves patent rights. There could be similar changes in the laws of foreign jurisdictions that may impact the value of Achieves patent rights or its other intellectual property rights.
Achieve may be subject to claims that its employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or that its employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Achieve employs individuals who were previously employed at other biotechnology or pharmaceutical companies. Although Achieve has written agreements and makes every effort to ensure that its employees, consultants, and independent contractors do not use the proprietary information or intellectual property rights of others in their work for Achieve, Achieve may in the future be subject to any claims that its employees,
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consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties. Litigation may be necessary to defend against these claims. If Achieve fails in defending any such claims, in addition to paying monetary damages, Achieve may lose valuable intellectual property rights or personnel, which could adversely impact its business. Even if Achieve is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Risks Related to the Combined Company
In determining whether you should approve the merger, the issuance of shares of OncoGenex common stock and other matters related to the merger, as the case may be, you should carefully read the following risk factors in addition to the risks described above.
The combined companys stock price is expected to be volatile, and the market price of its common stock may drop following the merger.
The market price of the combined companys common stock following the merger could be subject to significant fluctuations following the merger. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of the combined companys common stock to fluctuate include:
| the ability of the combined company or its partners to develop cytisine and other product candidates and conduct clinical trials that demonstrate such product candidates are safe and effective; |
| the ability of the combined company to identify a collaboration partner to fund the further development of apatorsen and the ability of the collaboration partner to obtain regulatory approvals for apatorsen; |
| the ability of the combined company or its partners to obtain regulatory approvals for cytisine or other product candidates, and delays or failures to obtain such approvals; |
| failure of any of the combined companys product candidates to demonstrate safety and efficacy, receive regulatory approval and achieve commercial success; |
| failure to maintain its existing third party license, manufacturing and supply agreements; |
| failure by the combined company or its licensors to prosecute, maintain, or enforce its intellectual property rights; |
| changes in laws or regulations applicable to the combined companys product candidates; |
| any inability to obtain adequate supply of product candidates or the inability to do so at acceptable prices; |
| adverse regulatory authority decisions; |
| introduction of new or competing products by its competitors; |
| failure to meet or exceed financial and development projections the combined company may provide to the public; |
| the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community; |
| announcements of significant acquisitions, strategic partnerships, joint ventures, or capital commitments by the combined company or its competitors; |
| disputes or other developments relating to proprietary rights, including patents, litigation matters, and the combined companys ability to obtain intellectual property protection for its technologies; |
| additions or departures of key personnel; |
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| significant lawsuits, including intellectual property or stockholder litigation; |
| if securities or industry analysts do not publish research or reports about the combined company, or if they issue an adverse or misleading opinions regarding its business and stock; |
| changes in the market valuations of similar companies; |
| general market or macroeconomic conditions; |
| sales of its common stock by the combined company or its stockholders in the future; |
| trading volume of the combined companys common stock; |
| adverse publicity relating to the combined companys markets generally, including with respect to other products and potential products in such markets; |
| changes in the structure of health care payment systems; and |
| period-to-period fluctuations in the combined companys financial results. |
Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of the combined companys common stock.
In the past, following periods of volatility in the market price of a companys securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm the combined companys profitability and reputation.
The combined company will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.
The combined company will incur significant legal, accounting and other expenses that Achieve did not incur as a private company, including costs associated with public company reporting requirements. The combined company will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as new rules implemented by the SEC and The NASDAQ Stock Market LLC. These rules and regulations are expected to increase the combined companys legal and financial compliance costs and to make some activities more time-consuming and costly. These rules and regulations may also make it difficult and expensive for the combined company to obtain directors and officers liability insurance. As a result, it may be more difficult for the combined company to attract and retain qualified individuals to serve on the combined companys board of directors or as executive officers of the combined company, which may adversely affect investor confidence in the combined company and could cause the combined companys business or stock price to suffer.
OncoGenex and Achieve do not anticipate that the combined company will pay any cash dividends in the foreseeable future.
The current expectation is that the combined company will retain its future earnings, if any, to fund the development and growth of the combined companys business. As a result, capital appreciation, if any, of the common stock of the combined company will be your sole source of gain, if any, for the foreseeable future.
Future sales of shares by existing stockholders could cause the combined companys stock price to decline.
If existing stockholders of OncoGenex and Achieve sell, or indicate an intention to sell, substantial amounts of the combined companys common stock in the public market after legal restrictions on resale discussed in this proxy statement/prospectus/information statement lapse, the trading price of the common stock of the combined
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company could decline. Based on shares outstanding as of December 31, 2016 and shares expected to be issued upon completion of the merger, the combined company is expected to have outstanding a total of approximately 120.1 million shares of common stock (prior to giving effect to the proposed reverse stock split) immediately following the completion of the merger. Approximately 49.8 million of such shares of common stock will be freely tradable, without restriction, in the public market. Approximately 70.3 million of such shares will be held by directors, executive officers of the combined company and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.
If the ownership of the combined company common stock is highly concentrated, it may prevent you and other stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause the combined company stock price to decline.
Executive officers and directors of the combined company and their affiliates are expected to beneficially own or control approximately 39.1% of the outstanding shares of the combined company common stock following the completion of the merger. Accordingly, these executive officers, directors and their affiliates, acting as a group, will have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of the combined company assets or any other significant corporate transactions. These stockholders may also delay or prevent a change of control of the combined company, even if such a change of control would benefit the other stockholders of the combined company. The significant concentration of stock ownership may adversely affect the trading price of the combined companys common stock due to investors perception that conflicts of interest may exist or arise.
Because the merger will result in an ownership change under Section 382 of the Code for OncoGenex, pre-merger net operating loss carryforwards and certain other tax attributes will be subject to limitations.
If a corporation undergoes an ownership change within the meaning of Section 382 of the Code, the corporations net operating loss carryforwards and certain other tax attributes arising from before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporations equity ownership by certain stockholders that exceeds fifty percentage points over a rolling three-year period. Similar rules may apply under state tax laws. The merger will result in an ownership change for OncoGenex and, accordingly, OncoGenexs net operating loss carryforwards and certain other tax attributes will be subject to limitations on their use after the merger.
Anti-takeover provisions under Delaware law could make an acquisition of the combined company more difficult and may prevent attempts by the combined company stockholders to replace or remove the combined company management.
Because the combined company will be incorporated in Delaware, it is governed by the provisions of Section 203 of the Delaware General Corporate Law, which prohibits stockholders owning in excess of 15% of the outstanding combined company voting stock from merging or combining with the combined company. Although OncoGenex and Achieve believe these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirors to negotiate with the combined companys board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by the combined companys stockholders to replace or remove then current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing the members of management.
The bylaws of the combined company will provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between the combined company and its stockholders, which could limit its stockholders ability to obtain a favorable judicial forum for disputes with the combined company or its directors, officers or other employees.
The bylaws of the combined company will provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for any derivative action or proceeding brought on the combined companys behalf, any
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action asserting a breach of fiduciary duty owed by any of its directors, officers or other employees to the combined company or its stockholders, any action asserting a claim against it arising pursuant to any provisions of the Delaware General Corporation Law, its certificate of incorporation or its bylaws, or any action asserting a claim against it that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with the combined company or its directors, officers or other employees, which may discourage such lawsuits against the combined company and its directors, officers and other employees. If a court were to find the choice of forum provision contained in the bylaws to be inapplicable or unenforceable in an action, the combined company may incur additional costs associated with resolving such action in other jurisdictions.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus/information statement and the documents incorporated by reference into this proxy statement/prospectus/information statement contain forward-looking statements. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as OncoGenex cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including believes, expects, may, will, should, seeks, intends, plans, pro forma, estimates, or anticipates or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, forward-looking statements include, but are not limited to statements about:
| the expected benefits of and potential value created by the merger for the stockholders of OncoGenex and Achieve; |
| any statements of the plans, strategies and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings; |
| the likelihood of the satisfaction of certain conditions to the completion of the merger and whether and when the merger will be consummated; |
| whether the holders of CVRs will ultimately receive any payment; |
| statements of the plans, strategies and objectives of management with respect to the approval and closing of the merger, and OncoGenexs ability to solicit a sufficient number of proxies to approve matters related to the consummation of the merger; |
| any statements concerning proposed new products, anticipated development activities and planned regulatory communications; |
| any statements regarding future economic conditions or performance; and |
| statements of belief and any statement of assumptions underlying any of the foregoing. |
For a discussion of the factors that may cause OncoGenex, Achieve or the combined companys actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements, or for a discussion of risk associated with the ability of OncoGenex and Achieve to complete the merger and the effect of the merger on the business of OncoGenex, Achieve and the combined company, see the section entitled Risk Factors.
Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports filed with the Securities and Exchange Commission by OncoGenex. See the section entitled Where You Can Find More Information.
If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, the results of OncoGenex, Achieve or the combined company could differ materially from the forward-looking statements. All forward-looking statements in this proxy statement/prospectus/information statement are current only as of the date on which the statements were made. OncoGenex and Achieve do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.
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The special meeting of OncoGenex stockholders will be held on , 2017, at 1191 Second Avenue, Floor 10, Seattle, WA 98101 commencing at local time. OncoGenex is sending this proxy statement/prospectus/information statement to its stockholders in connection with the solicitation of proxies by the OncoGenex board of directors for use at the OncoGenex special meeting and any adjournments or postponements of the special meeting. This proxy statement/prospectus/information statement is first being furnished to stockholders of OncoGenex on or about , 2017.
Purposes of the OncoGenex Special Meeting
The purposes of the OncoGenex special meeting are:
1. To consider and vote upon a proposal to approve the merger and the issuance of OncoGenex common stock in the merger pursuant to the Agreement and Plan of Merger and Reorganization, dated as of January 5, 2017, by and among OncoGenex, Ash Acquisition Sub, Inc., Ash Acquisition Sub 2, Inc. and Achieve, a copy of which is attached as Annex A to this proxy statement/prospectus/information statement, or the Merger Agreement;
2. To approve the amendment to the certificate of incorporation of OncoGenex to effect a reverse stock split of OncoGenex common stock, at a ratio not to exceed 1-for-20, with such specific ratio to be determined by OncoGenexs board of directors, in consultation with Achieves board of directors, following the special meeting, the form of which is attached as Annex B to this proxy statement/prospectus/information statement;
3. To approve the amendment to the certificate of incorporation of OncoGenex to change the name OncoGenex Pharmaceuticals, Inc. to Achieve Life Sciences, Inc., the form of which is attached as Annex C to this proxy statement/prospectus/information statement;
4. To consider and vote upon an adjournment of the OncoGenex special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of OncoGenex Proposal Nos. 1, 2 and 3; and
5. To transact such other business as may properly come before the OncoGenex special meeting or any adjournment or postponement thereof.
Recommendation of the OncoGenex Board of Directors
| The OncoGenex board of directors has determined and believes that the merger and the issuance of shares of OncoGenex common stock pursuant to the first merger is in the best interests of OncoGenex and its stockholders and has approved such items. The OncoGenex board of directors recommends that OncoGenex stockholders vote FOR OncoGenex Proposal No. 1 to approve the merger and the issuance of shares of OncoGenex common stock in the first merger. |
| The OncoGenex board of directors has determined and believes that it is advisable to, and in the best interests of, OncoGenex and its stockholders to approve the amendment to the certificate of incorporation of OncoGenex effecting a reverse stock split at a ratio not to exceed 1-for-20, with such specific ratio to be determined by OncoGenexs board of directors, in consultation with Achieves board of directors, following the special meeting, as described in this proxy statement/prospectus/information statement. The OncoGenex board of directors recommends that OncoGenex stockholders vote FOR OncoGenex Proposal No. 2 to approve the amendment to the certificate of incorporation of OncoGenex effecting a reverse stock split at a ratio not to exceed 1-for-20, as described in this proxy statement/prospectus/information statement. |
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| The OncoGenex board of directors has determined and believes that the amendment to the certificate of incorporation of OncoGenex to change the name of OncoGenex to Achieve Life Sciences, Inc. is advisable to, and in the best interests of, OncoGenex and its stockholders and has approved such name change. The OncoGenex board of directors recommends that OncoGenex stockholders vote FOR OncoGenex Proposal No. 3 to approve the name change, as described in this proxy statement/prospectus/information statement. |
| The OncoGenex board of directors has determined and believes that adjourning the OncoGenex special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of OncoGenex Proposal Nos. 1, 2 and 3 is advisable to, and in the best interests of, OncoGenex and its stockholders and has approved and adopted the proposal. The OncoGenex board of directors recommends that OncoGenex stockholders vote FOR OncoGenex Proposal No. 4 to adjourn the OncoGenex special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of OncoGenex Proposal Nos. 1, 2 and 3. |
Only holders of record of OncoGenex common stock at the close of business on the record date, , 2017, are entitled to notice of, and to vote at, the OncoGenex special meeting. At the close of business on the record date, shares of OncoGenex common stock were issued and outstanding. Each share of OncoGenex common stock entitles the holder thereof to one vote on each matter submitted for stockholder approval. See the section entitled Principal Stockholders of OncoGenex for information regarding persons known to the management of OncoGenex to be the beneficial owners of more than 5% of the outstanding shares of OncoGenex common stock.
Voting and Revocation of Proxies
The proxy accompanying this proxy statement/prospectus/information statement is solicited on behalf of the board of directors of OncoGenex for use at the OncoGenex special meeting.
If you are a stockholder of record of OncoGenex as of the record date referred to above, you may vote in person at the OncoGenex special meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the OncoGenex special meeting, OncoGenex urges you to vote by proxy to ensure your vote is counted. You may still attend the OncoGenex special meeting and vote in person if you have already voted by proxy. As a stockholder of record you are entitled:
| to vote in person, come to the OncoGenex special meeting and OncoGenex will give you a ballot when you arrive. |
| to vote using the proxy card, simply mark, sign and date your proxy card and return it promptly in the postage-paid envelope provided. If you return your signed proxy card to OncoGenex before the OncoGenex special meeting, OncoGenex will vote your shares as you direct. |
| to vote on the Internet, go to the website on the proxy card or voting instruction form to complete an electronic proxy card. You will be asked to provide the company number and control number from the enclosed proxy card. Your vote must be received by , 2017, Pacific Time to be counted. |
If your OncoGenex shares are held by your broker as your nominee, that is, in street name, the enclosed voting instruction card is sent by the institution that holds your shares. Please follow the instructions included on that proxy card regarding how to instruct your broker to vote your OncoGenex shares. If you do not give instructions to your broker, your broker can vote your OncoGenex shares with respect to discretionary items but not with respect to non-discretionary items. Discretionary items are proposals considered routine under the rules of The NASDAQ Capital Market on which your broker may vote shares held in street name in the absence of your voting instructions. On non-discretionary items for which you do not give your broker instructions, the OncoGenex shares will be treated as broker non-votes. It is anticipated that OncoGenex Proposal No. 1 will be a non-discretionary item and OncoGenex Proposal Nos. 2, 3 and 4 will be discretionary items.
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All properly executed proxies that are not revoked will be voted at the OncoGenex special meeting and at any adjournments or postponements of the OncoGenex special meeting in accordance with the instructions contained in the proxy. If a holder of OncoGenex common stock executes and returns a proxy and does not specify otherwise, the shares represented by that proxy will be voted FOR OncoGenex Proposal No. 1 to approve the merger and the issuance of shares of OncoGenex common stock in the merger; FOR OncoGenex Proposal No. 2 to approve the amendment to the certificate of incorporation of OncoGenex effecting a reverse stock split at a ratio not to exceed 1-for-20, with such specific ratio to be determined by OncoGenexs board of directors, in consultation with Achieves board of directors, following the special meeting; FOR OncoGenex Proposal No. 3 to approve the amendment to the certificate of incorporation of OncoGenex to change the name of OncoGenex Pharmaceuticals, Inc. to Achieve Life Sciences, Inc.; and FOR OncoGenex Proposal No. 4 to adjourn the OncoGenex special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of OncoGenex Proposal Nos. 1, 2 and 3 in accordance with the recommendation of the OncoGenex board of directors.
