Annual report pursuant to Section 13 and 15(d)

Common Stock

v2.4.0.6
Common Stock
12 Months Ended
Dec. 31, 2011
Common Stock and Comprehensive Loss [Abstract]  
COMMON STOCK

10. COMMON STOCK

[a] Authorized

25,000,000 authorized common voting share, par value of $0.001, and 5,000,000 preferred shares, par value of $0.001.

[b] Issued and outstanding shares

July 2009 Financing

On July 24, 2009, the Company completed a registered direct offering with certain institutional investors covering the sale of 475,000 shares of common stock at a price of $20 per share under a shelf registration statement on Form S-3 (No. 333-160251) that was declared effective by the Securities and Exchange Commission, or SEC, on July 17, 2009. The transaction provided net proceeds of approximately $9.3 million after deducting costs associated with the offering.

2009 Teva Stock Purchase Agreement

On December 20, 2009 the Company and Teva also entered into a stock purchase agreement (the “Stock Purchase Agreement”). Pursuant to the terms of the Stock Purchase Agreement, Teva made a $10 million equity investment in the Company through its purchase of 267,531 shares of the common shares at a price of $37.38 per Share, which was a 20% premium to a thirty-day average closing price prior to the announcement. The transaction provided net proceeds of approximately $9,970,000 after deducting costs associated with the offering. The 20% share premium has been allocated to revenue, resulting in a net amount of $7,903,000 included in equity.

October 2010 Public Offering

On October 22, 2010, the Company completed a public offering of 3,174,602 units, with each unit consisting of one share of the Company’s common stock and one-half (1/2) of one warrant, at a purchase price of $15.75 per unit for an aggregate offering amount of $50 million.

Each whole warrant is exercisable at any time on or after the date of issuance until the fifth anniversary of the date of issuance at an exercise price of $20, and includes a cashless exercise feature. The Company accounts for warrants issued in October 2010 under the authoritative guidance on accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, on the understanding that in compliance with applicable securities laws, the registered warrants require the issuance of registered securities upon exercise and do not sufficiently preclude an implied right to net cash settlement. The Company classifies warrants on the accompanying consolidated balance sheet as a liability which is revalued at each balance sheet date subsequent to the initial issuance. The Company uses the Black-Scholes pricing model to value the warrants. Determining the appropriate fair-value model and calculating the fair value of registered warrants requires considerable judgment. On the date of issuance, the Black-Scholes value of the warrant was based on an assumed risk-free rate of 1.17%, volatility of 75% and an expected life of 5 years. A small change in the estimates used may have a relatively large change in the estimated valuation. Changes in the fair market value of the warrants are reflected in the consolidated statement of loss as gain (loss) on warrant.

The net proceeds to OncoGenex, after underwriting discounts and commissions and other offering expenses, from the sale of the units were $46.7 million, of which $32.3 million was allocated to common shares and included in Additional paid-in capital, $15.4 million was allocated to Warrant liability. $1 million of underwriting discounts and commissions and other offering expenses allocated to the value of Warrants was expensed in warrant issuance expense on our consolidated statement of loss.

At December 31, 2011, there were exercisable warrants outstanding to purchase 1,587,301 shares of common stock at an exercise price of $20 per share, expiring in October 2015. No warrants were exercised during the years ended December 31, 2010 or December 31, 2011.

Stock Option Exercises

During the year ended December 31, 2011, the Company issued 56,228 common shares upon exercise of stock options (year ended December 31, 2010 – 194,956, year ended December 31, 2009 – 37,388). The Company issues new shares to satisfy stock option exercises.

[c] Stock options

As at December 31, 2011 the Company has reserved, pursuant to various plans, 1,565,952 common shares for issuance upon exercise of stock options by employees, directors, officers and consultants of the Company, of which 766,328 are reserved for options currently outstanding, and 799,624 are available for future option grants (December 31, 2010 – 291,074).

2010 Performance Incentive Plan

At the 2010 Annual Meeting of Stockholders of the Company held on May 26, 2011, stockholders of the Company approved an amendment to the Company’s 2010 Performance Incentive Plan. As a result of this amendment, the 2010 Plan was amended to provide for an increase in the total shares of common stock available for issuance under the 2010 Plan from 450,000 to 1,050,000. Under the plan, the Company may grant options to purchase common shares or restricted stock units in the Company to employees, directors, officers and consultants of the Company. The exercise price of the options is determined is determined by the Board but generally will be at least equal to the fair value of the common shares at the grant date. The options vest in accordance with terms as determined by the Board, typically over three to four years for options issued to employees, and over one to three years for members of the Board of Directors. The expiry date for each option is set by the Board with a maximum expiry date of ten years from the date of grant.

