ONCY - Oncolytics Biotech: Numerous Early Readouts But Dwindling Reserves

2023-12-11 07:24:11 ET

Summary

• Oncolytics Biotech is developing an oncolytic virus therapy for solid tumors, but data readouts remain early and cash is a serious concern.
• The company's sole product in development is an oncolytic virus called pelareorep, which has shown early evidence of improving response rates in breast and pancreatic cancer patients.
• Despite some promising findings, the data are not definitive, and the company's financial position is unsteady, making ONCY a very, very risky investment.

Topline Summary and Update

Oncolytics Biotech ( ONCY ) is an immunotherapy-focused biotech developing an oncolytic virus therapy for solid tumors. They remain one of the last remaining companies developing on this once-promising treatment modality that has, to date, not really shifted the standard of care for any cancer. ONCY could be the ones to change that, touting early encouraging data in numerous updates since my last article . That said, I've highlighted in the past that the data readouts remain early. That's unchanged. And I've highlighted that cash is a serious concern, which also remains unchanged. Dilution is a real concern from here, despite a very recent equity raise, and all of this makes ONCY continue to be a stock I cannot recommend. I maintain a sell rating.

Pipeline Overview

Pelareorep

ONCY's sole product in development is an oncolytic virus called pelareorep. This reovirus is designed to infect and kill permissive tumor cells. Beyond that, it is intended that the cancer cell, once infected, will release inflammatory cytokines that clue the immune system into the presence of something that should be taken care of.

In my last article, I covered in some depth the recent findings ONCY has generated in the area of breast cancer. In particular, their phase 2 findings from ASCO 2023 have generated some buzz, with pelareorep showing some early evidence of improving response rates in patients with HR-positive, HER2-negative, previously treated breast cancer. This came at the cost of a potentially concerning number of patients dropping out of treatment due to toxicity.

Not much else has been presented in breast cancer, outside of a translational study presentation at SITC and at SABCS . Of note, overall survival findings from this breast cancer study are anticipated, though no specific timeline was given. No doubt, ONCY is banking on surrogate markers of efficacy not really giving the real picture, as has been the case with some immunotherapy-based approaches in the past.

Pancreatic cancer

Arguably more important for the company now is the project in pancreatic cancer, which remains one of the deadliest giants in the pantheon of solid malignancies. Previously, findings from the GOBLET study showed a confirmed response rate of 69% when adding pelareorep to atezolizumab and chemotherapy, which is triple what would be expected by historical findings. The combination of pelareorep, atezolizumab, and gemcitabine/nab-paclitaxel is now a treatment approach being studied in the Precision Promise study, a large effort to accelerate promising therapies in pancreatic cancer treatment.

In an updated analysis of GOBLET at ESMO , the efficacy findings continued to remain promising, with an objective response rate now sitting at 62%, with median duration of response of 5.7 months. The 12-month overall survival rate was 46%. There was also some evidence for expansion of specific tumor-associated white blood cells, corresponding with response to therapy. Taken at a glance with gemcitabine/nab-paclitaxel alone in the Celgene study from 2013 ...the 12-month overall survival rate was 35%, and the response rate was 23%.

Now, there's nothing convincing you can say about comparing trial results across different studies, and when ONCY touted a "tripling" of the response rate, I expressed concern about that statement. Now, you can see that the 12-month OS rate would appear to be a modest improvement, at best. That's the capricious nature of small trials, which is why it's worth not getting too excited from early data.

Colorectal cancer

The GOBLET trial is not focused only on pancreatic cancer. They're also enrolling patients with lower GI tract cancers. At ESMO 2023 , ONCY presented a readout of interim findings in patients with "refractory" metastatic colorectal cancer. This included patients who were in their third line of treatment, which can be a setting with very bad outcomes.

Pelareorep was combined with atezolizumab and TAS-102 (the latter being a standard option in the third-line setting). Of the 15 evaluable patients, 5 achieved stable disease with the combination, meeting the study's "success criterion" of have more than 4 of an anticipated 16 patients with stable disease.

While not groundbreaking, it is important to recognize that this setting is not associated with a high response rate to therapies that are available. So it's worth continuing to study this, even if there were no responses. Note that this is a phase 1 study, so efficacy is not the main objective.

Financial Overview

Per their latest financial filing , ONCY maintained $40.0 million in cash and equivalents. Meanwhile, their operating expenses reached $11 million, with a net loss of $9.9 million after interest income and change in fair value of their warrant derivative. These losses are nearly double what they were in the same period of 2022, driven mainly by large increases in G&A and R&D expenses commensurate with their expansions into different disease states.

Taking into account the $5 million they received from PanCAN, ONCY has cash on hand to fund operations for approximately 4–5 quarters.

Strengths and Risks

First, I think you need to consider ONCY's data to date as fairly shaky, not definitive. By adding pelareorep to other, non-standard-of-care immunotherapy (like atezolizumab in pancreatic cancer), even the apparent benefits are impossible to tease out. And that's assuming there is really a benefit at all. Definitely consider these findings with a critical eye. It's difficult to imagine a data readout that really moves the needle in the next 6 months, but I will root for a surprise.

The cash is also something ONCY is going to need to address in the near future, as their reserves are dwindling at an increasing pace. I expect they'll be forced to raise some kind of cash within the next 2 quarters, and it's unclear whether they'll be able to do that from a position of strength. This represents a serious potential for undermining of your investment if you were to buy in today. And this comes after they already raised funds back in August, which would likely weaken shareholders' appetites for more dilution even further.

Bottom-Line Summary

Consider me a continuing skeptic of ONCY's investment potential. I'm rooting for the success of their therapy, but I would not be willing to count on it as an investment thesis at this time. They have some encouraging data in their GI studies, but it's the kind of data where I wouldn't be surprised to see the later-stage studies not reproduce what originally looked promising.

Couple that with a very, very unsteady financial position, and you have a great recipe for pain. I will continue to reiterate a sell rating, in which I take a stronger stance against buying in at this time, and to definitely reconsider the position you might have if you're sitting on one. Potential for reward here, but the risk is nigh-astronomical.

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