OncoGenex stockholders of record, other than those OncoGenex stockholders who have executed support agreements, may change their vote at any time before their proxy is voted at the OncoGenex special meeting in one of three ways. First, a stockholder of record of OncoGenex can send a written notice to the Secretary of OncoGenex stating that the stockholder would like to revoke its proxy. Second, a stockholder of record of OncoGenex can submit new proxy instructions either on a new proxy card or via the Internet. Third, a stockholder of record of OncoGenex can attend the OncoGenex special meeting and vote in person. Attendance alone will not revoke a proxy. If an OncoGenex stockholder of record or a stockholder who owns OncoGenex shares in street name has instructed a broker to vote its shares of OncoGenex common stock, the stockholder must follow directions received from its broker to change those instructions.
The presence, in person or represented by proxy, at the OncoGenex special meeting of the holders of a majority of the shares of OncoGenex common stock outstanding and entitled to vote at the OncoGenex special meeting is necessary to constitute a quorum at the meeting. Abstentions and broker non-votes will be counted towards a quorum. Approval of OncoGenex Proposal Nos. 1 and 4 requires the affirmative vote of the holders of a majority of the shares of OncoGenex common stock properly cast at the OncoGenex special meeting. Approval of OncoGenex Proposal Nos. 2 and 3 requires the affirmative vote of holders of a majority of the OncoGenex common stock outstanding on the record date for the OncoGenex special meeting. Each of Proposal Nos. 1, 2 and 3 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2 and 3.
Votes will be counted by the inspector of election appointed for the meeting, who will separately count FOR and AGAINST votes, abstentions and broker non-votes. Abstentions and broker non-votes will not be counted towards the vote total for each proposal and, accordingly, will have no effect on the outcome of OncoGenex Proposal Nos. 1 and 4 and will have the same effect as a vote AGAINST OncoGenex Proposal Nos. 2 and 3. OncoGenex Proposal Nos. 2, 3 and 4 are matters on which a broker or other nominee are generally empowered to vote, and therefore, limited or no broker non-votes are expected with respect to those proposals.
As of December 31, 2016, the directors and executive officers of OncoGenex owned 1.0% of the outstanding shares of OncoGenex common stock entitled to vote at the OncoGenex special meeting. The directors and executive officers of OncoGenex owning these shares are subject to support agreements. Each stockholder that entered into a support agreement has agreed to vote all shares of OncoGenex common stock owned by him or her as of the record date in favor of the approval of the Merger Agreement, the issuance of OncoGenex common stock in the first merger pursuant to the Merger Agreement, approval of the reverse stock split, the approval of any proposal to adjourn or postpone any meeting to a later date, if there are not sufficient votes for the approval of any of the foregoing on the date on which such meeting is held, and any other proposal included in this proxy statement/prospectus/information statement in connection with or related to the consummation of the merger that
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the OncoGenex board of directors has recommended that the OncoGenex stockholders vote in favor of, and against any other acquisition proposal. As of December 31, 2016, OncoGenex is not aware of any affiliate of Achieve owning any shares of OncoGenex common stock entitled to vote at the OncoGenex special meeting.
In addition to solicitation by mail, the directors, officers, employees and agents of OncoGenex may solicit proxies from OncoGenex stockholders by personal interview, telephone, telegram, email or otherwise. OncoGenex will pay the costs of printing and filing this proxy statement/prospectus/information statement and proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of OncoGenex common stock for the forwarding of solicitation materials to the beneficial owners of OncoGenex common stock. OncoGenex will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. OncoGnex has engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice and informational support, for a service fee, plus customary disbursements, which are not expected to exceed $25,000 in total.
As of the date of this proxy statement/prospectus/information statement, the OncoGenex board of directors does not know of any business to be presented at the OncoGenex special meeting other than as set forth in the notice accompanying this proxy statement/prospectus/information statement. If any other matters should properly come before the OncoGenex special meeting, it is intended that the shares represented by proxies will be voted with respect to such matters in accordance with the judgment of the persons voting the proxies.
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This section entitled The Merger Agreement describes the material aspects of the merger, including the Merger Agreement. While OncoGenex and Achieve believe that this description covers the material terms of the merger and the Merger Agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement/prospectus/information statement for a more complete understanding of the merger and the Merger Agreement, including the Merger Agreement, and the other documents to which you are referred herein. See the section entitled Where You Can Find More Information.
OncoGenex Background of the Merger
The OncoGenex board of directors and executive management team regularly review OncoGenexs strategic outlook and operating plans, both near-term and long-term, including various strategic alternatives in an effort to enhance stockholder value. These reviews and discussions have, at various times, focused on the opportunities and risks associated with OncoGenexs business and financial condition; ongoing development activities associated with OncoGenexs product candidates custirsen and apatorsen, including regular review of projected timelines and costs to conclude development activities; assessment of strategic alternatives, including scenarios where one or more of OncoGenexs ongoing clinical trials, including the phase 3 trials (Synergy, Affinity and Enspirit) for custirsen and the phase 2 trial (Borealis-2) for apatorsen, are negative or OncoGenexs partnership with Teva Pharmaceutical Industries Ltd., or Teva, for the development of custirsen is terminated; and evaluation of existing strategic relationships, potential partnering opportunities and other strategic alternatives and options. In connection with such ongoing strategic review, OncoGenex engaged MTS Health Partners, L.P., or MTS Health Partners, on February 12, 2015, to advise on strategic alternatives, including potential acquisitions by OncoGenex, acquisitions of OncoGenex and other strategic transactions, in order to maximize stockholder value.
On December 1, 2015, OncoGenex issued a press release announcing that the Affinity trial did not meet the first co-primary endpoint of extending survival in poor prognostic patients. Subsequent to such announcement, OncoGenex began receiving inbound inquiries regarding potential strategic transactions, including reverse mergers pursuant to which a wholly owned subsidiary of OncoGenex would merge with and into a third party, with the third party surviving as a wholly owned subsidiary of OncoGenex.
On December 4, 2015, the OncoGenex board of directors held a meeting with members of OncoGenex executive management (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, a long-time consultant to OncoGenex who assists OncoGenex with business development matters, and representatives of Fenwick & West LLP, or Fenwick, outside legal counsel to OncoGenex. At such meeting, the board of directors together with executive management discussed the various strategic alternatives available to OncoGenex in light of the previous failure of OncoGenexs Synergy trial to demonstrate a survival benefit of custirsen in combination with first-line docetaxel treatment for patients with metastatic castrate resistant prostate cancer, mCRPC, the termination of the collaboration arrangement with Teva for custirsen, under which Teva had agreed to fund clinical trials for custirsen, the recent failure of the Affinity trial to meet the first co-primary endpoint of extending survival in poor prognostic patients with second-line cabazitaxel treatment for mCRPC, the current status of OncoGenexs ongoing Affinity (second co-primary endpoint) and Enspirit trials for custirsen and Borealis-2 clinical trial for apatorsen, including the need to balance the costs of such ongoing clinical trials with the opportunity for potential value creation if such trials were successful, and the lack of viable alternatives to acquire or license additional product candidates. As a result of such discussions, the board of directors authorized executive management to begin preparing to explore potential strategic transactions, including a potential acquisition of OncoGenex if such clinical trials were not successful.
On January 26, 2016, the OncoGenex board of directors held a meeting where the board of directors and executive management continued to evaluate potential strategic opportunities available to OncoGenex, including continuing the development of custirsen and/or apatorsen, pursing a strategic transaction and liquidation of the company.
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On February 14, 2016, Ms. Stewart Parker, a member of the board of directors of OncoGenex, received an email from Mr. Richard Stewart of Achieve indicating that Achieves board of directors was seeking a reverse merger vehicle to advance their smoking cessation product candidate, cytisine. In response to Mr. Stewarts email, Ms. Parker suggested that Mr. Stewart contact Mr. Cormack, the Chief Executive Officer of OncoGenex, to further discuss a potential strategic transaction. On February 16, 2016, Mr. Cormack and Mr. Stewart discussed the circumstances of the two companies, and Mr. Stewart provided an overview of Achieves business. Mr. Cormack also noted that while OncoGenexs product candidates continued to be developed, OncoGenex was interested in exploring potential strategic transactions that could increase stockholder value and that the two companies should enter into a mutual confidentiality agreement to allow further discussions to proceed. On February 19, 2016, a mutual confidentiality agreement between OncoGenex and Ricanto Limited, a related party of Achieve, was executed.
On February 22, 2016, Mr. Cormack received an inbound call from a specialized investor relations company in the life sciences space, indicating that they had private company clients that may be interested in a potential strategic transaction with OncoGenex. Following discussions with Mr. Cormack about the strategic objectives of these private companies, two principal candidates for a potential strategic transaction were identified by the specialized finance company, one of which was Company A.
On March 3, 2016, members of Company As management held a telephonic meeting with members of OncoGenexs executive management to provide a non-confidential overview of Company As business and product candidates and to discuss a potential strategic transaction involving OncoGenex and Company A. As of such date, Company A was a biotechnology company conducting an early-stage clinical trial with its lead asset and preclinical studies in other development programs.
On March 10, 2016, Company A indicated that they would not continue to engage in strategic transaction discussions given that OncoGenexs phase 3 clinical trials still had near-term data events and the potential impact positive results in those clinical trials could have on strategic discussions with Company A.
On April 1, 2016, Mr. Cormack received an inbound call from an investment banking firm that had a client, or Company B, that was interested in exploring a potential strategic transaction with OncoGenex and querying OncoGenexs interest in exploring such an opportunity. Following the call, a non-confidential management presentation from Company B was provided to Mr. Cormack for review. On May 17, 2016, a mutual confidentiality agreement between OncoGenex and Company B was executed
On April 1, 2016, Mr. Cormack, Ms. Griffin and Mr. Stewart of Achieve, held an initial diligence call during which a discussion regarding OncoGenex business operations and the amount of cash OncoGenex expected to have at the time the Enspirit data and Affinity data was expected to be available. Mr. Cormack and Mr. Stewart discussed that it would be appropriate to continue to conduct bilateral diligence while OncoGenex awaited data from its ongoing phase 3 clinical trials.
During the period from April 1, 2016 and August 16, 2016, representatives of OncoGenex and Achieve conducted internal diligence and reviewed scientific publications regarding each companys product candidates but did not advance additional discussions.
On April 28, 2016, an independent recruiter contacted Ms. Griffin to discuss a potential board opportunity at a newly formed private company, or Company C.
On May 5, 2016, and in furtherance of OncoGenexs ongoing review of strategic alternatives, Mr. Cormack established an internal diligence team consisting of the executive management of OncoGenex, which included, finance, marketing, intellectual property, clinical, regulatory and manufacturing personnel, and a weekly meeting process to efficiently evaluate potential strategic opportunities.
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On May 12, 2016, Ms. Griffin spoke with the lead investor of Company C and, during the discussion, the lead investor and Ms. Griffin determined that many of Company Cs needs could be met with expertise within OncoGenex. Company Cs lead investor agreed that a combination of OncoGenex and Company C could be of value and the parties entered into a mutual confidentiality agreement on May 17, 2016.
From May 17, 2016 through June 20, 2016, each of Company C and OncoGenex conducted initial due diligence review with respect to the other.
On May 26, 2016, the OncoGenex board of directors held a meeting with members of OncoGenex executive management (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, and representatives of Fenwick. During the meeting, executive management updated the board of directors on the current status of each of the Affinity, Enspirit and Borealis-2 clinical trials, and the board of directors and executive management explored the strategic alternatives available to OncoGenex and the potential consequences of various events, including both positive and negative results for each of the Affinity and Enspirit clinical trials for custirsen and the Borealis-2 clinical trial for apatorsen, including potentially entering into partnering arrangements for the development of apatorsen if Borealis-2 returned positive data.
On May 31, 2016, OncoGenex and Company B held a teleconference where each party presented an overview of its company.
On June 20, 2016, the OncoGenex executive management team (Mr. Cormack, Dr. Jacobs, Dr. Stewart, Mr. Bencich), together with Ms. Griffin, presented OncoGenexs business overview to Company C and Company C reciprocated. During the period from June 20, 2016 until July 14, 2016, OncoGenex executive management conducted substantive diligence related to the business of Company C, including an assessment of the current treatment paradigms available to patients intended to be addressed by Company Cs product candidates, the number of estimated patients that could be treated, evaluation of Company Cs intellectual property portfolio and assessment of their licenses from university institutions, assessment of the feasibility of manufacturing to supply product for clinical materials and for commercial supply. Also during this period, the respective management teams and financial advisors discussed the business terms for a potential business combination.
On June 30, 2016, the OncoGenex board of directors held a meeting with members of OncoGenex executive management (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, and representatives of Fenwick. During the meeting, Mr. Cormack provided an update on the status of discussions with Company B and Company C. Mr. Cormack informed the board of directors that Company B was conducting its own process, and that such process could extend for a number of additional months, and that OncoGenex had not had further contact with Company B since May 31, 2016. With respect to Company C, Mr. Cormack informed the board of directors that the due diligence process was continuing, with concurrent negotiations of terms of a potential business combination.
On July 14, 2016, at a meeting of the OncoGenex board of directors, members of OncoGenex executive management (Mr. Cormack, Mr. Bencich and Dr. Jacobs), together with Ms. Griffin, provided an update to the OncoGenex board of directors regarding the status of diligence and negotiations with Company C, including the status of ongoing negotiations with Company C regarding an adjustment to OncoGenexs valuation in any strategic transaction upon positive results from one or more of OncoGenexs ongoing clinical trials. Additionally, Mr. Cormack informed the board of directors that Company C had stated that it would require a termination fee of no less than $10 million if OncoGenex terminated any proposed strategic transaction with Company C after the receipt of positive clinical data. In deliberating over the terms negotiated to date, the OncoGenex board of directors considered that if the clinical data from either or both of custirsen and/or apatorsen was negative, the stock price would be negatively affected and achieving a valuation similar to the potential transaction with Company C could be difficult to obtain in the future. The board of directors also discussed that in waiting on the clinical data, OncoGenex would be utilizing additional cash in its operations making the company potentially less appealing as a potential reverse merger candidate. Also presented during the meeting was an update on the status
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of the ongoing strategic transaction process with other third parties that had reached out to OncoGenex. Such process included 11 companies with whom OncoGenex was in discussions, including Company B, with whom OncoGenex had begun a mutual due diligence process, and Company C, with whom OncoGenex had begun preliminary negotiations. Additionally, executive management updated the board of directors on its ongoing efforts to find a partnering arrangement for apatorsen and noted that the majority of third parties with which it had discussed a potential partnering transaction had deferred a decision pending the release of data from the Borealis-2 clinical trial.
On July 21, 2016, Company C and OncoGenex management teams met in person in an effort to agree to terms for a reverse merger of OncoGenex. Given the potential impact on OncoGenexs valuation that could be caused by positive clinical data for one or more of OncoGenexs ongoing clinical trials, the parties were unable to find a mutually agreeable valuation model and discussions ceased.
On August 15, 2016, OncoGenexs executive management (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, received the unblinded second co-primary endpoint results from the Affinity trial. The Affinity trial did not meet the final co-primary endpoint of demonstrating a statistically significant improvement in overall survival for patients treated with custirsen in combination with cabazitaxel/prednisone compared to cabazitaxel/prednisone alone.
Also on August 15, 2016, the OncoGenex board of directors met with the OncoGenex executive management team (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, to review the Affinity clinical trial results. Upon learning that the Affinity trial did not meet the primary endpoint, the board of directors authorized OncoGenex executive management to proceed with plans to conduct an early analysis of the Enspirit trial and, prior to such early analysis, to hold a type A meeting with the FDA to ensure that the study results could be used to support a New Drug Application in the event that the trial is positive. The OncoGenex board of directors then discussed the remaining clinical trials for which data was expected, the timing of these data events and the general timeline expected to complete a potential strategic transaction. It was determined that waiting until all data events were completed would position the company with limited cash, which could negatively impact the valuation of OncoGenex in any potential strategic transaction. The board of directors then engaged in a detailed discussion of the relative merits and risks of preceding with a clinical development plan for apatorsen in bladder cancer, including the potential financial impact, the likelihood of the treatment landscape continuing to evolve with the addition of new immune-oncology products, potential financing and capital needs of OncoGenex to fund the development plan, the development status of competitive products, the status of the companys manufacturing capabilities and related operational matters. Following such discussions, the OncoGenex board of directors determined to prioritize the exploration and evaluation of a potential strategic transaction and directed OncoGenex executive management to formally initiate a process to evaluate and pursue strategic alternatives, to determine the landscape for a potential strategic partner and what transaction terms may be available to OncoGenex. The board of directors also instructed executive management to formally announce such strategic process in the press release announcing the results of the Affinity clinical trial in order to garner the most attention from prospective parties interested in a strategic transaction.