Options remain outstanding under a number of share option plans that had been approved by shareholders prior to the approval of the 2010 Performance Incentive Plan: (a) the Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan – 1991 (1991 Plan), (b) the 1999 Nonqualified Stock Incentive Plan (1999 Plan), (c) the 2000 Stock Incentive Plan (2000 Plan), (d) the 2007 Performance Incentive Plan (2007 Plan), and (e) the OncoGenex Technologies Inc. Stock Option Plan (OncoGenex Technologies Plan).

ASC 718 Compensation – Stock Compensation

The Company recognizes expense related to the fair value of our stock-based compensation awards using the provisions of ASC 718. The Company uses the Black-Scholes option pricing model as the most appropriate fair value method for its awards and recognizes compensation expense for stock options on a straight-line basis over the requisite service period. In valuing its options using the Black-Scholes option pricing model, the Company makes assumptions about risk-free interest rates, dividend yields, volatility and weighted average expected lives, including estimated forfeiture rates of the options.

The expected life was calculated based on the simplified method as permitted by the SEC’s Staff Accounting Bulletin 110, Share-Based Payment. The Company considers the use of the simplified method appropriate because of the lack of sufficient historical exercise data following the reverse takeover of Sonus. The computation of expected volatility was based on the historical volatility of comparable companies from a representative peer group selected based on industry and market capitalization. The risk-free interest rate was based on a U.S. Treasury instrument whose term is consistent with the expected life of the stock options. In addition to the assumptions above, as required under ASC 718, management made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest. Forfeiture rates are estimated using historical actual forfeiture rate that resulted over the estimated life of the option grant for options granted as of the beginning of the forfeiture measurement period. These rates are adjusted on a quarterly basis and any change in compensation expense is recognized in the period of the change. The Company has never paid or declared dividends on our common stock and do not expect to pay cash dividends in the foreseeable future.

The estimated fair value of stock options granted in the respective periods was determined using the Black-Scholes option pricing model using the following weighted average assumptions:

 

      September 30,       September 30,       September 30,  
    2011     2010     2009  

Risk-free interest rates

    1.70     2.73     2.85

Expected dividend yield

    0     0     0

Expected life

    5.9 years       6.8 years       6.1 years  

Expected volatility

    76     75     74

The weighted average fair value of stock options granted during the year ended December 31, 2011 was $10.70 per share (December 31, 2010—$11.08 and December 31, 2009—$11.97).

Total stock-based compensation expense included in the Company’s statements of loss for the years ended December 31, 2011, 2010 and 2009 was $1,188,000, $642,000 and $380,000 respectively.

The results for the periods set forth below included stock-based compensation expense in the following expense categories of the consolidated statements of loss:

 

      September 30,       September 30,       September 30,  
    Years ended  
  December 31,  
    2011     2010     2009  

(in thousands)

  $     $     $  

Research and development

    509       331       88  

General and administrative

    679       311       292  
   

 

 

   

 

 

   

 

 

 

Total stock-based compensation

    1,188       642       380  

Options vest in accordance with terms as determined by the Board, typically over three or four years for employee grants and over one or three years for Board of Director option grants. The expiry date for each option is set by the Board with, which is typically seven to ten years. The exercise price of the options is determined by the Board but is at least equal to the fair value of the share at the grant date.

 

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

 

      September 30,       September 30,  
    Number
of
    Weighted  
  Optioned     Average  
  Common     Exercise  
  Shares     Price  
    #     $  

Balance, December 31, 2008

    723,143       4.88  

Option grants

    130,400       17.52  

Option cancellations

    (8,154     7.04  

Option exercises

    (37,388     3.79  

Option forfeited

    (5,130     6.42  
   

 

 

   

 

 

 

Balance, December 31, 2009

    802,871       6.95  

Option grants

    170,872       15.87  

Option cancellations

    (7,311     104.91  

Option exercises

    (194,956     4.22  

Option forfeited

    (26,563     7.35  
   

 

 

   

 

 

 

Balance, December 31, 2010

    744,913       8.74  

Option grants

    101,600       15.72  

Option cancellations

    (22,986     13.95  

Option exercises

    (56,228     3.88  

Option forfeited

    (971     41.91  
   

 

 

   

 

 

 

Balance, December 31, 2011

    766,328       9.82  

The following table summarizes information about stock options outstanding at December 31, 2011regarding the number of ordinary shares issuable upon: (1) outstanding options and (2) vested options.

