ONCT - Oncternal Therapeutics: Selling For Under Cash Value

Summary

• Today, we are circling back on Oncternal Therapeutics, Inc. for the first time since last October.
• Despite advancing its pipeline and strong analyst support, the stock currently sells for less than the cash on the company's balance sheet.
• An investment analysis follows in the paragraphs below.

It is better to die on your feet than to live on your knees .”? Emiliano Zapata

We last looked at Oncternal Therapeutics, Inc. ( ONCT ) in October of last year. We concluded that article with the following summary:

The company's pipeline is also early stage and the company is years away from any potential commercialization. Given this, I plan to keep on the name and will probably revisit it when Oncternal advances its pipeline to late stage development. Other than that, we have no investment recommendation on this name."

A Seeking Alpha follower sent me a note asking if I could circle back on this small cap biotech concern. An analysis follows in the paragraphs below.

Company Overview:

Oncternal Therapeutics Inc is based in San Diego, and is a clinical-stage biopharmaceutical company. Oncternal continues to be focused on developing novel therapies aimed at a broad spectrum of cancers with large unmet medical needs. These drug candidates work by exploiting pathways absent or minimally expressed in normal cells or tissue in order to inhibit cancer cell growth while reducing potential harm to healthy cells. Currently, the stock sells for around a buck a share and sports an approximate market capitalization of $60 million.

The company has several compounds in its pipeline. For the purpose of this analysis we will concentrate on lead candidate Zilovertamab, as it is the only compound past the very early stages of development. In April of the year, the company decided to deprioritized further development of its small molecule inhibitor ONCT-216 for the treatment of Ewing sarcoma so it could focus more on the development of Zilovertamab.

As we stated in the previous article, Zilovertamab:

Is a first-in-class humanized monoclonal antibody that binds with high affinity to a biologically important epitope on ROR1. ROR1 is a type 1 transmembrane protein that is expressed on the plasma membrane. When expressed by hematologic malignancies, ROR1 acts as a receptor for the tumor growth factor Wnt5a. When Zilovertamab binds to ROR1, it inhibits Wnt5a from being activated, causes differentiation of the tumor cells, and stops tumor cell proliferation, migration, and survival ."

Early this year, announced that it had come to an agreement with the FDA around a phase 3 registrational study design for Zilovertamab in the treatment of mantle cell lymphoma or MCL. That trial will be called ZILO-301 and will consist of approximately 250 subjects. These individuals will be used to evaluate the potential benefit for patients who achieve either a partial response or stable disease during a lead-in with ibrutinib only. This compound is better known by its brand name IMBRUVICA. These patients will receive just ibrutinib daily for four months. Patients with an inadequate response will be randomized on a one to one basis to receive Zilovertamab or placebo in addition to ibrutinib.

Interim data from a phase 1/2 trial showed an objective response rate of 85% and a complete response [CR] rate of 41% in 27 evaluable patients. These results compared favorably to the historical overall response rate of 66% and the CR rate of 20% for ibrutinib monotherapy. The median PFS of 35.9 months for MCL patients with a median follow-up of 15.1 months. This is also compares favorably to the historical PFS of 12.8 months for ibrutinib monotherapy.

In patients with p53 mutated chronic lymphocytic leukemia or CLL the PFS of the combination of Zilovertamab with ibrutinib was 100% at 24 months and 100% at 30 months, which compares favorably to the historical ibrutinib monotherapy PFS of around 68% and around 55% at 24 months and 13 months, respectively.

The ZILO - 301 study may provide two paths to potential approval. First, an escalated approval based on overall response rate, ORR, plus duration of response, DOR. And second a regular FDA approval based on progression-free survival of PFS, which is the primary endpoint.

The company is also planning to conduct a study called ZILO-302. This will be an open label companion study of Zilovertamab plus ibrutinib for patients who have progression -- progressive disease during the ibrutinib monotherapy run in phase of the study of ZILO-301 and result of the study could potentially support an additional approval and indication expansion.

ZILO-301 is scheduled to kick off sometime this month. Oncternal Therapeutics. Management also plans to provide interim clinical data update from their Phase 1/2 study of Zilovertamab plus ibrutinib in patients with MCL and CLL before the end of 2022.

Analyst Commentary & Balance Sheet:

Since late May, five analyst firms including BTIG and Brookline Capital have reiterated Buy ratings on ONCT. Price targets proffered range from $3.50 to $15.00 a share. Here is the view from Northland Securities' analyst who reissued his Outperform rating and Street high $15 price target on May 27th:

The interim results from the company's ongoing Phase 1/2 CIRLL study that enforce the potential for the combination of Zilovertamab plus ibrutinib for treating relapsed/refractory mantle cell lymphoma. The analyst argued that the updated interim data for the combination should serve as a catalyst for shares as they are "clearly supporting" the registrational Phase 3 studies initiating in Q3 of this year. He also noted that relapsed/refractory mantle cell lymphoma patients achieving complete response did not achieve progression-free survival, or PFS, which he sees "boding well for Zilovertamab as a major breakthrough ".

The company ended the second quarter of this year with just under $80 million in cash and marketable securities on its balance sheet against no debt. Management stated that these funds will be sufficient to fund our operations into the first half of 2024. Several insiders made small purchases in the first quarter of this year totaling just over $110,000 in aggregate. That has been the only insider activity in the shares so far in 2022. Just over one percent of the outstanding shares are currently held short.

Verdict:

After a 75% decline over the past year, the stock now appears more than cheap. The shares sell for under cash value. Its primary drug candidate has delivered solid mid-stage results and will soon start a key registrational trial. The company enjoys strong analyst support and has seen no recent insider selling. ONCT also has an extremely low short position for a biotech stock.

In addition, the company has other assets in its pipeline, which we did not cover in this article. Add it all up, and ONCT would appear at least a small " watch item" holding in a well-diversified biotech portfolio.

In War: Resolution, In Defeat: Defiance, In Victory: Magnanimity In Peace: Good Will. ”? Winston S. Churchill

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