On August 16, 2016, OncoGenex announced the results from the Phase 3 Affinity trial of custirsen and announced that it had engaged MTS Health Partners as its financial advisor to assist with the exploration of strategic alternatives. On August 16, 2016, the share price of OncoGenexs common stock closed at $0.53 per share, as compared to $0.90 per share at the close of market on the trading day preceding the public announcement.
As described in further detail below, between August 2016 and January 2017, OncoGenex and MTS Health Partners conducted a formal process of identifying and evaluating potential strategic transactions. The initial list of potential parties to a possible strategic transaction was created by MTS Health Partners, in consultation with OncoGenex executive management, and was based upon MTS Health Partners experience in financial advisory services, MTS Health Partners knowledge of the life sciences marketplace, relationships that MTS Health
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Partners had developed with companies through prior engagements, existing relationships between OncoGenex executive management and other companies and certain identified companies known to have an interest in similar transactions, including companies that had previously reached out to OncoGenex regarding similar strategic transactions. Additional companies were evaluated based on inbound calls from third parties after OncoGenexs announcement of the Affinity clinical trial results and the commencement of a strategic process on August 16, 2016. More than 70 companies were contacted during this strategic outreach process. A subset of these companies expressed interest and 13 submitted non-binding proposals that were further evaluated. During the course of this process, substantially all of the parties with whom MTS Health Partners and OncoGenex had discussions were interested in pursuing only a reverse merger transaction and no viable strategic partners expressed an interest in acquiring custirsen, apatorsen or any of OncoGenexs other assets. As a result, MTS Health Partners, the OncoGenex board of directors and executive management primarily focused on a reverse merger transaction to maximize stockholder value.
In evaluating potential counterparties, OncoGenex utilized a broad set of criteria, which focused on a range of attributes and characteristics of such parties, including the terms proposed by such parties for a potential strategic transaction. This set of criteria included, but was not limited to: (i) the proposed valuation of the strategic counterparty and OncoGenex in the proposed transaction, (ii) the anticipated relative ownership of the combined entity immediately following the consummation of any proposed transaction by OncoGenexs pre-combination stockholders, (iii) the depth of product pipeline and stage of development of the counterparty, (iv) the risks relating to clinical success of product candidates and operational risks, (v) the market opportunity for products, (vi) the anticipated scope and timing of development and commercialization milestones, (vii) the management teams experience, (viii) the support of high quality investors, (ix) the sufficiency of financial resources to achieve potentially meaningful milestones, either through resources to be obtained through financing activities consummated prior to the effectiveness of a combination with OncoGenex or through the resources that would result from a combination with OncoGenex, (x) the valuation estimate and prospects for the company and (xi) the ability to expeditiously consummate a transaction with OncoGenex and risks related thereto. OncoGenex also requested information from each potential strategic partner as to its interest in continuing the development of apatorsen, or providing OncoGenex stockholders with a contingent value right for consideration received for partnering or selling apatorsen.
Also on August 16, 2016, Mr. Stewart of Achieve provided a letter of intent outlining a proposed merger between Achieve and OncoGenex, including a proposed exchange ratio and management structure, together with a draft term sheet for a concurrent investment in the combined company.
On August 17, 2016, Mr. Cormack acknowledged receipt of the proposal and advised Mr. Stewart that per the press release issued on August 16, 2016, OncoGenex was running a formal process to evaluate its strategic alternatives and that it had engaged MTS Health Partners to facilitate that process. Mr. Cormack copied a representative of MTS Health Partners and suggested that Mr. Stewart and the MTS Health Partners representative connect directly to ensure that Achieve is appropriately considered in the process being undertaken by OncoGenex.
On August 19, 2016, the OncoGenex board of directors held a meeting with members of OncoGenex executive management (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, and representatives of Fenwick. During the meeting, at the request of the board of directors, the executive management team reviewed the timing and costs associated with developing apatorsen for use in non-muscle invasive bladder cancer, which would exceed $40 million. Given the stock price of OncoGenex at that time, it was determined that raising additional capital for the development program was not feasible. The board of directors and executive management then reviewed the merger process, guided by input from representatives of MTS Health Partners and Fenwick, to better understand timing and process. The board of directors confirmed to executive management that it should continue to take appropriate steps to accelerate Enspirit results. The board of directors and executive management then focused discussions on scenarios if Enspirit were also negative. Following discussion, it was determined that if Enspirit is negative, then the executive management would
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(i) immediately terminate those positions that are not required for the wind down process of current trials and operations, or for a strategic transaction, (ii) identify and retain key employees required for operating a public company during such potential strategic transaction process, and (iii) provide work plan deliverables and termination dates for remaining staff and consultants.
Also on August 19, 2016, OncoGenex and Achieve executed a new mutual confidentiality agreement, which included a stand-still provision that was not included in the mutual confidentiality agreement executed on February 19, 2016 between OncoGenex and Ricanto Limited, a related party of Achieve.
On August 23, 2016, OncoGenex executive management (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, met with the management of Company B and a representative of its financial advisor. During the meeting, Company B presented their scientific platform, key deliverables timeline, intellectual property overview and an overview of their three-year budget and capital requirements.
On September 6, 2016, OncoGenex and Company C executed a mutual confidentiality agreement.
On September 9, 2016, Mr. Cormack contacted a representative of Company As financial advisor to explore Company As potential interest in continuing previous discussions regarding a strategic transaction. Company As financial advisor representative contacted the Company A chief executive officer in the days following the call with Mr. Cormack and, on September 12, 2016, Company A and OncoGenex executed a mutual confidentiality agreement.
Also on September 9, 2016, the OncoGenex board of directors held a meeting with members of OncoGenex executive management (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, and representatives of Fenwick. Mr. Cormack provided an overview of the status of the strategic transaction process indicating that 112 companies had been reviewed to date with 17 mutual confidentiality agreements signed and 10 management presentations completed. Additionally, four new mutual confidentiality agreements were being negotiated. Mr. Cormack then advised the board of directors that OncoGenex intended to invite select companies, to be determined using the previously discussed criteria for evaluating potential counterparties, to submit non-binding proposals by September 27, 2016.
On September 13, 2016, the Chief Executive Officer and Chief Scientific Officer of Achieve presented their corporate overview to OncoGenex executive management (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, with representatives of MTS Health Partners present.
On September 15, 2016, the Chief Executive Officer and Chief Financial Officer of Company C presented their corporate overview to the OncoGenex executive management (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, with representatives of MTS Health Partners present.
On September 16, 2016, the OncoGenex board of directors held a meeting with members of OncoGenex executive management (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, and representatives of Fenwick. Mr. Cormack provided an overview of the status of the strategic transaction process indicating that 114 companies had been reviewed to date with 22 mutual confidentiality agreements signed and 18 management presentations completed. Additionally, five new mutual confidentiality agreements were being negotiated. Based on initial diligence and discussions, and the previously discussed criteria to evaluate potential counterparties, Mr. Cormack indicated that that MTS Health Partners anticipated inviting 12 of those companies to submit non-binding proposals.
On September 22, 2016, the Chief Executive Officer of Company A presented their corporate overview to OncoGenex executive management (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, with representatives of MTS Health Partners present.
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On September 23, 2016, the OncoGenex board of directors held a meeting with members of OncoGenex executive management (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, and representatives of Fenwick. Mr. Cormack provided an overview of the status of the strategic transaction process, indicating that 115 companies had been reviewed to date with 27 mutual confidentiality agreements signed and 19 management presentations completed. Of the 19 companies that had presented management presentations, MTS Health Partners invited 16 companies to submit non-binding proposals by September 27, 2016. The invitations to submit non-binding proposals requested that each party address certain matters in their non-binding proposal, including, among others, the anticipated ownership of the combined entity expected to be held by OncoGenexs pre-combination stockholders, the post-closing funding needs of the combined entity, any concurrent financing plans, the anticipated total number of board seats of the combined entity and the number of such seats that are expected to be filled by such party and by OncoGenex and any assumptions regarding OncoGenexs net cash at closing.
On September 27, 2016, MTS Health Partners forwarded 13 proposals to the board of directors and executive management for review and consideration.
On September 28, 2016, the OncoGenex board of directors held a meeting with members of OncoGenex executive management (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, and representatives of Fenwick and MTS Health Partners. During such meeting, the board of directors and executive management of OncoGenex selected nine companies that would be invited to present their proposals for a potential strategic transaction directly to the board of directors and executive management.
On October 5, 2016 and October 6, 2016, the OncoGenex board of directors held a meeting in Seattle, Washington together with members of OncoGenexs executive management (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), Ms. Griffin, and representatives of Fenwick and MTS Health Partners. During these two days, all nine invited companies presented to the board of directors and management with Achieve and Company B and two other companies presenting on October 5, 2016 and Company A and four others, one of which was Company D, presenting on October 6, 2016. At the conclusion of this process, based on OncoGenexs criteria for evaluating potential counterparties, the board of directors narrowed the number of ongoing participants in OncoGenexs strategic process to three companies, Achieve, Company A and Company D, and instituted a standing weekly update call with executive management to help ensure they were kept appraised of ongoing developments regarding potential strategic transactions. Such weekly update calls began on October 21, 2016 and continued for the balance of 2016.
On October 10, 2016, Mr. Cormack separately contacted the Chief Executive Officers of Achieve and Company A and advised them that they had been selected to continue on in the strategic process and that OncoGenex wished to undertake full diligence and begin negotiations of transaction documents and terms.
On October 11, 2016, Mr. Cormack contacted the Chief Executive Officer of Company D and advised him that they had been selected to continue on in the process and that OncoGenex wished to undertake full diligence and begin negotiations of transaction documents and terms.
On October 12, 2016, the OncoGenex executive management team (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, received the unblinded clinical trial results from the Enspirit trial. The Enspirit trial did not meet the primary endpoint of extending survival in patients with non-small cell lung cancer. Also on October 12, 2016, the OncoGenex board of directors met with the OncoGenex executive management team (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, to review the Enspirit clinical trial results.
Also on October 12, 2016, Achieve granted access to its electronic data room to Mr. Cormack, Ms. Griffin, Ms. Welch, Mr. Bencich, Dr. Stewart and representatives of Fenwick and MTS Health Partners.
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On October 13, 2016, OncoGenex announced the results from the Enspirit trial. The share price of OncoGenexs common stock closed at $0.40 per share, as compared to $0.45 per share at the close of market on the trading day preceding the public announcement.
On each of October 17, 19, 24, 25, 26 and 27, 2016 detailed due diligence calls were held with Company A and its representatives, including third party key opinion leaders, assessing clinical programs and related regulatory opportunities and risks, manufacturing, human resource and financial operations, intellectual property and related risks, and commercial opportunities.
On each of October 18, 19, 24 and 26, 2016 detailed due diligence calls were held with Achieve and its representatives, including third party key opinion leaders, assessing clinical programs and related regulatory opportunities and risks, manufacturing, human resource and financial operations, intellectual property and related risks, and commercial opportunities.
On each of October 20, 21, 26, 27 and 28, 2016 detailed due diligence calls were held with Company D and its representatives, including third party key opinion leaders, assessing clinical programs and related regulatory opportunities and risks, manufacturing, human resource and financial operations, intellectual property and related risks, and commercial opportunities.
On October 20, 2016, OncoGenex executive management provided draft acquisition agreements to each of Achieve, Company A and Company D for review and discussion.
On October 22, 2016, the OncoGenex board of directors held a meeting at which executive management updated the board of directors on the status of the Borealis-2 clinical trial and the status of ongoing due diligence efforts with each of Achieve, Company A and Company D.
On October 24, 2016, the OncoGenex executive management team (Mr. Cormack, Mr. Bencich, Dr. Jacobs, Dr. Stewart and Ms. Welch), together with Ms. Griffin, received the unblinded clinical trial results from the Borealis-2 trial. The Borealis-2 trial met the survival primary endpoint of demonstrating a statistically significant improvement in survival as defined in the protocol. Also on October 24, 2016, Mr. Cormack sent the OncoGenex board of directors an e-mail informing them of the results of the Borealis-2 clinical trial.
On October 25, 2016, OncoGenex announced the results from the Borealis-2 trial and committed to a restructuring of a portion of the Companys workforce in order to preserve the Companys resources as it determined future strategic plans. The share price of OncoGenexs stock closed at $0.55 per share on October 26, 2016, as compared to $0.37 per share at the close of market on the trading day preceding the public announcement. OncoGenex executive management began scheduling meetings with multiple companies to review the apatorsen data set and discuss potential partnership opportunities.
On October 26, 2016, OncoGenex received preliminary comments on its form acquisition agreement from Achieve, which noted that the agreement had not yet been reviewed by its outside legal counsel.
Following detailed diligence, OncoGenex executive management determined that the risks associated with Company Ds clinical and regulatory strategy outweighed the potential benefit of time and size of the commercial opportunity for Company Ds product candidates and made the recommendation to the board of directors on October 28, 2016 that Company D be withdrawn from the process due to the assessment that their pipeline held a higher level of risk than the other companies in the process.
On October 28, 2016, the OncoGenex board of directors held a meeting at which executive management provided the board of directors a detailed review of the Borealis-2 data and updated the board of directors on the ongoing efforts to enter into a potential strategic transaction with each of Achieve, Company A and Company D, including ongoing due diligence and planned site visits with each of Achieve, Company A and Company D.
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Executive management provided the board of directors with an overview of the proposed terms offered by each of Achieve, Company A and Company D, including the fact that Achieve was willing to include contingent value rights for apatorsen, Company A was resistant to, but willing to discuss, contingent value rights and Company D was not willing to include contingent value rights. Executive management also provided an overview of the existing assets and liabilities of Achieve, Company A and Company D, as well as the complexity of each of the proposed deal structures. Company D proposed the most complex deal structure, whereas the deal structures proposed by Achieve and Company A were less complex. Based upon further discussions with executive management regarding due diligence, its evaluation of the product candidates and relative strength of the intellectual property assets of each of Achieve, Company A and Company D, the projected timeline of clinical trials for Achieves, Company As and Company Ds product candidates, the proposed terms offered by each of Achieve, Company A and Company D, executive managements recommendation regarding the risks associated with Company Ds product candidate and the advice of OncoGenexs outside legal and financial advisors, the board of directors authorized executive management to continue pursuing a strategic transaction with each of Company A and Achieve and to inform Company D that OncoGenex was ceasing activity on a potential strategic transaction with Company D.
On October 31, 2016 and November 1, 2016, in connection with OncoGenexs ongoing due diligence of Achieve, Tom Hayes, Ph.D. (OncoGenexs Senior Director, CMC Operations) and an outside quality expert conducted site visits at the API and DP operations of Sopharma, the sole supplier of cytisine to Achieve, as well as visiting the orchards from which cytisine was sourced.
On November 1, 2016, Mr. Cormack, Mr. Bencich and Ms. Griffin met with Company A management to discuss the proposed timeline associated with a potential strategic transaction. The parties also had dinner that evening with certain members of the Company A board of directors. On November 2, 2016, Mr. Cormack, Mr. Bencich and Ms. Griffin had dinner with Company A management and discussed human resources and clinical and regulatory operations. On November 3 and 4, 2016, Mr. Cormack, Mr. Bencich, Ms. Griffin and Dr. Hayes, along with an outside quality expert, conducted site visits at Company As manufacturing and process development facilities.
Additionally, on November 3, 2016, Mr. Cormack, Mr. Bencich and Ms. Griffin met with the management team and financial advisors from Company A after completing the site visit for that day. The Company A financial advisor presented a revised proposal that provided that Company As cash balance at closing would be approximately $13 million less than in the original proposal received from Company A on October 27, 2016 as Company A was no longer confident it would be able to close a financing concurrently with the closing of its proposed strategic transaction with OncoGenex. Although they anticipated a lower cash balance, Company A maintained the ownership split of the post-closing combined Company between pre-closing OncoGenex stockholders and pre-closing Company A stockholders as originally proposed. Furthermore, the Company A financial advisor also proposed that OncoGenexs valuation be equal to twice its cash balance at closing, which, based upon then current projections of OncoGenexs cash position at closing would effectively reduce OncoGenexs valuation by approximately $10 million. Lastly, the Company A financial advisor suggested that Company A may not provide a contingent value right for apatorsen in connection with the proposed transaction.
