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ONCYF: A Whirlwind 2017 Readies Spate of New Trials

By John Vandermosten, CFA


Barely Time to Breathe

Oncolytics Biotech (OTC:ONCYF) had a whirlwind year in 2017 posting exciting results from their Phase II study in metastatic breast cancer, receiving a grant of Fast Track by the FDA and signing a partnership with Adlai Nortye which provides cash and milestones in return for a regional license in Asia.  The company had additional successes for the year related to other REOLYSIN pursuits as well as a constructive relationship with the FDA, which is expected to approve a special protocol assessment in the near future.  An uplisting to the NASDAQ is also planned along with new Phase II efforts to continue to explore the potential for the company’s lead candidate. 

On March 9th Oncolytics Biotech announced 2017 results along with their financial statements and MD&A.  Net loss for the year was ($0.12) per share or ($15.6) million.  No revenues were recorded; however, an upfront license fee was received from Adlai Nortye as part of the Asian licensing deal.

Research and development expenses were $9.4 million for 2017.  The line item decreased 4% from prior year levels on lower intellectual property, research collaboration and other R&D expenses which were partially offset by increased activity related to regulatory requirements, scientific advisory meetings, FDA and EMA interaction and key opinion leader activities.  Foreign exchange also had a material impact on reducing reported R&D expense.

Operating expenses for the year increased by 12.5% to $6.2 million.  A rise in office expenses related to headcount increases and compensation costs was offset by declines in public company related expenses and amortization.  The company also opened another office in San Diego, California.  Overall, expenses of $15.6 million in 2017 expanded modestly over 2016 levels.  Loss per share improved slightly due to an increase in average shares outstanding from 120 million in 2016 to 132 million in 2017.

Cash stands at $11.8 million as of December 31, 2017 and operating burn was $15.0 million for the year.

Looking Ahead to 2018 and 2019

The company has guided towards $16 million in cash burn for 2018 and expects higher levels in 2019 as the Phase III trial moves into full swing.  For 2018, our estimates call for an increase in R&D to $9.8 million and an increase in operating expenditures to $8.0 million, which represents a net loss of ($17.7) million.  In 2019, we anticipate R&D to increase to $14 million and operating costs to expand to $10 million, yielding operating expenses of $24 million -- a 35% expansion over 2018.  We anticipate normal inflationary pressures over the remainder of the trial. 

Based on guidelines provided by management, we estimate that the Phase III trial for HR+/HER2- metastatic breast cancer will cost from $70 to $80 thousand per patient and include 450 patients.  The trial is expected to last approximately 3 years, which suggests approximately $1 million per month in direct trial related expenses.  We also expect a small outlay for other work the company is doing in Phase II studies for other indications along with partners.  We anticipate most of the costs related to these trials will be absorbed by academic institutions, grants and partners, which should limit the financial commitment largely to contribution of drug substance for these efforts.

Phase III Trial

In December, Oncolytics received an advice letter from the EMA supporting a 400-patient study for the upcoming Phase III study.  The letter addressed the use of REOLYSIN in combination with paclitaxel for the treatment of hormone receptor positive, HER2 receptor negative metastatic breast cancer patients.  It was further supportive of a single 400-450 patient study to form the basis of a Marketing Authorization Application in Europe.  This followed the September meeting with the FDA which was held in support of the design for the Phase III trial.  

In early February, the company provided an update on the design of its Phase III trial for HR+/HER2- metastatic breast cancer.  The call featured Dr. Aleix Prat, Head of Medical Oncology at Hospital Clinic of Barcelona who discussed the current treatment environment for clinical studies targeting the HR+/HER2- patient population.  Dr. Matt Coffey, CEO and Dr. Dr. Andres Gutierrez, CMO also contributed to the discussion, providing detail regarding the Phase III trial design. 

