Oncolytics Biotech, Inc. (USA) (NASDAQ:ONCY)

CAPS Rating: 1 out of 5

A development stage company focuses on the discovery and development of oncolytic viruses for the treatment of cancers.

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Player Avatar zzlangerhans (99.78) Submitted: 8/20/2012 4:37:34 PM : Underperform Start Price: $3.23 ONCY Score: +28.25

If you check out the news feed for Oncolytics you'll see stories related to Reolysin, Reolysin, and Reolysin. Reolysin is an activated formulation of reovirus, a family of RNA viruses known best for including the infant diarrhea agent rotavirus. Reolysin is intended to selectively kill tumor cells with an activated Ras pathway. Reovirus has been in clinical development at Oncolytics for substantially longer than the 6 years I've been following biotech, and progress has been slow.

The central story for Reolysin now is the REO 018 phase III trial of Reolysin with paclitaxel and carboplatin in platinum-refractory head and neck cancer. This trial completed enrollment in the 80 patient initial stage of the trial in April and the company is awaiting the results of an ongoing data review to determine if they will continue the trial and enroll another 200 patients.

I believe REO 018 will fail, very likely in the near future with a report of futility in the interim analysis. If not, the trial will almost certainly fail in a couple more years after substantial dilution and additional expenditure. The main reason I expect failure is the steady downward trend in share price since the stock spiked to 5.5 in February. I do believe that insider trading is significant in small cap biopharmas, and I think it's very likely that the current trend represents insiders and institutions selling their shares at a profit ahead of disastrous news. Reolysin represents a substantial departure from previous anti-neoplastic therapies which is a great news if it turns out to be successful, but also increases the empiric likelihood of it being unsuccessful. The final nail in Reolysin's coffin is the Feuerstein-Ratain rule, which states that no company with a market cap less than 300M has had a positive phase III trial for a cancer drug in the last ten years.

As of today, Oncolytics' market cap was about 250M. Speaking of market cap, failure of Reolysin in this phase III trial will raise the spectre of total platform destruction, which would raze the market cap close to the cash position of 36M. That corresponds to a share price around 45 cents. Unfortunately, only management knows when they will release the results of the interim efficacy analysis of REO 018, although it seems certain that it will be before the end of 2012. The ask on December 2.50 puts is 70 cents, which is a little too much implied volatility for my taste. Nevertheless, it should be an interesting situation to follow as the year goes on.

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Member Avatar Hawks1986 (< 20) Submitted: 8/21/2012 7:32:00 PM
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The management at this time has no idea what the interim data shows, a declining stock price due to insiders having knowledge of the results at this point, is probably not what has happened. If the big holders of this stock got wind of bad news it would have plummeted a lot more and there would be little reason for the bounce (small bounce) the stock has had as of late.

Also as far as the Feuerstein-Ratain, you may be overlooking the fact that technically at this point we are at PART 1 of PHASE 3. Sure, a discontinue of the trial from the interim data is a fail, but if it is a go decision after the interim look, there is still a lot of time before the end of the trial, and a lot of time for the SP to move up (or down) along with the market CAP. We are not nearing the end of the trial, we are nearing the end of the first part. While I suppose you could bring up the 300M rule here, it would be more appropriate while waiting for results of PART II, or the final part of this phase 3 trial. Just something to consider.

Member Avatar fresnarus (< 20) Submitted: 8/21/2012 9:58:13 PM
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The above review prognosticates about the success or failure of the Reolysin phase III trial based on recent stock price movements. This trial is double-blinded, so I have no independent knowledge of the data.

However, it is worth pointing out that the National Cancer Institute of Canada has announced that it will fund and conduct randomized controlled phase II trials of Reolysin in the following indications: Breast Cancer, Lung Cancer, Colorectal Cancer, Prostate Cancer. The National Cancer Institute here in the USA is funding phase 2 trials in Multiple Myeloma, Pancreatic Cancer, and Ovarian Cancer. Indeed, the outside funding agencies are putting up around $45M USD for all this research, leaving Oncolytics only to pay the remaining $6M. (This is described in the June 2012 shareholder meeting, which is available online.)

I am no medical expert, but the company must have considerable scientific merit for the outside agencies to chip in this much free money. Given that roughly 15% of the world's 7 Billion people will die of cancer, there is considerable upside in any $250M market-cap company that appears to be making reasonable progress.

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