On November 10, 2016 a representative of OncoGenex and Achieve held a call and discussed the likelihood of completing a transaction and the costs to pursue such a transaction. During such discussion, Achieves Chief Executive Officer noted that he was unwilling to engage outside legal counsel unless the parties entered into an exclusively agreement. OncoGenex explained that it would be unable to enter into a period of exclusivity at that time. The parties agreed to consider other alternatives that could address both parties issues and concerns.
Also on November 10, 2016, OncoGenex received a proposed form of agreement from Company As counsel to review. During November 2016, multiple calls were held between representatives of the parties regarding diligence, financial forecasts, the terms of the agreement, timing and other open issues.
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On November 11, 2016, Mr. Cormack updated the board of directors with regards to the strategic transaction process. During the call, Mr. Cormack advised that Company D had been notified that they had been withdrawn from the process. Mr. Cormack also relayed the results from the Company A site visit and that the Company A financial advisor representative had presented revised terms on November 3, 2016, including (i) that Company A was no longer confident that it would have its proposed financing in place in time for the closing of the potential strategic transaction with OncoGenex, which would result in Company A having approximately $13 million less at closing, (ii) a reduction in OncoGenexs relative value in the proposed strategic transaction by approximately $10 million and (iii) that there would be no contingent value rights for apatorsen. Mr. Cormack then advised that based upon further discussions with Company A after the November 3, 2016 meeting, that Company A had agreed to their relative ownership of the combined company being adjusted downward by up to 10% depending upon how much capital Company A was able to raise prior to closing. Mr. Cormack also noted that OncoGenex and Company A had not reached agreement on valuation and the relative ownership of the post-closing combined companies, and that further discussion was necessary on these points. Mr. Cormack also advised that Company A now appeared to be open to the idea of a contingent value right for apatorsen, though specific terms needed to be agreed to. The board of directors then discussed the transaction timeline and expressed concern that the continuing passage of time would result in OncoGenex having less cash at closing, which in turn could erode the value OncoGenexs stockholders would receive in any strategic transaction. Mr. Cormack then advised the board of directors that since Company D was no longer engaged in the process, Mr. Cormack had re-engaged Company B. Mr. Cormack reported that both parties were actively engaged in ongoing diligence and that a call with Company Bs Chief Executive Officer was scheduled for November 12, 2016 to review issues.
Mr. Cormack also reported on the manufacturing site visit for Achieve and that no major issues were identified. Mr. Cormack advised that both Achieve and Sopharma appeared willing to enter into an amended and restated supply agreement to clarify certain ambiguities in the existing agreement between Achieve and Sopharma, including the exclusivity of Sopharmas obligation to supply Achieve with cytisine and terms relating to Achieves rights in the event of Sopharmas failure to supply cytisine. The amended and restated supply agreement will provide that Sopharma will not supply cytisine to any other person or entity for use or sale in any territories except for mainly those in Eastern Europe and part of North Africa, that Achieve has full access to the cytisine supply chain, and that Sopharma will manufacture sufficient cytisine to meet a forecast for a specified demand of cytisine for a specified period of time, each to be mutually agreed upon by the parties. Mr. Cormack also advised the board of directors that Achieve was highly concerned about incurring substantial legal and audit costs in the absence of exclusivity with OncoGenex. The board of directors and executive management discussed at length the fiduciary challenges of entering into an exclusivity agreement with Achieve, particularly at this stage in the process. The board of directors determined that until a transaction agreement was well advanced and an understanding of any key economic and business issues was obtained, entering into an exclusivity agreement with Achieve would not be in the best interests of OncoGenex or its stockholders. Mr. Cormack reminded the board of directors that Achieve did not have a positive net cash balance and that all legal and accounting costs would need to come from Achieves existing investors. To bridge the gap, executive management proposed offering Achieve a letter agreement that would provide that OncoGenex would bear the cost of up to $200,000 of certain of Achieves out of pocket legal expenses if a transaction agreement between OncoGenex and Achieve was not executed. Mr. Cormack advised that in his opinion, this should enable Achieve to mitigate their financial risk and also mitigate OncoGenexs risk in the event a transaction could not be completed with Company A. He expressed the importance of advancing multiple parties simultaneously so that time is not lost in the event a particular transaction loses momentum. Following substantial discussion, and consulting representatives of Fenwick on the issue, the board of directors authorized executive management to offer a letter agreement to Achieve to reimburse Achieve for up to $200,000 of certain out of pocket legal expenses in the event that a transaction agreement between the two companies was not executed.
Finally, Mr. Cormack advised the board of directors that the ancillary agreements to the transaction agreement, including a draft support agreement, lock-up agreement and contingent value rights agreement had been drafted and would be provided to Achieve and Company A upon receipt by OncoGenex of comments to its draft transaction agreement.
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Later on November 11, 2016, OncoGenex proposed in a letter agreement to reimburse Achieve for up to $200,000 of certain out-of-pocket expenses if the parties were unable to reach an agreement on a strategic transaction.
Also on November 11, 2016, a representative from Company Bs financial advisor requested to receive OncoGenexs form of transaction agreement. Mr. Cormack provided the draft transaction agreement later that day.
On November 18, 2016, Mr. Cormack updated the board of directors with regards to the strategic transaction process. During the call, Mr. Cormack advised the board of directors that the form of transaction agreement received from Company A would require substantial negotiations and material revisions. Mr. Cormack advised the board of directors of the intent to return to Company A later that day, the revised transaction agreement, the contingent value rights agreement, support agreement and lock up agreement. Mr. Cormack reported on the open issues in the transaction agreement, which included agreement on the exchange ratio and overall economics and any adjustments due to pre-closing financings by Company A; the economics related to the contingent value rights for apatorsen; deal certainty; and the termination fee. Mr. Cormack also reported the likelihood that the transaction agreement would not be entered into until near year end given the extensive changes in the transaction agreement and associated issues that had arisen.
Mr. Cormack also reported on the status of discussions with Achieve. He advised the board of directors that Achieve did not accept the proposed letter agreement that provided that OncoGenex would reimburse Achieve for up to $200,000 of certain out of pocket legal costs in the event that a transaction agreement between the two companies was not executed. Rather, Mr. Cormack advised that Achieve countered with a request that OncoGenex also pay their out-of-pocket audit expenses, make the letter non-conditional on closing a transaction with a third party other than Achieve and that OncoGenex assume direct billing of their expenses during the transaction agreement drafting process. Mr. Cormack advised that this counter was rejected by OncoGenex.
Later on November 18, 2016, OncoGenexs legal counsel provided comments to the proposed draft transaction agreement to Company A and its outside counsel.
On November 21, 2016, members of the executive management team of OncoGenex (Mr. Cormack, Dr. Jacobs and Dr. Stewart) met with a Japanese pharmaceutical company to discuss apatorsen. Following the meeting, the pharmaceutical company, like other companies with which OncoGenex executive management had discussed potential partnering arrangements for apatorsen, indicated that while the data for apatorsen was interesting, they would need to see the survival data from Borealis-2 in order to fully assess the opportunity.
Also on November 21, 2016, Achieve contacted a representative of MTS Health Partners and informed him that Achieve remained interested in pursuing discussions if the probability of completing a transaction were increased.
On November 22, 2016, Mr. Cormack updated the board of directors with regards to the strategic transaction process, including that a series of calls between representatives of MTS Health Partners and representatives of Company As financial advisor as well as between representatives of Fenwick and representatives of Company As counsel had occurred since the prior board of directors meeting. Mr. Cormack reported that several issues remain unresolved, including the exchange ratio and the overall economics, including any adjustments due to pre-closing financings by Company A, whether Company A would provide any consideration for apatorsen, including contingent value rights, that Company A would not be able to deliver voting agreements supporting the proposed strategic transaction from a majority of its stockholders, deal certainty and termination fees. Mr. Cormack also advised the board of directors that Company A was not expecting to return a revised transaction agreement for up to two additional weeks.
On November 23, 2016, Mr. Cormack and Achieve discussed the attributes that made the combination valuable to both parties, the risks associated with engaging in the process for Achieve, and addressed the need for
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timeliness in completing an agreement. The parties agreed that timing was of the essence and both parties agreed that they could quickly come to conclusion as to whether a transaction was achievable or not. Based on that conversation, both parties mutually agreed to accelerate negotiations of a definitive agreement regarding a potential strategic transaction, and Mr. Cormack sent a revised letter agreement to Achieve providing for up to $200,000 of reimbursement of certain legal and audit fees in the event that a transaction agreement between the two companies was not executed.
On November 28, 2016, representatives of OncoGenex received a response to the draft acquisition agreement it had provided to Company A. No material progress was made on the open issues summarized for the board of directors on November 22, 2016.
On November 29, 2016 Mr. Cormack received an email from the investment banking representative of Company B indicating that he had been advised by his client to inform OncoGenex that Company B was withdrawing from the process.
On December 1, 2016, Mr. Cormack contacted Achieves Chief Executive Officer to discuss the proposed transaction.
Also on December 1, 2016, the executive management team of OncoGenex held a teleconference meeting with a large pharmaceutical company regarding potential partnering arrangements for apatorsen. Following the meeting, the pharmaceutical company requested that OncoGenex present the apatorsen data that has been generated in prostate cancer. This subsequent meeting occurred on December 20, 2016 as described below.
On December 2, 2016, OncoGenex and Achieve entered into the letter agreement regarding the potential reimbursement by OncoGenex to Achieve of up to $200,000 of certain out of pocket legal expenses in the event that a transaction agreement between the two companies is not executed.
Also on December 2, 2016, representatives of Fenwick and outside legal counsel for Company A negotiated the terms of the proposed transaction agreement, including the exchange ratio and the overall economics, including any adjustments due to pre-closing financings by Company A, whether Company A would provide any consideration for apatorsen, deal certainty and termination fees.
On December 2, 2016, Mr. Cormack updated the board of directors with regards to the strategic transaction process. During the call, Mr. Cormack reported that the transaction agreement received from Company A was substantially similar to the one OncoGenex previously received on November 18, 2016 with the vast majority of OncoGenexs suggested revisions rejected and that little forward progress had been made. He also advised that the overall economics of the proposed transaction still had not been resolved. Mr. Cormack also advised the board of directors of the executive managements concerns regarding certain diligence requirements under existing Company A contracts and the potential economic consequences of not complying with such diligence requirements. Mr. Cormack advised that additional diligence was required on the matter and that a call with Company As counsel and management was being scheduled. Mr. Cormack also advised the board of directors that a revised draft of the Achieve transaction agreement reflecting recent discussions was expected from Achieve in the coming days and that the two companies and their respective legal counsel intended to meet in person on December 6, 2016 to negotiate remaining open items regarding the transaction agreement.
On December 4, 2016, OncoGenex executive management (Mr. Cormack and Mr. Bencich), Ms. Griffin and representatives of Fenwick received from representatives of Paul Hastings LLP, or Paul Hastings (legal counsel to Achieve), a further revised draft transaction agreement which included, among other things, substantially diluted representations and warranties being made by Achieve and removal of a contingent value right for apatorsen. The parties also discussed the triggers for payment of the termination fees and third-party expenses in connection with a termination of the Merger Agreement. OncoGenex executive management (Mr. Cormack and Mr. Bencich), Ms. Griffin and representatives of Fenwick and MTS Health Partners met by teleconference on December 5, 2016 to review the transaction agreement received from Achieve and agreed that the response to
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Achieve would include clarification regarding the removal of the apatorsen contingent value right from the previous draft and for representatives of Fenwick to further negotiate the representations and warranties with Paul Hastings.
On December 5, 6 and 7, 2016, additional discussions were held with Company A regarding regulatory diligence and the contingent value right for apatorsen, which in light of the positive results from Borealis-2, OncoGenex had previously determined was an important component of any transaction in order to provide greater potential return to OncoGenex stockholders. Also on December 5, 2016, Company A provided responses to OncoGenexs questions regarding Company As diligence obligations under certain partnering arrangements and Company As historic equity grants. Later that day, Company A, with its outside tax experts, discussed the potential inclusion of a contingent value right for apatorsen in the transaction. Company A and OncoGenex also discussed the various collaborations that Company A was currently pursuing or could be pursuing in the near term.
On December 6, 2016, Mr. Cormack updated the board of directors with regards to the strategic transaction process. During the call, Mr. Cormack reported on the December 5, 2016 call with Company A management. While there was progress on certain provisions of the transaction agreement, importantly, Company A remained unwilling to provide any value for apatorsen and the overall economics of the deal remain unresolved. Mr. Cormack also advised the board of directors that the revised transaction agreement for Achieve had been received and that the parties would be meeting in person later that day to negotiate the terms of a potential definitive agreement.
Also, on December 6, 2016, representatives of Fenwick and representatives of Paul Hastings, together with members of OncoGenex executive management (Mr. Cormack and Mr. Bencich), as well as Ms. Griffin, and members of Achieves management held an in person meeting to discuss the terms of the transaction, including the overall economics, terms of the proposed contingent value right and the projected timeline for the proposed transaction. At such meeting, OncoGenex and Achieve reached agreement on the material terms of the contingent value right for apatorsen.
On December 7, 2016, representatives of Fenwick and Company As legal counsel, together with members of OncoGenex executive management (Mr. Cormack and Mr. Bencich), as well as Ms. Griffin, and members of Company As management held a teleconference to discuss certain tax matters related to the inclusion of a contingent value right for apatorsen in the proposed transaction. Following substantial discussion, Company A reconfirmed that they were unwilling to include a contingent value right for apatorsen in the transaction.
On December 8, 2016, Mr. Cormack updated the board of directors with regards to the strategic transaction process. During the call, Mr. Cormack reported on the telephone conferences with Company A on December 7, 2016 and advised the board of directors that numerous business issues, including the overall economics of the proposed transaction, remained open. Mr. Cormack then updated the board of directors on the Achieve transaction and advised that comments on the contingent value right agreement from Achieves legal counsel have been received by Fenwick and the business points agreed to during the various meetings earlier in the week were being incorporated into the transaction agreement. Mr. Cormack advised the board of directors that the intention was to return revised forms of both the transaction agreement and the contingent value rights agreement to Achieve on December 9, 2016.
On December 9, 2016, OncoGenex and Achieve, as well as representatives from Fenwick and Paul Hastings, held a teleconference to negotiate certain terms of the transaction agreement and the transaction, including the proposed Sopharma amendment, following which OncoGenex provided Achieve with comments to the draft agreement.
On December 12, 2016, Company As and OncoGenexs respective management teams discussed the material open issues, including the overall economics. Company A stated that they were unwilling to provide contingent value rights to OncoGenex stockholders. Company A suggested OncoGenex provide a new proposal for further consideration if OncoGenex desired to continue discussions.
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Additionally, between December 12, 2016 and January 3, 2017, representatives from Fenwick and Paul Hastings held numerous teleconferences to continue to negotiate the transaction agreement and ancillary agreements to the transaction agreement, as well as finalize the OncoGenex disclosure schedule and the Achieve disclosure schedule.
On December 13, 2016, Mr. Cormack updated the board of directors with regards to the strategic transaction process. During the call, Mr. Cormack confirmed that the transaction agreement had been provided to Achieve as planned on December 9, 2016 and that a further revised version was received from Achieve earlier on December 13, 2016. Mr. Cormack also advised the board of directors that a proposed amended and restated supply agreement between Achieve and Sopharma had been discussed with Achieve and that Achieve and OncoGenex had agreed that a letter agreement outlining the key terms of the proposed amended and restated supply agreement would be signed by Achieve and Sopharma prior to the transaction agreement, which letter agreement would provide that an amended and restated supply agreement would be entered into prior to closing of the strategic transaction between OncoGenex and Achieve. Mr. Cormack also reported on the discussions with Company A that occurred on December 12, 2016 and advised the board of directors that Company A had a board meeting on December 12, 2016 and confirmed that Company A would not agree to provide a contingent value right for apatorsen and that Company A now wanted OncoGenex to propose an alternative to a contingent value right in a revised term sheet. The board of directors and executive management discussed that any deal that would be competitive with the Achieve deal would need to provide consideration for apatorsen. As Company A would not provide such consideration as a contingent value right, the board of directors instructed executive management to determine the possibility of adjusting the exchange ratio in the proposed strategic transaction with Company A to provide for additional consideration for OncoGenexs stockholders. The board of directors and executive management discussed that this may also be challenging since the exchange ratio itself had not been resolved and increasing the OncoGenex valuation may be problematic for Company A. After further discussion, it was determined that OncoGenex would not provide a new proposal to Company A and would continue its negotiations with Achieve.
