Oncothyreon, Inc. (NASDAQ:ONTY)

CAPS Rating: 4 out of 5

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Player Avatar zzlangerhans (99.80) Submitted: 12/23/2012 11:51:10 PM : Outperform Start Price: $1.98 ONTY Score: +14.65

I tried to play against my own strategy by greenthumbing Oncothyreon a couple of months ago, and got swatted down painfully. Somehow I got confused about the timing of START topline data thinking that we would be seeing phase II data from PX-866 first. In fact, that wasn't the case, and I ended up being on the wrong side of the Stimuvax failure that I had been anticipating for years. To add insult to injury, I was coming off a night shift and couldn't get myself awake enough to make a massive buy at 1.7 in the pre-market, which in retrospect was a gift. The stock closed at 2.2 on the day of the collapse, although it gave up some of that bounce later in the week.

At a share price of 2, Oncothyreon has a market cap of 114M that is backed by about 82M in cash as of the end of 2012. While Stimuvax is probably a dead weight on the enterprise value, Oncothyreon has a wild card called PX-866, a PI-3K inhibitor currently in phase II trials for multiple indications. Primary endpoint data from several of these trials is expected in the first two quarters of 2013.

I've been meaning to read up on PI-3K inhibitors for a while, but I have to admit I haven't gotten around to it. What I know best is that Infinity's PI-3K inhibitor IPI-145 is responsible for a quintupling of that stock's price over the last year despite only being in phase I trials. Feuerstein points out that IPI-145 and similar drugs in development by other companies are directed against hematologic cancers, but I'm not sure if there is any basis for pessimism about their efficacy in solid tumors.

Right now it seems that an enterprise value of 30M is low for the potential of PX-866. The company is likely suffering from a substantial loss of investor confidence due to the severe evisceration that occurred after the early notification of the START failure. While the PX-866 trials could indeed all fail, it will probably only take reasonable success in one of the phase II trials in progress to resurrect Oncothyreon as a viable oncology drug developer. I've seen this happen now in too many stocks like Pharmacyclics, Infinity, and Ariad to ignore.

I'll keep watching Oncothyreon for now because there's nothing to prevent the share price from drifting back down towards cash, or perhaps even lower, in the short term especially if there's a lot of volatility at the macro level. Hopefully I'll be able to get myself up to speed on PI-3K inhibitors by New Year, but if I like the price before that happens I won't be shy about starting a real-life position.

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