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Oncolytics’ (ONCYF) Second Quarter Results

08/14/2017
By John Vandermosten, CFA

OTC:ONCYF

Earnings Update


Oncolytics Biotech, Incorporated’s (OTC:ONCYF) second quarter began with a rush of activity as the company presented compelling data from its IND 213 study at AACR followed by an announcement of fast track designation by the FDA and presentation at ASCO in May.  The strong data from the metastatic breast cancer trial indicated a 17 month benefit from REOLYSIN (compared to 10 months for chemotherapy alone) and opens the opportunity for breakthrough designation which could be announced in October.  In preparation for a Phase III trial, Oncolytics raised additional capital in May which is expected to fund operations until late next year.

The second half of 2017 will emphasize the interactions with the FDA and how this will impact the design of the Phase III trial for metastatic breast cancer.  There is also the possibility to receive breakthrough designation which will expedite the FDA’s review of REOLYSIN.  Potential collaborators are watching this process closely and we anticipate that there will be more to announce regarding a partner for the Phase III trial before the end of the year.

On August 3, 2017, Oncolytics released second quarter 2017 operational and financial results and filed their second quarter report on SEDAR with the Canadian Securities Administrators.  Second quarter net loss of ($4.3) million was below our estimates of ($3.9) million due to higher R&D, partially offset by lower operating expense.   On a per share basis, net loss was ($0.03), matching our estimates.  No revenues were reported, in line with our expectations.  

Research and development expense was $2.9 million, up from $1.5 million in the prior year period due to higher manufacturing and related process expenditures, clinical trial expenses and intellectual property expenditures.  Other clinical trial expenditures increased the most and rose by $829,000, or 126% due to severance payments that were made to company officers.  Other factors contributing to the increase include patent filing costs, greater levels of travel, and shipping and storage costs of bulk and vialed product and a lack of recoveries from partners that occurred in 2016.  These increases were partially offset by lower research collaboration expenses and smaller share based payments.

Operating expenses of $1.4 million were up a 28% from the prior year’s $1.1 million on a $0.3 million increase in office expenses due to greater headcount and partner recoveries recognized in the prior year.  Public company expenses were up slightly over the prior year, as management eliminated certain investor relations services bringing them in house.

Cash and equivalents levels at the end of 2Q:17 were $16.7 million, rising from 1Q:17 levels of $10.1 million due to the June 1st equity issuance.  Gross proceeds from the transaction were $10.4 million.  Cash burn of $4.7 million was higher than our estimate of $3.7 million due to higher R&D and increases in working capital.  Oncolytics’ balance sheet continues with no debt and $3.3 million in current liabilities.

Upcoming Milestones

➢ End of Phase II Meeting with the FDA (3Q:17)
➢ MUK Eleven study enrollment
o Trial is currently open for enrollment
o Expect first patient during 3Q:17
➢ Final analysis of REO 024 (REOLYSIN with Pembrolizumab) for pancreatic cancer
➢ Pursue collaboration for Phase III trial for metastatic breast cancer

Key Achievements

➢ Fast Track Designation
➢ Completion of Offering
o Gross proceeds of CAD$11.5 million
o Net proceeds of CAD$10.4 million
o 16,445,000 units sold at CAD$0.70
➢ Safety Data Presented at ASCO

Public Offering

On June 1st the company closed its public offering of 16,445,000 shares at CAD$0.70 per share raising gross proceeds of CAD$11,511,500.  An equal number of warrants were included with the share units, bearing an exercise price of CAD$0.95 per share and a five year duration. Net proceeds from the issuance totaled CAD$10,366,098.

Summary

Oncolytics’ R&D and financing achievements during the second quarter place the company in a strong position to develop a protocol for the Phase III trial with the FDA and maintain sufficient capital to fund operations until late 2018.  The ultimate outcome for the proposed trial design and a positive nod from the FDA will open the doors for a partnership with potential collaborators.  The cash on the balance sheet is sufficient for the company to start its Phase III trial for REOLYSIN in metastatic breast cancer and also enables management to maintain a strong negotiating position with potential partners who may develop the oncolytic virus outside of North America.  While not incorporated in our valuation assumptions, the results from the end-of-Phase II meeting may yield a more efficient path to market and justify a higher valuation

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