Also on December 13, 2016, OncoGenex executive management and representatives of Fenwick held a teleconference to discuss the proposed terms for a strategic transaction with each of Achieve and Company A, including the fact that the Achieve proposal provided for a contingent value right for apatorsen and the Company A proposal contained greater financial, financing and execution risks that were identified during the due diligence process. Additionally, beginning on December 13, 2016 and continuing through January 4, 2017 multiple calls between representatives of OncoGenex and Achieve occurred to address the open issues in the various transaction agreements, including representations and warranties, current and projected financial position, termination provisions and related costs associated with such provisions and the ancillary agreements to the transaction agreement. During this time, Achieve introduced the concept of an additional termination fee in the event OncoGenex breached its obligations under the non-solicitation provisions of the Merger Agreement. Additionally, OncoGenex proposed that the exchange ratio would fluctuate based on OncoGenexs net cash at closing. If OncoGenexs net cash was greater than a negotiated threshold, the exchange ratio would be adjusted such that the OncoGenex stockholders would hold a greater proportion of the surviving entity post-closing. OncoGenex also proposed that Achieves net cash would similarly influence the exchange ratio. Achieve rejected the proposal that Achieves net cash would affect the exchange ratio.
On December 14, 2016, OncoGenex executive management and representatives of Fenwick held a teleconference where the proposed terms of the proposed strategic transaction with Achieve and Company A were discussed.
On December 15 and 17, 2016, representatives of OncoGenex and Achieve, along with representatives from Fenwick and Paul Hastings, held a teleconference to negotiate the terms of the proposed strategic transaction. Significant negotiations were focused on the cash each company would have at the closing of the transaction. OncoGenex proposed that the exchange ratio would be adjusted based on the amount of cash held by Achieve at the closing. Achieve rejected this proposal and proposed that there would be a minimum amount of cash OncoGenex would need to have at the closing. The parties also discussed and negotiated the trigger for payment
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of termination fees. In particular, Achieve continued to advocate for its proposal that if OncoGenex breached its obligations under the non-solicitation provisions of the Merger Agreement, Achieve should be entitled to a termination fee. In addition, the parties discussed reimbursement of third party expenses incurred by the other party in the event the Merger Agreement is terminated because a party is unable to secure stockholder approval or if a party pursues an alternative transaction. The parties continued to negotiate the scope of the representations and warranties of the parties. The parties negotiated the composition of the board of directors of the surviving entity with a focus on ensuring that the board would meet the requisite independence standards.
On December 16, 2016, Mr. Cormack updated the OncoGenex board of directors with respect to the strategic transaction process.
On December 18, 2016, representatives of Fenwick and Paul Hastings held a teleconference to negotiate the terms of the proposed strategic transaction, including the amount of the termination fees upon the occurrence of certain events. On such teleconference, it was agreed that each of Achieve and OncoGenex would pay the other party a termination fee, or Termination Fee, upon the occurrence of certain triggering events or if OncoGenex stockholders failed to approve the proposed transaction and, at the time of such failure to approve, an alternative transaction proposal had been publicly disclosed and, within 12 months of the termination of the proposed transaction agreement OncoGenex entered into an alternative transaction, in the case of OncoGenex and an OncoGenex triggering event, or a failure to approve the transaction by the Achieve stockholders in the case of a payment of Achieve. Additionally, if either Achieve or OncoGenex violated their non-solicitation obligations under the proposed transaction agreement and the other party terminated the transaction agreement due to such violation, the violating party would pay the other party a termination fee, or the Non-solicitation Termination Fee.
On December 19, 2016, representatives of Fenwick and Paul Hastings held a teleconference to negotiate the terms of the transaction agreement. At such teleconference, representatives of Fenwick conveyed OncoGenexs position that the Termination Fee should be $250,000 and the Non-solicitation Termination Fee should be $500,000. In addition to the discussion regarding the termination fees, the parties continued to negotiate the exchange ratio. OncoGenex proposed a slightly modified exchange ratio based on the relative valuations of the two parties discussed during the initial due diligence review period. Achieve rejected these modifications. The parties continued to negotiate the scope of the representations and warranties.
On December 20, 2016, the OncoGenex executive management (Mr. Cormack, Mr. Bencich and Dr. Jacobs), together with Ms. Griffin, presented the clinical results from all apatorsen prostate cancer studies completed to date to the pharmaceutical company that they had met with on December 1, 2016. A subsequent meeting was to be scheduled for the BIO EU conference in March, 2017, following the presentation of the results of the Pacific trial with apatorsen in February 2017.
On December 21, 2016, Mr. Cormack circulated then current draft agreements with Achieve, including a draft of the Merger Agreement, to the board of directors for their review.
Also, on December 21, 2016, representatives of Fenwick and Paul Hastings held a teleconference to negotiate the terms of the transaction agreement, during which representatives of Paul Hastings conveyed Achieves position the Termination Fee should be $600,000 and the Non-solicitation Termination Fee should be $1.2 million.
On December 22, 2016, Mr. Cormack updated the board of directors with regards to the strategic transaction process. Mr. Cormack reported that since December 16, 2016, a number of teleconferences between executive management and representatives of Fenwick on one side and management for Achieve and representatives of Paul Hastings on the other side had occurred and most open issues in the draft transaction agreement and related ancillary agreements had been resolved other than the composition of the post-closing board of directors of the combined company, the amount of liability Achieve would have at closing, whether Achieve would issue additional equity to reduce certain of its liabilities prior to the closing of the proposed strategic transaction, which additional equity, along with all other equity of Achieve, would be converted into a fixed percentage of the
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capitalization of the post-closing combined company, whether there would be a minimum cash requirement of $9 million for OncoGenex as a closing condition to the proposed strategic transaction and the amount of the termination fee upon the occurrence of certain events. Mr. Cormack informed the board of directors that executive management intended to continue working with Achieve to attempt to resolve these issues.
Between December 22, 2016 and December 23, 2016, numerous calls occurred between representatives of OncoGenex and Achieve to resolve the remaining open issues and all items other than the amount of liability that Achieve would have at closing were resolved, including that the Termination Fee would be $500,000 and the Non-solicitation Termination Fee would be $1.0 million.
On December 23, 2016, Mr. Cormack updated the board of directors with regards to the strategic transaction process. Mr. Cormack reported that since the last update received by the board of directors on December 22, 2016, all open items had been resolved other than the amount of liability that Achieve would have at closing.
Between December 23, 2016 and January 2, 2017, additional conversations regarding the amount of liability Achieve would have at closing occurred between Mr. Cormack and Mr. Stewart.
On January 3, 2017, Mr. Cormack updated the board of directors with regards to the strategic transaction process. During the call, Mr. Cormack reported on progress with Achieve and Company A. Mr. Cormack reported that Achieve intended to raise up to $2.4 million of additional capital and that such amount would not adjust the agreed to exchange ratio. He also reported that if such capital is not raised prior to closing then certain existing liabilities would be settled by the issuance of additional equity in Achieve pre-closing such that Achieves liabilities would not exceed $1.2 million. The board of directors together with executive management considered this solution and agreed that the opportunity remained of high interest and in the best interests of OncoGenex and its stockholders to conclude.
Mr. Cormack also updated the board of directors on the various communications with Company A and that revised terms agreeable to Company A were discussed and that such terms provide some value for apatorsen up front but no separate contingent value right for apatorsen. Mr. Cormack advised that while the current offer ascribes some value to apatorsen, Company A decreased the value of the other components of the deal such that OncoGenexs valuation and thus the exchange ratio remained the same as before. The board of directors discussed the economic terms and the opportunity represented by Achieve and Company A, including consideration that a form of transaction agreement still had not been settled with Company A and determined that the Company A proposal remained uncompetitive.
Also on January 3, 2017, based upon discussions among members of the Achieve board of directors, Achieve indicated that it intended to designate Richard Stewart and Anthony Clarke, Ph.D. as members of the post-closing board of directors of the combined entity pursuant to the terms of the Merger Agreement. Mr. Stewart was selected as a member of the post-closing board of directors of the combined entity based primarily on his experience as the chairman of Achieve since its inception and his familiarity with the lead product candidate, together with his other publicly-traded company chief executive officer experience and significant experience serving as a director of other public and private life sciences companies. Dr. Clarke was selected as a member of the post-closing board of directors of the combined entity based primarily on his experience as the chief scientific officer of Achieve since its inception and his familiarity with the lead product candidate, together with his other chief scientific officer experience.
On January 4, 2017, representatives of Fenwick provided the fully negotiated and final transaction documents consisting of the Merger Agreement, disclosure schedules, support agreements, contingent value rights agreement and lock-up agreements to Mr. Cormack for inclusion in the board materials being sent to the OncoGenex board of directors. Mr. Cormack in turn provided the transaction documents to the board of directors.
On January 5, 2017, the OncoGenex board of directors held a telephonic meeting with members of OncoGenex executive management with representatives of MTS Health Partners and Fenwick present. During the meeting,
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representatives of Fenwick reviewed with the OncoGenex board of directors the terms of the Merger Agreement and the fiduciary duties of the OncoGenex board of directors in the context of the proposed transaction. During the presentations, the OncoGenex board of directors asked questions and discussed the provisions of the Merger Agreement and related documentation. Representatives of MTS Health Partners reviewed the results of its financial analysis with respect to the merger and presented the oral opinion of MTS Securities, LLC, an affiliate of MTS Health Partners, or MTS Securities, that based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations of the review set forth in its written opinion, as of January 5, 2017, the exchange ratio in connection with the first merger, as provided in the Merger Agreement, was fair, from a financial point of view, to OncoGenex, as more fully described in the section entitled The MergerOpinion of the Financial Advisor to OncoGenexs Board of Directors and responded to questions from the OncoGenex board of directors regarding its financial analysis. After the presentations and discussions, the OncoGenex board of directors unanimously (i) determined that the transaction, the issuance of shares of OncoGenex common stock pursuant to the transaction and the other transactions contemplated by the Merger Agreement are fair to, advisable and in the best interests of OncoGenex and its stockholders, (ii) approved the issuance of shares of OncoGenex common stock pursuant to the transaction, the Merger Agreement and the other transactions contemplated thereby, (iii) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, and (iv) resolved to recommend that the OncoGenex stockholders vote to approve the issuance of shares of OncoGenex common stock in the transaction pursuant to the terms of the Merger Agreement.
On January 5, 2017, based upon discussions among members of the OncoGenex board of directors, OncoGenex expressed its intent to designate Martin Mattingly, Pharm. D., Stewart Parker and Scott Cormack as members of the post-closing board of directors of the combined entity pursuant to the terms of the Merger Agreement. Dr. Mattingly was selected as a member of the post-closing board of directors of the combined entity based primarily on his marketing background, chief executive officer experience and significant experience serving as a director of other public and private life sciences companies. Ms. Parker was selected as a member of the post-closing board of directors of the combined entity based primarily on her business development background, chief executive officer experience and significant experience serving as a director of other public and private life sciences companies. Mr. Cormack was selected as a member of the post-closing board of directors of the combined entity based primarily on his background in developing apatorsen, product development background with medical products, venture capital experience, chief executive officer experience and significant experience serving as a director of other public and private life sciences companies.
On January 5, 2017, the Merger Agreement was entered into among OncoGenex, Achieve, the Sellers and the Seller Representative, and the support agreement and lock-up agreements were entered into by the relevant parties. Later that day, OncoGenex and Achieve issued a joint press release announcing the execution of the Merger Agreement after the closing of trading in OncoGenex common stock on January 5, 2017.
Achieve Background of the Merger
Since Achieves inception, its board of directors has been regularly evaluating its business and operations, clinical development plan, regulatory requirements, commercial market, competition, long-term strategic goals, and prospects as an independent company. Achieves board of directors has continuously reviewed Achieves competitive position, financial situation, and industry, including changes in applicable law and regulatory schemes, the competitive landscape, and Achieves future prospects. As part of this review, Achieves board of directors regularly consider strategic alternatives available to Achieve, including without limitation, possible mergers, acquisitions, divestitutres, and other strategic transactions.
As a result of this review, Achieves board of directors began considering specific financing and business combination transactions in October 2015.
On February 19, 2016, Ricanto Limited, a related party of Achieve, and OncoGenex entered into a confidentiality agreement to facilitate due diligence and discussions between the parties regarding a possible business combination between Achieve and OncoGenex.
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In September 2016, Achieve submitted a preliminary proposal to OncoGenex regarding a merger between Achieve and OncoGenex. As summarized above in OncoGenex Background of the Merger, Achieve and OncoGenex engaged in continued discussions from September 2016 through the end of 2016 and on January 5, 2017, Achieve, OncoGenex, Ash Acquisition Sub, Inc., and Ash Acquisition Sub 2, Inc. entered into the Merger Agreement.
OncoGenex Reasons for the Merger
As noted above, the OncoGenex board of directors and executive management team have regularly reviewed and discussed OncoGenexs operating and strategic plans, both near-term and long-term, as well as potential partnerships and strategic transactions, in an effort to enhance stockholder value. These reviews and discussions have focused, among other things, on the opportunities and risks associated with OncoGenexs business and financial condition and strategic relationships and other strategic options. In particular, recent setbacks in the clinical development of OncoGenexs product candidates have prompted the OncoGenex board of directors to focus on alternative means for providing returns to stockholders.
