StemCell Therapy

Today, we will study why Oncolytics Biotech (ONCY) is risky but attractive in 2020.

Oncolytics Biotech is a clinical-stage company focused on the development of an intravenously delivered immuno-oncolytic virus called Pelareorep. The company is targeting solid tumors and hematological malignancies. Oncolytics Biotech has partnered with multiple big pharma players such as Pfizer (PFE), Merck (MRK), and Roche Holding (OTCQX:RHHBY) to explore the efficacy of Pelareorep in combination with oncology drugs belonging to different classes, across a range of cancer indications.

On December 6, the company received notice from Nasdaq that it was in compliance with the exchanges minimum bid price requirement.

The global immune checkpoint inhibitors market is anticipated to cross US$ 25 Billion by 2022. Unlike surgery, radiotherapy, and chemotherapy, checkpoint inhibitors do not directly target the tumor cells. Instead, they amplify and accelerate the immune system in the patients body to identify and then destroy the tumor cells.

The market opportunity would have been even higher if immunotherapies would not have failed frequently. A major reason for the failure of immunotherapies stems from the ability of tumor cells to alter the microenvironment and avoid getting identified by the bodys immune system. Cancer cells are not foreign bodies like bacteria and viruses. Hence, the immune system finds it difficult to identify them. Besides, immunotherapies also fail when the patient does not have T-cells. T-cells also require to be at the location of the tumor. There are certain indications where only around 20% of patients are currently benefitting from checkpoint inhibitors.

The immune system is categorized into two types, innate and adaptive. The innate immune system comprises of nonspecific defense mechanisms such as skin, chemicals in the blood, and natural killer cells. This activates immediately or within hours of an antigen's appearance in the body. The adaptive immune system comprises of T-cells, which generate an antigen-specific immune response. Adaptive immunity also involves memory, thereby resulting in improved response to that specific antigen in the future.

To make immunotherapies work, there are three core requirements. T-cells have to be present in the body. These T-cells have to be moved to the location of the tumor. The tumor cells also need to express PD-L1, the target of checkpoint inhibitors. Hence, to make checkpoint inhibitors work, we need to increase the number of T-cells, move them to the location of the tumor, and cause the tumor to overexpress PD-L1.

Oncolytics Biotech is working on Pelareorep, an oncolytic virus that aims to activate the innate and adaptive immune system in the patients bodies. This, in turn, is expected to increase inflammation in tumors, which would cause overexpression of checkpoint inhibitors. This will finally help the immunotherapy to effectively detect the tumor cell.

Oncolytic viruses are retroviruses that replicate only and specifically in tumor cells. Hence, there is no effect on normal tissues. Hence, the goal of oncolytic viruses is to infect and replicate into tumor cells and allow the immune system to identify these tumors.

Pelareoreps genome is double-stranded RNA. The immune system can detect this structure very easily in normal cells. Cancer tissue does not have the ability to identify the double-stranded RNA, thereby allowing the virus to replicate. The companys first patents were based on this understanding of biology.

Pelareorep not only activates the innate immune system to destroy tumor cells but also activates the adaptive immune system. When tumor cells are destroyed by the innate immune systems natural killer cells, it leads to cell debris. Thereafter, the adaptive immune system or T-cells learn to identify the tumor cells based on this debris.

Pelareorep is currently being evaluated in combination with other cancer therapies in metastatic breast cancer, pancreatic cancer, and relapsed/refractory multiple myeloma indications.

Oncolytic Biotech is also developing a biomarker blood test to identify patients most likely to benefit from Pelareorep. In April 2017, the company had reported median OS (overall survival) of 20.9 months in Phase 2 randomized, open-label study in patients with mutated p53 metastatic breast cancer when treated with Pelareorep combined with paclitaxel. This was more than double the OS of 10.4 months seen for patients treated only with paclitaxel. Since the OS benefit is a function of the immune system, the FDA has asked the company to measure the strength of the immune system.

Oncolytic Biotech is using TCR sequencing to evaluate the robustness and reactivity of the patients immune system called T-cell clonality. The biomarker blood test can help evaluate the patients immune reserve and thereby predict the response to this oncolytic virus therapy. Within three weeks, the company can evaluate whether new T-cells are being formed and if the patient is actually responding to therapy.

Oncolytic Biotech has reported the creation of new T-cells and existing T-cells becoming reactive to the tumor for the first early-stage breast cancer patient treated with Pelareorep combined with Roches Holdings Tecentriq in AWARE-1 trial. Unlike normal individuals in an urban setting whose forms 2-3 new T-cell clones every month, the patient had about 450 T-cells. This is a clinical proof of Pelareoreps ability to train the immune system.

The company also demonstrated an increase in T-cells within the tumor as well as at tumor periphery. The company expects to complete enrollment of this study as well as announce interim data in the first quarter of 2020. Oncolytics Biotech also expects final data from this trial in mid-2020.