Following discussions with the EMA and FDA, Oncolytics has developed an adaptive trial that is targeting 450 patients in a registrational trial in support of regulatory approval.  This number of patients was increased from previous guidance of 400 patients due to additional biomarker work and inclusion of patients in Chinese sites that will be funded by partner Adlai Nortye.  Patients will be HR+/HER2- and have failed one other prior chemotherapy treatment regimen in advanced metastatic breast cancer and must also have received treatment with a hormone based therapy that may or may not have included mTOR or CDK4/6 inhibitors.  Patients will be randomized 1:1 on REOLYSIN and paclitaxel or paclitaxel monotherapy.  There will be a maximum of eight 28-day treatment cycles of combination therapy in both the active and control arm. After the treatment period, patients will have the option to continue on with REOLYSIN monotherapy if deemed appropriate.  

The primary endpoint for the study will be overall survival, with secondary endpoints of objective response rate, progression free survival and biomarker identification.  The duration of the trial is expected to be from 36 to 48 months depending on the interim evaluation of the independent data monitoring board (IDMB).  

The trial will target 150 sites in North America, Europe and some Asian countries which should allow for rapid enrollment.  An interim analysis will be performed at 200 events (deaths) by an IDMB.  As the trial is adaptive, the board will decide at that time if the trial needs to be extended from its target 36 month duration to 48 months.  The interim analysis is expected to occur from 24 to 30 months following initial enrollment.  

If the trial progresses as expected, then management expects to submit regulatory filings by 2022.  The fast track designation granted REOLYSIN for this indication is expected to allow for close collaboration with the FDA, and potentially rolling review and accelerated approval which may speed REOLYSIN to market compared with the regular procedure.  

The trial design was largely in-line with our assumptions and prior guidance given by the company.  The number of enrollees was increased from previous levels; however, this is not a negative as we believe this is an important factor to provide the necessary data for obtaining approval from Asian authorities and the additional cost will be borne by partners.  

Oncolytics is currently pursuing a special protocol assessment (SPA) with the FDA in order to obtain additional input on trial design, clinical endpoints and statistical analyses that are acceptable to the agency.  The company plans to submit the assessment in March, after which the FDA has 60 days to respond.  If the design is acceptable to the FDA, then the trial will begin in the third quarter.  In some cases, the FDA requires additional information, which could lead to a delay from this timeline.

Other Studies

Oncolytics’ primary goal is to further REOLYSIN in a Phase III trial for metastatic breast cancer.  However, the company does have other indications that it is developing in conjunction with partners using combination therapies with checkpoint inhibitors, IMiDs and other compounds.  These are targeting indications other than breast cancer including pancreatic cancer and liver cancer among others.  Only minimal expense is expected from these trials as they are expected to be funded by partners and academic institutions.  We believe these are important efforts, well worth the minimal effort and expense required as it provides a steady flow of data that can attract the attention of large pharmaceutical companies and potentially show additional efficacy and safety for this promising biologic.

Oncolytics Seeking NASDAQ Listing

Oncolytics announced on January 29th that it will seek a listing on the NASDAQ exchange.  A shareholder vote was held on February 23 to consolidate the company’s shares to achieve the required listing price.  The vote was in favor of the reverse split and the company is currently working through necessary details to effectuate the consolidation. The company remains in communication with the NASDAQ to determine the number of days above the pricing threshold required before the uplisting will be allowed and anticipates the move to NASDAQ will be a second quarter event.  

As we discussed in an earlier report, the NASDAQ Capital Market requires a minimum share price of $2.00 to commence listing on the exchange if market value of the listed security is greater than $50 million.  While we cannot guess Oncolytics’ relative ranking of elements it is considering for the reverse split ratio, we see a 1:10 relationship as a reasonable choice as it makes the math a little easier and satisfies some of the other constraints that support additional institutional ownership and liquidity. 

A NASDAQ listing brings an additional level of prestige to a company as well as a higher perceived level of quality due to the reporting and corporate governance requirements for the exchange.  While Oncolytics is already meeting these standards, which are also required by the Toronto Stock Exchange (TSX), the reputational benefits are expected to increase volume of shares traded in the United States.  Many institutional investors require their portfolio constituents to trade on the NASDAQ or NYSE due to the higher reporting standards and they also prefer shares to trade at a $5.00 or greater minimum price.  While a reverse split and exchange uplisting will not change any of the fundamentals for the company, it will increase the pool of potential investors.  This should result in better access to capital, greater liquidity and a tighter bid-ask spread.  


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