In the course of its evaluation of the merger and the Merger Agreement, the OncoGenex board of directors held numerous meetings, consulted with OncoGenexs executive management, legal counsel and financial advisors, and reviewed and assessed a significant amount of information and, in reaching its unanimous decision to approve the merger, the issuance of OncoGenex common stock pursuant to the Merger Agreement and the other transactions contemplated by the Merger Agreement, the OncoGenex board of directors considered a number of factors, including, among others, the following:
| The OncoGenex board of directors considered the historical and current information concerning OncoGenexs business, financial performance, financial condition, including OncoGenexs cash position, operations, management and competitive position, the prospects of OncoGenex and its product candidates, the nature of the biotechnology industry generally, including financial projections of OncoGenex under various scenarios and its short- and long-term strategic objectives and the related risks and the belief that the combination of OncoGenexs and Achieves businesses would create more value for OncoGenex stockholders in the long-term than OncoGenex could create as an independent, stand-alone company. |
| The OncoGenex board of directors belief, based in part on the judgment, advice and analysis of OncoGenex management with respect to the potential strategic, financial and operational benefits of the merger (which judgment, advice and analysis was informed in part by the business, technical, financial, accounting and legal due diligence investigation performed by OncoGenex with respect to Achieve), that Achieves smoking cession product candidate, cytisine, represents a sizeable market opportunity, and may provide new medical benefits for patients and returns for investors. |
| The OncoGenex board of directors also reviewed with the management of OncoGenex the current plans of Achieve for developing cytisine to confirm the likelihood that the combined company would possess sufficient resources, or have access to sufficient resources, to allow the management team to focus on the continued development and anticipated commercialization of cytisine. The OncoGenex board of directors also considered the possibility that the combined company would be able to take advantage of the potential benefits resulting from the combination of the OncoGenex public company structure with the Achieve business to raise additional funds in the future. |
| The OncoGenex board of directors also considered the valuation and business prospects of all the potential strategic transaction candidates. In particular, their collective view was that Achieve was the most attractive candidate because of the promising results of previous clinical trials with cytisine, the possibility for expedited regulatory review in the United States and the large market for smoking cessation products. After considering the comprehensive diligence review that OncoGenex management had completed of three other prospective transaction partners, the board concluded that the merger with Achieve would create a publicly traded company focused on improving patient access to an important treatment that would create more value for OncoGenexs stockholders than any of the other proposals that the board had received. |
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| The OncoGenex board of directors concluded that the merger would provide existing OncoGenex stockholders a significant opportunity to participate in the potential growth of the combined company following the merger. |
| The OncoGenex board of directors considered the ability of the existing OncoGenex stockholders to potentially recognize additional value from the development of apatorsen through the issuance of the CVRs. |
| The OncoGenex board of directors also considered that the combined company will be led by an experienced senior management team and a board of directors with representation from each of the current management and boards of directors of OncoGenex and Achieve. |
| The OncoGenex board of directors considered the financial analyses of MTS Health Partners, which the board engaged to provide financial advisory and investment banking services in connection with the board of directors consideration and evaluation of potential strategic alternatives, and the opinion of MTS Securities, that based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations of the review set forth in its written opinion, as of January 5, 2017, the exchange ratio in connection with the first merger, as provided in the Merger Agreement, was fair, from a financial point of view, to OncoGenex, as more fully described in the section entitled The MergerOpinion of the Financial Advisor to OncoGenexs Board of Directors. |
The OncoGenex board of directors also reviewed the recent results of operations and financial condition of OncoGenex, including:
| the failure of custirsen to meet the primary endpoint of improving overall survival in all three completed phase 3 trials and the failure of apatorsen to meet the primary endpoint of improving survival in certain clinical trials; |
| the clinical development and sequential risks associated with continuing to develop apatorsen, including additional clinical studies that would be required and the potential market value of apatorsen; |
| the loss of the operational capabilities of OncoGenex, and the risks associated with continuing to operate OncoGenex on a stand-alone basis, including the recourses needed to continue to develop apatorsen and the need to rebuild a pipeline of product candidates to continue its operations; |
| the results of substantial efforts made over a significant period of time by OncoGenexs senior management and financial advisors to solicit strategic alternatives for OncoGenex to the merger, including the discussions that OncoGenex management, OncoGenexs representatives and the OncoGenex board of directors had in 2016 with other potential strategic transaction candidates; |
| current financial market conditions and historical market prices, volatility and trading information with respect to OncoGenex common stock; and |
| the risks, costs and timing associated with a potential liquidation of OncoGenex. |
The OncoGenex board of directors also reviewed the terms of the Merger Agreement and associated transactions, including:
| the relative percentage ownership of OncoGenex stockholders and Achieve stockholders immediately following the completion of the merger, which is fixed; |
| the number and nature of the conditions to Achieves obligation to consummate the merger and the limited risk of non-satisfaction of such conditions as well as the likelihood that the merger will be consummated on a timely basis; |
| the rights of, and limitations on, OncoGenex under the Merger Agreement to consider certain unsolicited acquisition proposals under certain circumstances, should OncoGenex receive a superior proposal; |
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| the reasonableness of the potential termination fee of up to $1.0 million and related reimbursement of certain transaction expenses of up to $0.5 million, which could become payable by OncoGenex if the Merger Agreement is terminated in certain circumstances; |
| the agreement by a majority of Achieve stockholders to vote such shares in favor of approving the transactions contemplated by the Merger Agreement and against actions that could adversely affect the consummation of the merger; and |
| the belief that the terms of the Merger Agreement, including the parties representations, warranties and covenants, and the conditions to their respective obligations, are reasonable under the circumstances. |
In the course of its deliberations, the OncoGenex board of directors also considered a variety of risks and other countervailing factors related to the merger, including:
| the up to $1.0 million termination fee and/or up to $0.5 million in related expenses payable by OncoGenex upon the occurrence of certain events and the potential effect of such termination fee in deterring other potential acquirors from proposing an alternative transaction that may be more advantageous to OncoGenex stockholders; |
| the substantial expenses to be incurred in connection with the merger; |
| the possible volatility, at least in the short term, of the trading price of the OncoGenex common stock resulting from the announcement of the merger; |
| the risk that the merger might not be consummated in a timely manner or at all and the potential adverse effect of the public announcement of the merger or on the delay or failure to complete the merger on the reputation of OncoGenex; |
| the risk to the business of OncoGenex, operations and financial results in the event that the merger is not consummated; |
| the strategic direction of the continuing entity following the completion of the merger, which will be determined by a combination of individuals from OncoGenexs management team and Achieves management team and board of directors, and a board of directors initially comprised of a combination of OncoGenexs and Achieves board of directors; and |
| various other risks associated with the combined company and the merger, including those described in the sections entitled Risk Factors and Cautionary Statement Concerning Forward-Looking Statements. |
The foregoing information and factors considered by the OncoGenex board of directors are not intended to be exhaustive but are believed to include all of the material factors considered by the OncoGenex board of directors. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the OncoGenex board of directors did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of the OncoGenex board of directors may have given different weight to different factors. The OncoGenex board of directors conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, the OncoGenex management team and the legal and financial advisors of OncoGenex, and considered the factors overall to be favorable to, and to support, its determination.
Achieve Reasons for the Merger
In the course of reaching its decision to approve the merger, Achieves board of directors consulted with its management team, as well as its legal advisors, and considered a number of factors, among others, including the following material factors (which factors are not necessarily presented in any order of relative importance):
| the potential to provide its current stockholders with greater liquidity by owning stock in a public company; |
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| the fact that Achieve will have access to additional personnel with significant clinical and regulatory experience; |
| the potential synergies with OncoGenexs clinical development, regulatory and financial capabilities; |
| the fact that Achieve will have access to additional personnel with experience in preparing public company financial statements and otherwise complying with laws and regulations applicable to U.S. public companies; |
| the potential to access public market capital, including sources of capital from a broader range of investors to support the clinical development of its product candidates than it could otherwise obtain if it continued to operate as a privately-held company and through OncoGenexs existing effective shelf registration statement on Form S-3; |
| the potential to utilize approximately $100 million in net operating losses from OncoGenexs Canadian subsidiary, OncoGenex Technologies Inc.; |
| the potential benefits from increased public market awareness of Achieve and its product candidate; |
| the expectation that the merger would be a more time and cost-effective means to access capital than other options considered, including an initial public offering which Achieve was alternatively planning to pursue; |
| information concerning Achieves business, financial performance (both past and prospective) and its financial condition results of operation (both past and prospective), business and strategic objectives, as well as the risks associated with such objectives; |
| the fact that shares of OncoGenex common stock issued to OncoGenex stockholders will be registered pursuant to a registration statement on Form S-4 by OncoGenex and will become freely tradable for Achieves stockholders who are not affiliates of Achieve; |
| the likelihood that the merger will be consummated on a timely basis; |
| the terms and conditions of the Merger Agreement, including, without limitation, the following: |
| the determination that an exchange ratio that is not subject to adjustment based on trading prices is appropriate to reflect the expected relative percentage ownership of OncoGenex securityholders, Achieve securityholders and securityholders of those shares sold in the concurrent financing was appropriate based, in the judgment of Achieves board of directors; |
| the expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes, with the result that the Achieve stockholders will not recognize taxable gain or loss for U.S. federal income tax purposes upon the exchange of Achieve common stock for OncoGenex common stock pursuant to the merger; |
| the rights of Achieve under the Merger Agreement to consider certain unsolicited competing proposals under certain circumstances should Achieve receive a superior proposal; and |
| the conclusion of Achieves board of directors that (i) the potential termination fee, for breaches not pertaining to a breach of the non-solicitation provisions of the Merger Agreement, of $0.5 million and expense reimbursements of up to $0.5 million, payable by OncoGenex to Achieve and the circumstances when such fee may be payable, were reasonable; and (ii) the potential termination fee, for breaches pertaining to a breach of the non-solicitation provisions of the Merger Agreement, of $1.0 million and expense reimbursements of up to $0.5 million, payable by OncoGenex to Achieve were reasonable; and |
| the availability of appraisal rights under Delaware law to current stockholders who do not vote in favor of the adoption of the Merger Agreement and comply with all of the required procedures under Delaware law, which provides those eligible stockholders with an opportunity to have a Delaware court determine the fair value of their shares, which may be more than, less than, or the same as the amount such stockholders would have received under the Merger Agreement. |
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Achieves board of directors also considered a number of uncertainties and risks in its deliberations concerning the Mergers and the other transactions contemplated by the Merger Agreement, including the following (which factors are not necessarily presented in any order of relative importance):
| the possibility that the merger might not be completed and the potential adverse effect of the public announcement of the merger on the reputation of Achieve and the ability of Achieve to obtain financing in the future in the event the Mergers is not completed; |
| the termination fees of $0.5 million or $1.0 million and expense reimbursements of up to $0.5 million, payable by Achieve to OncoGenex upon the occurrence of certain events, and the potential effect of such termination fee in deterring other potential acquirers from proposing a competing transaction that may be more advantageous to Achieves stockholders; |
| the risk that the merger might not be consummated in a timely manner or at all; |
| the expenses to be incurred in connection with the merger and related administrative challenges associated with combining the companies; |
| the risk of diverting managements attention from other strategic priorities in order to implement the wind-down of certain aspects of the OncoGenex business or managing any unexpected OncoGenex liabilities that may arise; |
| the additional public company expenses and obligations that Achieves business will be subject to following the merger to which it has not previously been subject; and |
| various other risks associated with the combined company and the merger, including the risks described in the section titled Risk Factors. |
The foregoing information and factors considered by Achieves board of directors are not intended to be exhaustive, but are believed to include all of the material factors considered by Achieves board of directors. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, Achieves board of directors did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of Achieves board of directors may have given different weight to different factors. Achieves board of directors conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, Achieves management and Achieves legal advisors, and considered the factors overall to be favorable to, and to support, its determination.
Certain Financial Forecasts of OncoGenex Utilized in Connection with the Merger
OncoGenex Financial Forecasts
OncoGenex does not, as a matter of course, publicly disclose long-term forecasts or internal projections as to future performance, earnings or other results, and OncoGenex is particularly concerned with making such forecasts and projections due to the unpredictability of the underlying assumptions and estimates. In connection with its due diligence process and evaluation of the merger, OncoGenexs management prepared financial forecasts regarding OncoGenexs forecasted milestone and royalty payments, operating expenses and net income (loss) for its 2017 through 2027 fiscal years. These unaudited financial forecasts were considered by the management of OncoGenex for purposes of evaluating the merger. The OncoGenex financial forecasts were not prepared with a view toward public disclosure. However, OncoGenex has included below a summary of the OncoGenex financial forecasts to provide its stockholders access to certain non-public information that was furnished to the OncoGenex board of directors and certain third parties in connection with the evaluation of the merger.
The OncoGenex financial forecasts included assumptions with respect to general business, economic, competitive, regulatory, market and financial conditions, and other future events, as well as matters specific to OncoGenexs business, such as the timing of completion of clinical trials and receipt of marketing approval for
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apatorsen and operating expenses related to the development and commercialization of apatorsen, all of which are difficult to predict and many of which are beyond OncoGenexs control. Cost estimates during the development of apatorsen were based on OncoGenexs internal models and estimates regarding expenses. Cost estimates after the assumed commercialization of apartorsen were based on expected milestone and royalty payments owed under collaboration and license agreements relating to apatorsen. OncoGenex assumed all other commercialization costs would be incurred by a collaboration partner.
The OncoGenex financial forecasts presented below were prepared by OncoGenex management, reviewed with the OncoGenex board of directors and used by MTS Securities in connection with its financial analysis related to the merger.
The inclusion of the OncoGenex financial forecasts in this proxy statement/prospectus/information statement should not be regarded as an indication that OncoGenex or the OncoGenex board of directors considered, or now considers, these forecasts to be material to the OncoGenex or Achieve stockholders or necessarily indicative of actual future results. You should not place undue reliance on the unaudited financial forecasts contained in this proxy statement/prospectus/information statement. Please read the information set forth below under Important Information About the OncoGenex Financial Forecasts.
OncoGenexs management provided MTS Securities non-probability of success, or non-POS, adjusted financial forecasts, which assumed that OncoGenex remained an independent company, partnered with a third party to develop apatorsen, utilized approximately $100 million of Canadian NOLs plus any NOLs created from OncoGenexs losses as a stand-alone entity to offset tax expense on milestones and royalties from an apatorsen partnership, and completed a $5 million equity financing in 2017 at a 50% discount to its closing stock price of $0.55 on January 4, 2017.
The following table presents the non-POS adjusted financial forecasts of OncoGenex, as used by the OncoGenexs board of directors for purposes of its consideration of the merger and by MTS Securities for purposes of its financial analyses related to the merger.
$ in millions | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |||||||||||||||||||||||||||||||||
Total Milestone and Royalty Payments |
$ | $ | $ | $5 | $24 | $24 | $52 | $68 | $70 | $73 | $75 | |||||||||||||||||||||||||||||||||
Operating Expenses |
($6 | ) | ($6 | ) | ($6 | ) | ($6 | ) | ($6 | ) | ($6 | ) | ($6 | ) | ($6 | ) | ($6 | ) | ($6 | ) | ($6 | ) | ||||||||||||||||||||||
Net Income (Loss) |
($6 | ) | ($6 | ) | ($6 | ) | ($1 | ) | $19 | $18 | $47 | $55 | $48 | $50 | $51 |
Important Information About the OncoGenex Financial Forecasts
While the OncoGenex financial forecasts were prepared in good faith, no assurance can be made regarding future events. The estimates and assumptions underlying the OncoGenex financial forecasts involve judgments with respect to, among other things, future economic, competitive, regulatory, and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant business, economic, competitive, and regulatory uncertainties and contingencies, including, among others, the risks and uncertainties described under the sections entitled Risk Factors and Cautionary Statement Concerning Forward-Looking Statements in this proxy statement/prospectus/information statement, all of which are difficult to predict and many of which are beyond the control of OncoGenex and/or Achieve and will be beyond the control of the combined company. There can be no assurance that the underlying assumptions will prove to be accurate or that the forecasted results will be realized, and actual results likely will differ, and may differ materially, from those reflected in the OncoGenex financial forecasts, whether or not the merger is completed.
The OncoGenex financial forecasts summarized in this section were prepared solely for internal use by OncoGenex and not with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of
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prospective financial data, published guidelines of the SEC regarding forward-looking statements, or GAAP. OncoGenexs management believes the forecasts were prepared in good faith and on a reasonable basis based on the best information available to OncoGenexs management at the time of their preparation. The OncoGenex financial forecasts, however, are not fact and should not be relied upon as being necessarily indicative of actual future results, and readers of this proxy statement/prospectus/information statement are cautioned not to place undue reliance on this information. None of the OncoGenex financial forecasts reflects any synergies or costs related to or that may arise from the merger.
All of the OncoGenex financial forecasts summarized in this section were prepared by, and are the responsibility of, OncoGenexs management, as indicated. Ernst & Young LLP, OncoGenexs independent registered accounting firm, did not provide any assistance in preparing the OncoGenex financial forecasts and has not examined, compiled, or otherwise performed any procedures with respect to the OncoGenex financial forecasts and, accordingly, Ernst & Young LLP has not expressed any opinion or given any other form of assurance with respect thereto and they assume no responsibility for the prospective financial information. The Ernst & Young LLP reports included in this proxy statement/prospectus/information statement relate solely to the historical financial information of OncoGenex. Such reports do not extend to the OncoGenex financial forecasts and should not be read to do so.
By including in this proxy statement/prospectus/information statement a summary of the OncoGenex financial forecasts, neither OncoGenex nor any of its representatives has made or makes any representation to any person regarding the ultimate performance of OncoGenex compared to the information contained in the OncoGenex financial forecasts. OncoGenex has made no representation to Achieve, in the Merger Agreement or otherwise, concerning the OncoGenex financial forecasts. The OncoGenex financial forecasts summarized in this section were prepared during the periods described above and have not been updated to reflect any changes since the date of this proxy statement/prospectus/information statement or any actual results of operations of OncoGenex, as set forth under the section entitled Selected Historical Consolidated Financial Data of OncoGenex in this proxy statement/prospectus/information statement. Neither OncoGenex, Achieve nor, after completion of the Merger, the combined company undertakes any obligation, except as required by law, to update or otherwise revise the OncoGenex financial forecasts to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions.
The foregoing summary of the OncoGenex financial forecasts is not included in this proxy statement/prospectus/information statement in order to induce any stockholder to vote in favor of the proposals being brought before stockholders at the special meeting of OncoGenex stockholders or any other proposals to be voted on by Achieve stockholders.