Oncolytics Biotech, Pfizer, Merck KGaA, and a leading cancer research network, PrECOG, are also studying a combination of Pelareorep, Bavencio, and paclitaxel in three-arm open-label Phase 2 study, BRACELET-1 in metastatic breast cancer indication. The company plans to commence enrollment in this trial in the first quarter and complete enrollment by the fourth quarter of 2020. The company also expects interim data from this trial in the fourth quarter of 2020 and the final data in the first half of 2021.

In May 2018, Oncolytics Biotech received SPA (special protocol assessment) from the FDA for its Pelareorep program in breast cancer indication. FDA recommended the company to identify a biomarker for this therapy before the Phase 3 trial. The agency has also confirmed that only one successful Phase 3 trial will be required for securing approval for this therapy.

In October 2019, the company presented clinical data across 13 clinical studies across various cancer indications, which demonstrated the effectiveness of intravenous delivery for Pelareorep. 81% of the tumors were positive for replicating the virus. Excluding melanoma skin biopsies, the number of tumors with replicating virus was almost 96%.

Pelareorep has demonstrated efficacy in combination with CDK 4/6 inhibitors in early-stage breast cancer indication in pre-clinical studies. The drug is also demonstrating activity in combination with proteasome inhibitor, Amgens (AMGN) Kyprolis (carfilzomib) in an ongoing NCI's sponsored multiple myeloma study. In December 2019, the company announced positive results for a combination of Pelareorep and carfilzomib in multiple myeloma.

Oncolytics Biotech expects interim data from both the above trials in the fourth quarter of 2020.

In November 2019, Oncolytics Biotech announced a partial response of 17.4 months from 1b REO 024 study evaluating Pelareorep in combination with Mercks (MRK) Keytruda in Advanced Pancreatic Adenocarcinoma patients. The partial response has already exceeded the historical overall survival data in this indication. The company is now evaluating this combination regimen in the Phase 2 trial. Oncolytics Biotech expects to complete Phase 2 enrolment by mid-2020 and release final data from the trial in the second half of 2020.

Pelareorep has demonstrated favorable safety and tolerability in these trials.

Oncolytics Biotech has a strong patent estate for Pelareorep, which involves 399 patents worldwide. The composition of matter patent protects the particular strain used in this therapy. This IP estate will protect the therapy from competition till 2028.

Pelareorep scores ahead of other OV (oncolytic virus) therapies in three key aspects of delivery, safety, and efficacy. Unlike other OVs which require intratumoral delivery, Pelareorep is administered intravenously. This will allow nurses to administer Pelareorep with chemotherapy drugs the same way they infuse other cancer therapies. Intratumoral delivery requires specialized training and hence is costlier for the oncologist.

Pelareorep has also been found to target cancer cells across the body, while not affecting normal cells. This systemic mechanism of action is yet to be demonstrated by other OVs. Finally, Oncolytic Biotechs efforts to identify a biomarker for this therapy can help identify patients most likely to benefit from Pelareorep.

Oncolytic Biotechs growth prospects depend solely on the clinical and commercial prospects of its investigational IOV (immuno-oncolytic virus), Pelareorep. This exposes the company to a high degree of business concentration risk. The companys research programs are in Phase 1 or Phase 2 of clinical development.

The probability of final regulatory approval for an asset currently in Phase 1 in oncology indication is only 5.1%. The probability of final regulatory approval for an asset currently in Phase 2 in oncology indication is only 8.1%. Based on these numbers, we see that the company is exposed to a high degree of R&D failure risk.

Oncolytic Biotech has cash of $9.28 million and zero debt on its balance sheet. In the last 12 months ending September 2019, the company spent around $12.9 million cash on operational activities. While the company is scheduled to earn up to 86.6 million from collaborators, these payments are spread over multiple years. Hence, the chances of a possible dilutive round of funding remain high. The company may also raise some debt to fund its operations.

Finally, the company is not yet profitable and may continue to be loss-making for many more years. This can dampen the companys valuations.

On January 2, Roth Capital analyst, Jonathan Aschoff reiterated the Buy rating and increased Oncolytics target price from $6.80 to $9.0. The analyst expects final data from the Phase 2 AWARE-1 breast cancer trial in the second quarter of 2020. In December 2019, Echelon Wealth Partners Douglas Loe reiterated buy rating for the stock and set target price at $8.43. In May 2019, RBC Capital analyst Douglas Miehm maintained an Outperform rating and set target price at $6.89.

The above table highlights the change in analyst recommendations and target price for the stock since December 2018.

Oncolytics Biotech will not have a steady stream of revenues for the foreseeable future. Analysts expect the company to reduce its loss per share in 2020. However, the improvement will most likely be due to additional equity dilution and not a reduction in net losses.

Oncolytic Biotech stands a solid chance of being an acquisition target for big pharma companies. There have already been many licensing and acquisition transactions in the oncolytic virus space.

In this backdrop, I believe the target price of $6.0 is a likely estimate of the company's share price after 12 months. Although a very risky stock, the companys oncolytic virus technology holds huge promise in the oncology space. Hence, I recommend investors with above-average risk appetite to consider this stock in 2020.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Oncolytics Biotech: A Small But Very Promising Cancer Player In 2020 - Seeking Alpha

This entry was posted on January 26, 2020 at 4:48 am and is filed under Immune System. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed. |