 

      September 30,       September 30,       September 30,  

(1) Number of ordinary shares issuable upon exercise of outstanding options

 

Exercise Prices

  Number of Options     Weighted-
Average
Exercise Price
$
    Weighted-
Average
Remaining
Contractual
Life
(in years)
 

$2.69 — $2.85

    34,000       2.69       3.82  

$2.86 — $3.45

    257,150       3.00       4.00  

$3.46 — $5.39

    103,208       4.11       0.66  

$5.40 — $13.11

    54,479       9.98       7.61  

$13.12 — $15.74

    25,576       14.68       8.67  

$15.75 — $16.40

    125,700       15.97       8.96  

$16.41 — $17.27

    45,000       16.87       9.12  

$17.28 — $21.67

    42,615       18.83       6.50  

$21.68 — $22.28

    78,600       22.28       7.90  
   

 

 

   

 

 

   

 

 

 
       

Total

    766,328       9.82       5.61  

 

      September 30,       September 30,       September 30,  

(2) Number of ordinary shares issuable upon exercise of vested options

 

Exercise Prices

  Number of Options     Weighted-
Average
Exercise Price
$
    Weighted-
Average
Remaining
Contractual
Life
(in years)
 

$2.69 — $2.85

    34,000       2.69       3.82  

$2.86 — $3.45

    191,526       3.00       4.00  

$3.46 — $5.39

    103,208       4.11       0.66  

$5.40 — $13.11

    26,033       7.98       5.54  

$13.12 — $15.74

    13,235       14.43       8.53  

$15.75 — $16.40

    31,426       15.97       8.96  

$16.41 — $17.27

    9,270       16.86       9.08  

$17.28 — $21.67

    18,190       19.53       3.51  

$21.68 — $22.28

    39,300       22.28       7.90  
   

 

 

   

 

 

   

 

 

 
       

Total

    466,188       7.25       4.21  

As at December 31, 2011 and December 31, 2010 the total unrecognized compensation expense related to stock options granted is $2,675,100 and $2,962,000 respectively, which is expected to be recognized into expense over a period of approximately 2.6 years.

The estimated grant date fair value of stock options vested during the years ended December 31, 2011, 2010, and 2009 was $1,102,000, $736,000 and $399,000 respectively.

The aggregate intrinsic value of options exercised was calculated as the difference between the exercise price of the stock options and the fair value of the underlying common stock as of the date of exercise. The aggregate intrinsic value of options exercised for the years ended December 31, 2011, 2010, and 2009 was $592,000, $2,355,000, and $697,000, respectively. At December 31, 2011, the aggregate intrinsic value of the outstanding options was $3,444,000 and the aggregate intrinsic value of the exercisable options was $2,868,00.

[d] Stock Warrants

At December 31, 2011, there were exercisable warrants outstanding to purchase 1,587,301 shares of common stock at an exercise price of $20 per share, expiring in October 2015. No warrants were exercised during the years ended December 31, 2009 or December 31, 2010.

The estimated fair value of warrants issued is reassessed at each balance sheet date using the Black-Scholes option pricing model. The following assumptions were used to value the warrants on the following year end balance sheet dates:

 

      September 30,       September 30,       September 30,  
    Years ended  
  December 31,  
    2011     2010     2009  

Risk-free interest rates

    0.55     2.01     —    

Expected dividend yield

    0     0     —    

Expected life

    3.8 years       4.8 years       —    

Expected volatility

    76     75     —    

 

[e] Shareholder Rights Plan

The Company has a Shareholder Rights Plan which was adopted in July 1996 and subsequently amended in July 2002, October 2005, August 2006, and May 2008 (the “Rights Plan”). Under the Plan the Company’s Board of Directors declared a dividend of one Preferred Stock Purchase Right (Right) for each outstanding common share of the Company. Subject to the Rights Plan, each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock at an exercise price of $140, subject to adjustment. These Rights provide the holders with the right to purchase, in the event a person or group acquires 15% or more of the Company’s common stock, additional shares of the Company’s common stock having a market value equal to two times the exercise price of the Right. Pursuant to the Rights Plan, the one-for-eighteen reverse stock split caused a proportionate adjustment of the number of Rights associated with each share of common stock. Currently, eighteen (18) Rights are associated with each share of common stock.

[f] 401(k) Plan

The Company maintains a 401(k) plan in which it provided a specified percentage match on employee contributions. Following the Arrangement, the Board of Directors of OncoGenex amended and restated the 401(k) plan whereas securities of the Company are no longer offered as an investment option. This amendment prohibits the inclusion of OncoGenex shares in the 401(k) plan, as well as any match of Company shares to employee contributions. No shares of the Company were issued subsequent to the Arrangement, and as such no related expense was incurred.

[g] Loss per common share

The following table presents the computation of basic and diluted net loss attributable to common shareholders per share:

 

      September 30,       September 30,       September 30,  
    Years ended December 31,  

(in thousands except shares and per share amounts)

  2011     2010     2009  
       

Numerator

                       
       

Net loss attributable to common shareholders as reported

  $ 14,673     $ 12,584     $ 5,476  
       

Denominator

                       
       

Weighted average number of common shares outstanding

    9,729,340       7,030,903       5,766,850  
       

Basic and diluted net loss per common share

  $ 1.51     $ 1.79     $ 0.95  

As of December 31, 2011, 2010 and 2009 a total of 2,353,629, 2,332,214 and 986,256 options and warrants, respectively, have not been included in the calculation of potential common shares as their effect on diluted per share amounts would have been anti-dilutive.