Certain Financial Forecasts of Achieve Utilized in Connection with the Merger
Achieve Financial Forecasts
Achieve does not, as a matter of course, publicly disclose long-term forecasts or internal projections as to future performance, earnings, or other results, and Achieve is particularly concerned with making such forecasts and projections due to the unpredictability of the underlying assumptions and estimates. In connection with its due diligence process and evaluation of the Merger, OncoGenex management prepared financial forecasts regarding Achieves forecasted revenues, operating expenses and net income (loss) results for its 2017 through 2032 fiscal years. The Achieve financial forecasts were not prepared with a view toward public disclosure.
The Achieve financial forecasts included assumptions with respect to general business, economic, competitive, regulatory, market and financial conditions, and other future events, as well as matters specific to Achieves business, such as the timing of completion of clinical trials and receipt of marketing approval for cytisine and operating expenses related to the development and commercialization of cytisine, all of which are difficult to predict and many of which are beyond Achieves control. Cost estimates were based on Achieves internal
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models and estimates, as modified by OncoGenex management, regarding Achieves expenses. Commercial revenue and expense estimates were based on assumptions and models created by OncoGenex management.
The Achieve financial forecasts presented below were used by MTS Securities in connection with its financial analysis related to the merger. The Achieve financial forecasts were reviewed with the OncoGenex board of directors and were utilized by OncoGenex in connection with its financial analysis related to the merger.
The inclusion of the Achieve financial forecasts in this proxy statement/prospectus/information statement should not be regarded as an indication that OncoGenex, Achieve or the OncoGenex or Achieve boards of directors considered, or now considers, these forecasts to be material to the Achieve or OncoGenex stockholders or necessarily indicative of actual future results. You should not place undue reliance on the unaudited financial forecasts contained in this proxy statement/prospectus/information statement. Please read the information set forth below under Important Information About the Achieve Financial Forecasts.
OncoGenex management provided MTS Securities non-POS adjusted and POS adjusted financial forecasts of Achieve, which assumed that Achieve remained an independent company and was taxed at a rate of 35%.
The following table presents the POS adjusted financial forecasts of Achieve, as used by the OncoGenex board of directors for purposes of its consideration of the merger and by MTS Securities for purposes of its financial analyses related to the merger.
$ in millions | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue |
$ | $ | $18 | $46 | $91 | $128 | $157 | $166 | $156 | $139 | $127 | $108 | $87 | $78 | $60 | $56 | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating Expenses |
($17 | ) | ($14 | ) | ($24 | ) | ($32 | ) | ($32 | ) | ($44 | ) | ($52 | ) | ($56 | ) | ($52 | ) | ($47 | ) | ($44 | ) | ($38 | ) | ($31 | ) | ($28 | ) | ($22 | ) | ($20 | ) | ||||||||||||||||||||||||||||||||
Net Income (Loss) |
($16 | ) | ($14 | ) | ($8 | ) | $13 | $36 | $51 | $63 | $67 | $63 | $56 | $51 | $43 | $34 | $30 | $23 | $21 |
The following table presents the non-POS adjusted financial forecasts of Achieve, as used by the OncoGenex board of directors for purposes of its consideration of the merger and by MTS Securities for purposes of its financial analyses related to the merger.
$ in millions | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue |
$ | $ | $33 | $86 | $168 | $236 | $291 | $308 | $289 | $258 | $235 | $201 | $161 | $144 | $112 | $103 | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating Expenses |
($17 | ) | ($22 | ) | ($47 | ) | ($58 | ) | ($60 | ) | ($81 | ) | ($98 | ) | ($103 | ) | ($97 | ) | ($86 | ) | ($80 | ) | ($69 | ) | ($57 | ) | ($52 | ) | ($41 | ) | ($38 | ) | ||||||||||||||||||||||||||||||||
Net Income |
($16 | ) | ($21 | ) | ($16 | ) | $24 | $66 | $95 | $118 | $125 | $117 | $104 | $94 | $80 | $63 | $56 | $43 | $39 |
Important Information About the Achieve Financial Forecasts
While the Achieve financial forecasts were prepared by OncoGenex management in good faith, no assurance can be made regarding future events. The estimates and assumptions underlying the Achieve financial forecasts involve judgments with respect to, among other things, future economic, competitive, regulatory, and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant business, economic, competitive, and regulatory uncertainties and contingencies, including, among others, the risks and uncertainties described under the sections entitled Risk Factors and Cautionary Statement Concerning Forward-Looking Statements in this proxy statement/prospectus/information statement, all of which are difficult to predict and many of which are beyond the control of Achieve and/or OncoGenex and will be beyond the control of the combined company. There can be no assurance that the underlying assumptions will prove to be accurate or that the forecasted results will be realized, and actual results likely will differ, and may differ materially, from those reflected in the Achieve financial forecasts, whether or not the merger is completed.
The Achieve financial forecasts summarized in this section were not prepared by or at the direction of Achieve or its management and were prepared by OncoGenex management solely for internal use by OncoGenex and not with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial data,
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published guidelines of the SEC regarding forward-looking statements, or GAAP. OncoGenex management believes the forecasts were prepared in good faith and on a reasonable basis based on the best information available to OncoGenex management at the time of their preparation. The Achieve financial forecasts, however, are not fact and should not be relied upon as being necessarily indicative of actual future results, and readers of this proxy statement/prospectus/information statement are cautioned not to place undue reliance on this information. None of the Achieve financial forecasts reflects any synergies or costs related to or that may arise from the merger.
All of the Achieve financial forecasts summarized in this section were prepared by, and are the responsibility of, OncoGenex management, as indicated. Neither Ernst & Young LLP, OncoGenexs independent registered public accounting firm, nor PricewaterhouseCoopers LLP, Achieves independent accountants, provided any assistance in preparing the Achieve financial forecasts and has not examined, compiled, or otherwise performed any procedures with respect to the Achieve financial forecasts and, accordingly, Ernst & Young LLP and PricewaterhouseCoopers LLP have not expressed any opinion or given any other form of assurance with respect thereto and they assume no responsibility for the prospective financial information. The Ernst & Young LLP and PricewaterhouseCoopers LLP reports included into this proxy statement/prospectus/information statement relate solely to the historical financial information of OncoGenex and Achieve, respectively. Such reports do not extend to the Achieve financial forecasts and should not be read to do so.
By including in this proxy statement/prospectus/information statement a summary of the Achieve financial forecasts, neither Achieve nor any of its representatives has made or makes any representation to any person regarding the ultimate performance of Achieve compared to the information contained in the Achieve financial forecasts. Achieve has made no representation to OncoGenex, in the Merger Agreement or otherwise, concerning the Achieve financial forecasts. The Achieve financial forecasts summarized in this section were prepared during the periods described above and have not been updated to reflect any changes since the date of this proxy statement/prospectus/information statement or any actual results of operations of Achieve, as set forth under the section entitled Selected Historical Consolidated Financial Data of Achieve in this proxy statement/prospectus/information statement. Neither Achieve, OncoGenex nor, after completion of the merger, the combined company undertakes any obligation, except as required by law, to update or otherwise revise the Achieve financial forecasts to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions.
The foregoing summary of the Achieve financial forecasts is not included in this proxy statement/prospectus/information statement in order to induce any stockholder to vote in favor of any proposal to be voted on by Achieve stockholders or any of the proposals to be voted on by OncoGenex stockholders at the special meeting of OncoGenex stockholders.
Opinion of the Financial Advisor to OncoGenexs Board of Directors
OncoGenexs board of directors engaged MTS Health Partners to provide financial advisory and investment banking services in connection with the OncoGenex board of directors consideration and evaluation of potential strategic alternatives. On January 5, 2017, MTS Securities rendered its oral opinion to OncoGenexs board of directors, which opinion was confirmed in writing on the same date, that, as of the date of such opinion, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations of the review set forth in its written opinion, as of January 5, 2017, the exchange ratio in connection with the first merger, as provided in the Merger Agreement, was fair, from a financial point of view, to OncoGenex.
The full text of MTS Securities written opinion, which sets forth the assumptions made, procedures followed, matters considered, and qualifications and limitations of the review undertaken by MTS Securities in connection with such opinion, is attached as Annex D to this proxy statement/prospectus/
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information statement and is incorporated herein by reference. OncoGenex urges you to carefully read the MTS Securities opinion, together with the description of such opinion included elsewhere in this proxy statement/prospectus/information statement, in its entirety. The following is a summary of the material terms of the MTS Securities opinion and is qualified in its entirety by reference to the full text of such opinion.
MTS Securities provided its opinion for the information and assistance of OncoGenexs board of directors in connection with its consideration of the merger. MTS Securities opinion addressed solely the fairness, from a financial point of view, of the exchange ratio in connection with the first merger, as provided in the Merger Agreement, to OncoGenex. MTS Securities opinion does not address OncoGenexs underlying business decision to proceed with the merger or the relative merits of the merger compared to other alternatives available to OncoGenex. MTS Securities opinion did not constitute a recommendation to OncoGenexs board of directors, and is not a recommendation to any stockholder of OncoGenex, as to how to vote with respect to the first merger or take any other action in connection with the merger or otherwise.
In connection with rendering the opinion described above and performing its related financial analyses, MTS Securities:
| reviewed the financial terms of a draft copy of the Merger Agreement dated as of January 4, 2017, which was the most recent draft available to MTS Securities; |
| reviewed certain publicly available business and financial information concerning OncoGenex and the industries in which it operates; |
| reviewed certain internal financial analyses and forecasts of OncoGenex and Achieve prepared by and provided to MTS Securities by the management of OncoGenex relating to each of OncoGenexs and Achieves business, including certain benefits to be realized as a result of the merger, which are referred to in this discussion as the projections, and utilized per instruction of OncoGenex; |
| conducted discussions with members of senior management and representatives of OncoGenex and Achieve concerning the matters described in the three preceding bullets, the other strategic alternatives considered or pursued by OncoGenex since August 16, 2016, the likelihood of OncoGenex being able to enter into partnership arrangements or obtain financing to the extent necessary to finance OncoGenexs strategic plan, and certain other matters MTS Securities believed necessary or appropriate to its inquiry; |
| compared the financial and operating performance of Achieve with publicly available information concerning other publicly-traded companies, including certain publicly traded securities of such other companies, that MTS Securities deemed relevant; |
| reviewed and analyzed, based on the projections, the projected cash flows to be generated by Achieve to determine the present value of Achieves discounted cash flows; and |
| performed such other financial studies, analyses and investigations and considered such other information as MTS Securities deemed appropriate for the purposes of its opinion described below. |
In arriving at its opinion, MTS Securities assumed and relied upon, without assuming liability or responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information that was publicly available or was provided to, discussed with or reviewed by MTS Securities. MTS Securities are not legal, regulatory, tax or financial reporting experts and relied, with OncoGenexs consent, on the assessments made by advisors to OncoGenex with respect to such issues. MTS Securities did not conduct any independent verification of the projections. Without limiting the generality of the foregoing, with respect to the projections, MTS Securities assumed, with OncoGenexs consent, and based upon discussions with its management, that the projections had been reasonably prepared in good faith, that the projections were the best currently available estimates and judgments of the management of OncoGenex of the
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future results of operations and financial performance of OncoGenex and Achieve. MTS Securities expresses no view as to the projections or the assumptions on which they were based.
In arriving at its opinion, MTS Securities made no analysis of, and expressed no opinion as to, the adequacy of the reserves of OncoGenex or Achieve and relied upon information supplied to it by OncoGenex as to such adequacy. In addition, MTS Securities did not make any independent evaluations or appraisals of the assets or liabilities (including any contingent derivatives or off-balance-sheet assets or liabilities) of OncoGenex or Achieve or any of their respective subsidiaries, and MTS Securities was not furnished with any such evaluations or appraisals, nor did MTS Securities evaluate the solvency of OncoGenex, Achieve or any other entity under any state or federal law relating to bankruptcy, insolvency or similar matters. MTS Securities assumed that there had been no material change in the assets, financial condition, business or prospects of OncoGenex since the date of the most recent relevant financial statements made available to MTS Securities. Without limiting the generality of the foregoing, MTS Securities did not undertake any independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which OncoGenex, Achieve or any of their respective affiliates is a party or may be subject, and at the direction of OncoGenex and with its consent, the opinion of MTS Securities did not make any assumption concerning, and therefore did not consider, the possible assertion of claims, outcomes or damages arising out of any such matters. MTS Securities also assumed that neither OncoGenex nor Achieve was a party to any material pending transaction that had not been disclosed to MTS Securities, including without limitation any financing, recapitalization, acquisition or merger, divestiture or spin-off, other than the merger.
MTS Securities assumed that the representations and warranties of each party contained in the Merger Agreement and in all other related documents and instruments that are referred to therein are and were true and correct as of the date or the dates made or deemed made, that each party thereto will fully and timely perform all of the covenants and agreements required to be performed by it under the Merger Agreement and any other agreement contemplated thereby, that the merger will be consummated pursuant to the terms of the Merger Agreement without amendments thereto, and that all conditions to the consummation of the merger will be satisfied without waiver thereof. MTS Securities assumed that the final form of the Merger Agreement would be, in all material respects, identical to the draft of the Merger Agreement reviewed by MTS Securities for purposes of its opinion. MTS Securities, with OncoGenexs consent, further assumed that that no adjustment of the exchange ratio as provided in the Merger Agreement would result in any adjustment to the exchange ratio that is material to its analysis. MTS Securities also assumed that any governmental, regulatory and other consents and approvals contemplated in connection with the merger would be obtained and that, in the course of obtaining any of those consents, no restrictions would be imposed or waivers made that would have an adverse effect on OncoGenex or the contemplated benefits of the merger.
The MTS Securities opinion was based on economic, market, financial and other conditions existing, and on the information made available to MTS Securities, as of the date of such opinion. MTS Securities did not consider any potential legislative or regulatory changes currently being considered by the United States Congress, the Securities and Exchange Commission, or any other governmental or regulatory bodies, or any changes in accounting methods or generally accepted accounting principles that may be adopted by the Securities and Exchange Commission or the Financial Accounting Standards Board. MTS Securities noted that, although subsequent developments may affect the conclusion reached in such opinion, MTS Securities assumed no obligation to update, revise or reaffirm such opinion.
The MTS Securities opinion addressed solely the fairness, from a financial point of view, of the exchange ratio in connection with the first merger to OncoGenex and did not address any other terms in the Merger Agreement, or any other agreement contemplated by the Merger Agreement or relating to the merger or any other aspect or implication of the merger, including without limitation, the form or structure of the merger or the fairness of the merger or the exchange ratio in connection with the first merger to the holders of OncoGenex common stock or of any other securities or creditors or any other constituency of OncoGenex. The MTS Securities opinion does not address the Companys underlying business decision to proceed with the merger or the relative merits of the merger compared to other alternatives available to OncoGenex. MTS Securities expressed no opinion as to the
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prices or ranges of prices at which shares of securities of any person, including OncoGenex, will trade at any time, including following the announcement or consummation of the merger. MTS Securities was not requested to opine as to, and the MTS Securities opinion does not in any manner address, the amount or nature of compensation to any of the officers, directors or employees of any party to the merger, or any class of such persons relative to the compensation to be paid to the security holders of Achieve in connection with the merger or with respect to the fairness of any such compensation. The MTS Securities opinion was reviewed and approved by a fairness committee of MTS Securities.
The following is a summary of the material financial analyses delivered by MTS Securities to the OncoGenex board of directors in connection with rendering the MTS Securities opinion. The following summary, however, does not purport to be a complete description of the financial analyses performed by MTS Securities. The order of the analyses described below does not represent the relative importance or weight given to those analyses by MTS Securities. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of the corresponding summaries and are alone not a complete description of the financial analyses performed by MTS Securities. Considering the data in the tables below without considering the corresponding full narrative descriptions of the financial analyses, including the methodologies and assumptions underlying such analyses, could create a misleading or incomplete view of the financial analyses performed by MTS Securities. Other than the guidance provided by OncoGenexs board of directors and senior management to MTS Securities set forth in this proxy statement/prospectus/information statement, no instructions were given to or limitations imposed upon MTS Securities by OncoGenexs board of directors and senior management with respect to the investigations made or procedures followed by it in rendering its opinion.
