Why Is Oncolytics ($ONCY) Not Belle Of The Ball?

I don’t often write articles for BioPub for a number of reasons; one, I’m not an MD, a PhD, or some combination thereof; two, I’m not blessed with the wordsmith capabilities as our KSS MD PhD, who somehow can craft a sentence so rich in meaning while also being kind of beautiful to read that you end up re-reading it two or three times despite understanding the message; and three, I have a tendency to ramble and amble, to allow my quirky sense of humor to get my mind off track. But, the Boss asked me to write a little something on Oncolytics, $ONCY, in which I have a long position.

So really quick, I’m Jonathan, the man who put the “Ass” in Associate Editor, and here’s a little bit of a retrospective on Oncolytics. This is intended to be a paper that details where 2018 has taken the company and where 2019 will, or hopefully should (this IS biotech, after all) end up.

To refresh, we’ve been following Oncolytics for 12 months or so. It’s a prototypical biotech concern working in the immuno-oncology realm, and has had a rather depressing ride, share price-wise, since we began following. Take a look at the chart; it hurts, though largely it’s in line with what small-cap bio has been doing for the last year, except ONCY has been more interested in the dips rather than the bumps… When I say prototypical, I mean that it trundles along in a market that churns and turns on the vagaries of data, of funding, and of news; a dearth of news is almost as deleterious as bad news, oddly enough, and so companies often try to juice up their news flow, often bloating it with useless facts (looking at you, $IPIX).

Let’s step back 12 months or so when Doctor KSS brought this company to our attention. If you’ll recall, at the end of 2017, Oncolytics was a P3-ready company in a subset of metastatic breast cancer. They had solid evidence from a P2 showing that Reolysin in combination with paclitaxel, a chemotherapy agent, doubled OS in a couple subsets of breast cancers. Fantastic stuff; just get the right patients, repeat the trial results, and we’re good to go, right?. And even more exciting, the trial would have been under SPA designation, assuming the FDA OK’ed the protocol. At that point, they only wanted a partner for funding reasons and then, assuming positive data, a solitary trial and, boom, Reolysin would be before the FDA for approval. That’s a special situation that gets investors’ attention! One could also surmise that, depending on with whom they partnered, there would have been a buyout soon after. It’s a rather traditional thing to happen in this space.

But what actually has occurred in 2018 has been vastly different than assumed. Despite the name, oncolytic viruses don’t actually kill cancer; rather, they inflame the tumor microenvironment (TME) and thus make it more easily destroyed by the immune system, especially in combination with checkpoint inhibitors (or chemo agents). The last 12 months has really been about proving that combinatorial therapies work.Why? Because checkpoint inhibitors are all the rage now; you turn on Jeopardy! (7:30 EST, check your local listings), and Keytruda and Opdivo are streaming into your living rooms. Soon  we’ll have a total of six PD(L)-1 checkpoint inhibitors on the US market (and perhaps 30 more in China!). What’s more interesting for Oncolytics, a) showing they can work in a subset of metastatic breast cancer, or b) seeing what they can do in concert with checkpoint inhibitors? If CEO Coffey and company can show the latter, then all of a sudden Reolysin becomes an add-on therapy for drugs that are currently ringing the register to the tune of billions of dollars, and the checkpoint inhibitor market is only getting started, really. Going for a combination approach with a chemo agent might not be a great idea as the future is, hopefully, moving away from chemo; going in combination with the immuno-oncology drugs the market cannot stop talking about though. Treatment with Reolysin justifies, creates a need for, add-on checkpoint  inhibitor therapy if effect is to be optimal and survival benefit maximized. That’s a very good idea! Let’s not forget that BigPharma loves to lengthen the lifespan of its drugs. Think about it; they spend hundreds of millions to get a preclinical asset to an NDA-approved asset; they then spend tens of millions more marketing that drug. It takes years before doctors are really comfortable prescribing a drug as they want to see how their own patients react, not just peruse the published data. So if Roche can, for example, sell Opdivo for 5 more years in concert with Reolysin, then a huge portion of those sales are pure profit as the clinical cost of Opdivo has already been amortized and more.

So that’s really the gist of what’s been going on. Good stuff, in the long run, really.

But what the market and retail investors see things as way different: they see a company that may have had to really scrape and manipulate subsets of its data to show a solid effect in OS for a smaller niche of MBC patients. Claiming to be “P3 Ready”, ONCY has now waited 12 months without starting its P3; neither has it really gotten a partner, besides the rather standard agreements with Roche and others to use their checkpoint inhibitors in combination approaches. So Oncolytics has gone from claiming to be P3-ready to instead trialing a whole bunch of P1bs and P2s in a basket of cancers and approaches? Sounds like a company that really doesn’t have its sh*t together, and so traders and short term investors sold the shares that they had originally bought for the usual reasons: SPA designation, partnership assumption, and general fast-moving P3 trial.

I would also add the 2016 through 2018 saw a spate of takeovers by big pharma for a few oncolytic virus firms like Viralytics and BeneVir. ONCY, though, stayed single and on the market. I suspect this, too, contributes to investor disdain as they believe that Big Pharma has picked over the better choices. I doubt we’ll ever see a head-to-head look at how each oncolytic virus is doing; in fact, Doc, have you heard much about either Viralytics or BeneVir? [Editor’s reply: Nope.] They were taken over by Merck ($MRK) and J&J ($JNJ), respectively; I personally have not seen any updates on their trials, though I’ll look.

So, to sum up: I feel 2018 was a case of a company pivoting, smartly, from what might have been a false (or perhaps inflated) positive P2 with a chemo agent to instead focusing on what will really showcase the value of the drug at hand, checkpoint inhibitors. Investors see a pivot and think cynically; as well, they assume the last girl on the block must be a rather ugly one for no one to have chosen her yet.

Now, are ONCY’s pelareorep or other oncolytic viruses the only agents trying to make a cold tumor hot? No, there are others like $HTBX, $TRIL (no position in either) or others that are intending to do the same. TRIL I liked and owned in years past, but data is lacking; as well, management does not tick the boxes quickly. Heat, well, there’s a story there, but it’s not for these pages. Again, though, Big Pharma is naturally going to like ONCY because it increases the relevance of its existing portfolio; they won’t be afraid of investing in immune-oncology 2.0 if Keytruda + Reolysin has a similarly positive dataset.

Now what happens if immune-oncology pivots a different way, away from checkpoint inhibitors, but more towards another approach? Maybe something like Inovio ($INO)? Well… that’s a good question. Luckily, Dr. KSS has ideas there!

As per the usual, I will not trade for 3 days after posting this article. All viewpoints are my own, thankfully, as no one should really think in the same lines that I do. If you did not think my prose was very essence of brilliance, well then good for you. Although you are wrong…

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