MTS Securities performed stand-alone valuation analyses of both OncoGenex and Achieve using a variety of valuation methodologies described below. MTS Securities then performed a relative valuation analysis in order to compare the proposed pro forma ownership ratio of 3:1 to the pro forma ownership ratios implied based on the respective stand-alone valuation ranges. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before January 4, 2017 and is not necessarily indicative of current market conditions.
Historical Stock Price Analysis
MTS Securities reviewed the historical trading prices for shares of OncoGenex common stock on certain dates and the volume weighted average trading prices for certain periods, in order to put the current stock price in perspective with historical averages. MTS Securities noted that the closing stock price of OncoGenex common stock on January 4, 2017 was $0.55 per share, which MTS Securities calculated to result in a market capitalization of approximately $16.6 million.
The following table presents the results of this analysis as of January 4, 2017:
Stock Price |
Minimum |
Volume Weighted Average |
Maximum |
|||
Last 5 Days |
$0.49 | $0.53 | $0.57 | |||
Last 10 Days |
$0.49 | $0.52 | $0.57 | |||
Last 20 Days |
$0.43 | $0.51 | $0.57 | |||
Last 3 Months |
$0.33 | $0.51 | $0.70 | |||
Year to Date |
$0.33 | $0.79 | $1.42 |
Methodology for Estimating Probability of Success (POS) Adjustments
For purposes of its analysis, MTS Securities used and relied upon the probability of success scenarios determined by OncoGenexs management based on their experience, including with respect to development experience and managements expectation of commercial success, and due diligence findings for each of OncoGenex and Achieve as described below.
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In order for a prescription drug to reach the market, that drug must successfully complete various phases of clinical trials and then must be approved by a regulatory agency (such as the FDA) for marketing. Typically, a drug progresses from preclinical (non-human) testing into clinical (human) testing in a serial manner culminating in the regulatory review and potential approval.
In order to calculate the probability of success for a drug to gain regulatory approval, one must consider the total cumulative probability of the drug progressing from the current phase of clinical development through approval. Because each phase of development has its own individual probability of success, in order to calculate the total cumulative probability of success through approval at any given point in development, one typically uses the product of multiplying all of the probabilities of success of each individual phase to be completed to arrive at a total cumulative probability of success for marketing approval. This total cumulative probability of success for marketing approval is referred to as the drugs probability of success. The probability of success is applied directly to all revenues and expenses that are projected to occur post-marketing approval. For any revenue or expenses that are projected to occur before marketing approval, the appropriate cumulative probability from the current phase to the appropriate projected stage of development is applied to the revenue or expense.
OncoGenex Valuation Analysis
MTS Securities analyzed the valuation of OncoGenex using a sum of the parts methodology based on three different scenarios: a liquidation scenario, liquidation and net operating losses sale scenario and apatorsen partnership scenario. The results of each of the analyses performed are summarized below.
MTS Securities did not analyze the valuation of OncoGenex using a comparable companies analysis or comparable acquisitions analysis because of the unique nature of OncoGenex as a cash shell company with no current revenue stream. OncoGenex would therefore only be comparable to another shell company with the same cash balance, liabilities, and projected future cash flows, and such a comparable public company does not exist.
OncoGenex management provided, and instructed MTS Securities to use, certain assumptions and projections for OncoGenex. These projections included probability of success factors related to apatorsen of 55%, 83%, and 46% related to Phase III success, approval and cumulative probability of success, respectively. These projections also provided for a scenario in which OncoGenex was able to enter into a partnership with respect to apatorsen and included assumed royalty rates and milestone payments, based on managements experiences. These projections also assumed that OncoGenex would need to raise $5.0 million in equity financing in 2017 at a 50% discount to OncoGenexs closing price of $0.55 on January 4, 2017, in order to fund ongoing operations as a stand-alone entity.
Liquidation Scenario. In a liquidation scenario a companys value is calculated based on what amount of cash it would be worth in liquidation. Based on information provided by OncoGenexs management, MTS Securities calculated the amount of net cash available to OncoGenex stockholders in an orderly liquidation of OncoGenex.
The liquidation scenario assumed the value of OncoGenex based on the value of its assets in the case of bankruptcy and were based on projections provided by OncoGenex management for use in the analysis which assumed a liquidation date of March 31, 2017, full payment of all wind down costs related to the custirsen and apatorsen trials and all other liabilities and liquidation costs, termination of all remaining licenses and retention of necessary OncoGenex employees to facilitate clinical trials wind down. MTS Securities calculated, based on these assumptions, that net cash available for distribution to OncoGenex stockholders would be approximately $10.8 million.
Liquidation and Sale of Net Operating Losses Scenario. MTS Securities also conducted a sum of the parts analysis which added to the liquidation scenario an assumption that OncoGenex would be able to monetize its Canadian net operating losses and applied a proxy value for those assets. Using projections and assumptions provided by OncoGenex management and based on a $100 million Canadian net operating loss balance as of
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September 30, 2016, MTS Securities calculated a total net present value of $6.9 million for such net operating losses by applying a 15.0% discount rate to the projected year-by-year tax savings resulting from the use of such net operating losses and assuming a Canadian tax rate of 26%.
Apatorsen Partnership Scenario . MTS Securities calculated the net present value of OncoGenex based on a sum of the parts analysis which added to the liquidation and sale of net operating losses scenario an assumption, based on the advice of OncoGenex management, that OncoGenex would be able to form a partnership with respect to apatorsen which would result in annual revenue and milestone payments and which would require OncoGenex to conduct an equity financing of $5 million at an assumed 50% discount to OncoGenexs January 4, 2017 closing price in order to fund ongoing operations as a stand-alone entity. Using this information and probability of success assumptions prepared by OncoGenex management, MTS Securities calculated a net present value to current OncoGenex shareholders of apatorsen as a result of a partnership to be approximately $19.3 million by applying a discount rate of 15.0% to the probability weighted cash flows resulting from such partnership. In this scenario, no additional value was ascribed to (a) OncoGenexs Canadian net operating losses because management advised MTS Securities, and MTS Securities assumed, including for purposes of valuing apatorsen, that such net operating losses would be completely utilized in offsetting taxes resulting from the apatorsen program, or (b) OncoGenexs cash on hand because management advised MTS Securities, and MTS Securities assumed, that all existing cash balances would be completely utilized in funding the development of apatorsen pursuant to a development partnership.
Achieve Valuation Analysis
MTS Securities analyzed the valuation of Achieve using two different methodologies: a discounted cash flow analysis and a comparable publicly traded companies analysis. The results of each of these analyses are summarized below.
OncoGenex management provided two scenarios of projections for Achieve. One set of projections was adjusted for probably of success and the other set was not. Specifically, the cash flows for Achieves lead product, cytisine, including potential revenues, cost of sales and operating expenses, were or were not, as applicable, adjusted for probability of success factors at each stage of the regulatory process. OncoGenex management suggested that, based on their experience and published examples of preclinical efficacy data, smoking cessation therapies that made it to human clinical trials have a very high probability of clinical success. OncoGenexs management advised MTS Securities to apply probability of success adjustments of 65%, 83%, and 54%, related to probability of Phase III success, probability of approval and cumulative probability of success, respectively, to the Achieve projections based on the outcome of technical and regulatory due diligence to account for the risk associated with achieving the projections. The probability of success adjustment percentages were based on OncoGenexs managements experience in the pharmaceutical industry and commercialization of products, and on the basis of extensive scientific, development, technical, and regulatory due diligence performed by OncoGenex and its consultants. For each set of projections, MTS Securities was instructed by OncoGenexs management to assume a launch year of 2019, net working capital of 2% of revenues from 2019-2032 and $40 million in financing at a 50% discount to program equity value.
Discounted Cash Flow Analysis . A discounted cash flow analysis is a valuation methodology that calculates a companys value as the net present value of that companys projected future cash flows by discounting those cash flows back to today at that companys cost of capital. Given the projections were adjusted for probability of success, MTS Securities performed a discounted cash flow analysis on Achieve using a range of discount rates commensurate with the cost of capital of profitable commercial stage biotechnology companies.
The discounted cash flow analysis was based on the following key assumptions (i) range of discount rates from 13% to 17% based on the cost of capital of recently commercial stage, single product biopharmaceutical companies, (ii) no terminal value, (iii) range of revenue achievement factors from 80% to 120% and (iv) a tax
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rate of 35%. MTS Securities reviewed and compared certain financial information for the following commercial stage, single product biopharmaceutical companies:
Commercial Stage, Single Product Biopharmaceutical Companies
Company |
Debt/Equity Ratio | Total Debt /Total Capital | ||||
Theravance Biopharma |
NM | NM | ||||
Corcept Therapeutics, Inc. |
2.2 | % | 2.2% | |||
Amarin Corporation |
13.9 | % | 12.2% | |||
Keryx Biopharmaceuticals, Inc. |
19.0 | % | 15.9% | |||
Arena Pharmaceuticals, Inc. |
18.1 | % | 15.3% | |||
VIVUS, Inc. |
185.2 | % | 64.9% | |||
Neos Therapeutics, Inc. |
60.0 | % | 37.5% | |||
Alimera Sciences, Inc. |
45.7 | % | 31.3% | |||
Orexigen Therapeutics, Inc. |
405.1 | % | 80.2% |
NM = not meaningful. The company does not have meaningful debt, and thus it is not meaningful to calculate a debt/equity ratio or total debt/total capital.
The mean and median debt / equity ratios for this group of companies were 93.7% and 32.3%, respectively. The mean and median total debt to total capital for this group of companies were 32.5% and 23.6%, respectively.
Based on the OncoGenex probability of success adjusted management projections for Achieve, additional funding would be necessary to finance Achieve in order to achieve future profitability. MTS Securities assumed that Achieve would fund any cash shortfalls by raising equity financing at a 50% discount to current equity value of $133 million. This analysis resulted in an illustrative equity value range for Achieve of $40 million to $70 million, $70 million to $100 million, and $90 million to $140 million, for the 80%, 100% and 120% revenue achievement factors, respectively.
Public Trading Comparable Companies Analysis. A comparable companies analysis is a valuation analysis that calculates a companys valuation by applying valuations of comparable public companies to the company being valued. MTS Securities reviewed and compared certain financial information for the following public primary care-focused, clinical stage biopharmaceutical companies with Phase IIPhase III data:
Public Primary Care-Focused, Clinical Stage Biopharmaceutical Companies With Phase II Phase III Data
Company |
Enterprise Value | Peak Revenue |
Total Enterprise
Value / Peak Revenue |
|||||||||
CoLucid Pharmaceuticals, Inc. |
$ | 608 | $ | 1,750 | .35x | |||||||
Achaogen, Inc. |
$ | 432 | $ | 570 | .76x | |||||||
Poxel SA |
$ | 145 | $ | 3,100 | .05x | |||||||
Nabriva Therapeutics AG |
$ | 59 | $ | 400 | .15x | |||||||
Genocea Biosciences |
$ | 70 | $ | 1,000 | .07x | |||||||
Synthetic Biologics, Inc. |
$ | 74 | $ | 400 | .18x | |||||||
Oramed Pharmaceuticals Inc. |
$ | 57 | $ | 2,100 | .03x | |||||||
Scynexis, Inc. |
$ | 44 | $ | 550 | .08x | |||||||
Agile Therapeutics, Inc. |
$ | 40 | $ | 440 | .09x |
The high, mean, median and low enterprise values for this group of companies were $608 million, $170 million, $70 million and $40 million, respectively. The high, mean, median, and low peak revenue for this group of
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companies were $3,100 million, $1,146 million, $570 million and $400 million, respectively. The high, mean, median and low total enterprise value/peak revenue for this group of companies were 0.76x, 0.19x, 0.09x and 0.03x, respectively.
Although none of the selected companies is identical or directly comparable to Achieve, MTS Securities, based on its experience and professional judgment, selected the comparable companies because, although they are publicly traded companies, they have certain operations and products that, for purposes of analysis, may be considered similar to certain operations and number of products of Achieve, and, in particular, each of the selected companies have lead products and indications that were primarily available through a primary care physician and at a similar development stage as Achieves product, i.e. not commercial stage. Although MTS Securities is not aware of any other companies that would fit the mix of criteria used to identify the selected comparable companies, other persons might regard other companies to be comparable or might not include all of the companies MTS Securities included in its selected comparable companies analysis. MTS Securities noted that no comparable company meeting its selection criteria was excluded from its analysis. The information that MTS Securities reviewed included the enterprise values and peak revenues. MTS Securities did not apply a specific discount rate designed to account solely for Achieve being a private company, although it did take into account Achieves status as a private company for purposes of the determinations of valuation noted below. Taking into account Achieves stage of development and pipeline relative to the comparable companies and assuming a peak sale estimate of $308 million at the direction of OncoGenex management, the comparable companies analysis resulted in an illustrative equity value range for Achieve of $40 million to $610 million based on enterprise values and $10 million to $230 million based on total enterprise value/peak revenues.
Relative Valuation Analysis
MTS Securities analyzed the relative valuations resulting from the stand-alone equity value ranges calculated for Achieve and OncoGenex using two methodologies (i) by comparing valuations calculated using the discounted cash flow analysis for Achieve and the high (apatorsen partnership scenario) valuation and low (liquidation scenario) valuation for OncoGenex and the implied relative pro forma ownership ratio and (ii) by comparing valuations calculated using the comparable publicly traded companies analysis for Achieve and the high (apatorsen partnership scenario) valuation and low (liquidation scenario) valuation for OncoGenex and the implied relative pro forma ownership ratio.
Relative Valuation based on Achieve Discounted Cash Flow Analysis and OncoGenex Liquidation and Apatorsen Partnership Scenarios. For Achieve, this illustrative value range of equity value was $43.6 million to $70.5 million, $66.2 million to $103.2 million and $90.3 million to $137.3 million for the 80%, 100% and 120% revenue achievement factors, respectively. For OncoGenex, the stand alone equity value range was, based on the high (apatorsen partnership scenario) valuation and low (liquidation scenario) valuation, $10.8 million to $19.3 million.
The result of this relative valuation analysis showed a range of implied post-closing pro forma ownership of 2:1 to 7:1, 3:1 to 10:1 and 5:1 to 13:1 for the 80%, 100% and 120% revenue achievement factors, respectively.
MTS Securities noted that the significant majority of implied pro forma ownership ratios in this analysis exceed the 3:1 ratio proposed in the transaction.
Relative Valuation based on Achieve Comparable Publicly Traded Companies Analysis and OncoGenex Liquidation and Apatorsen Partnership Scenarios. For Achieve, this illustrative value range of enterprise values was $38.5 million to $607.0 million and total enterprise value/peak revenue range of $7.3 million to $232.8 million. For OncoGenex, the stand alone equity value range was, based on the high (apatorsen partnership scenario) valuation and low (liquidation scenario) valuation, $10.8 million to $19.3 million.
The result of this relative valuation analysis showed a range of implied post-closing pro forma ownership of 2:1 to 56:1 based on enterprise value and 0:1 to 22:1 based on total enterprise value/peak revenue.
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MTS Securities noted that the significant majority of implied pro forma ownership ratios in this analysis exceed the 3:1 ratio proposed in the transaction.
General Overview of Analyses; Other Considerations
MTS Securities performed a variety of financial and comparable analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not susceptible to partial analysis or summary description. In arriving at its opinion, MTS Securities considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor considered. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. The overall conclusions MTS Securities reached are based on all the analyses and factors presented, taken as a whole, and also on application of MTS Securities own experience and judgment. Such conclusions may involve significant elements of subjective judgment and qualitative analysis. MTS Securities therefore gave no opinion as to the value or merit, standing alone, of any one or more parts of the analyses. Furthermore, MTS Securities believes that the summary provided and the analyses described above must be considered as a whole and that selecting any portion of the analyses, without considering all of them, would create an incomplete view of the process underlying MTS Securities analysis and opinion. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above should not be taken to be the view of MTS Securities with respect to the actual value of OncoGenex or Achieve or their respective capital stock.
In performing its analyses, MTS Securities made numerous assumptions with respect to industry performance, general business, regulatory, and economic conditions, and other matters, all of which are beyond MTS Securities control and many of which are beyond the control of OncoGenex or Achieve. Any estimates used by MTS Securities