Oncolytics: Killing Cancer With A Virus
Summary
- Oncolytics has a product that, if approved for even one of many studied indications, will double its net value.
- This product, Reolysin, has 6 separate ODDs from the FDA and the EMA this year.
- Reolysin is an attenuated virus form that can target and kill cancer cells while also triggering a similar immune reaction.
- Read this article along with two separate interviews I had with Dr. Brad Thompson, CEO of Oncolytics.
(Editors' Note: The accompanying interviews to this article will be published Tuesday, July 21, at 9am, and linked here).
Two companies working in viral oncotherapy have late stage drug candidates. Of these, Amgen (NASDAQ:AMGN) has a product called T-Vec, which just successfully completed phase 3 trials, has a BLA application in progress, and will probably be in the market within a year. Oncolytics (NASDAQ:ONCY), on the other hand, has its candidate Reolysin in one phase 3 trial (completed 2 years ago), multiple phase 2 trials, but is taking its time in terms of market approval, and has still some ways to go before applying for it. In other words, Amgen is a few years ahead of ONCY in getting to the market.
However, if I was investing in viral oncotherapy, I would prefer ONCY to AMGN for the following 5 reasons.
One, at $120 billion, AMGN is a huge company - the largest biotech in the world. While AMGN is attractively valued at current levels, its value is not entirely driven by any one drug. Any benefit I would expect in the stock's price movement from events in the viral oncotherapy space would get subsumed by its other drugs. ONCY, on the other hand, is exclusively about viral oncotherapy. It is a small company, so the risk/reward profile is higher.
Two, T-Vec's original developer BioVex and ONCY have similar histories. Both began around the same time, about 17-18 years ago, and both went through numerous trials and a directionless approach towards the market for years. Finally, Amgen bought out BioVex for $1 billion about 4 years ago, which is when T-Vec began a definite movement towards the market. I believe if it was ONCY that had been bought instead of BioVex, that the story for ONCY would have been similar to T-Vec today. It is not because of any problem with the drug Reolysin itself that ONCY is not first-in-time.
Third, for a variety of reasons I will discuss in details shortly, Reolysin has an edge over T-Vec. T-Vec needs to be injected right into the tumor for it to work; Reolysin can traverse the vascular system. So it can target more types of cancer, and is only limited by the necessity that the Ras pathway be present in targeted cancer cells, which triggers the viral growth. Since the Ras pathway is present in 30% of all human tumors directly, and plays a central role in signal transduction in approximately two-thirds of all tumors, that gives ONCY's Reoviral product Reolysin a much larger scope, and that is a distinct benefit over Amgen's Herpes (HSV-1) based Talimogene laherparepvec or T-Vec.
Number four, the fact that Amgen is going to market sooner than Reolysin would ordinarily be a let-down. However, in this case at least, T-Vec will act as proof of concept for Reolysin, which has a similar technology. Proof of concept is required to shake off the misperception in the market that ONCY's sluggishness means a problem with its product Reolysin - it is not - it is more likely an operational issue. Moreover, all these viral therapies are more or less complementary, and, as CEO Brad Thompson told me in an interview, "I expect that in a decade or so, when a patient presents with a new cancer occurrence, a Dr. will be able to say, you have X cancer, so this virus Y is best indicated for that."
Five, that operational issue seems to be slowly resolving over the last year or so. Reolysin has taken definite steps towards the market. It has received no less than 6 orphan drug designations in the US and the EU, and has protected its patent portfolio with more than 370 patents globally, 56 of them in the US. For survival as a company, after 20 years of slow growth, it has nowhere else to go but to the market. Its product, as I shall show, is great - with T-Vec's eventual approval, investors as well as Big Pharma will surely take an interest in viral oncotherapy. Then ONCY will either take the product to market, or someone else will license it or buy out ONCY, and do that for them. Either way, there is profit to be made. I believe this company will see upside of at least double its current value within the next few years. And that is being conservative.
What is Viral Oncotherapy
Viral oncotherapy is the science of using viruses to destroy cancer cells. For over a century, it has been known that certain virus infections can destroy malignant tumors. I was reading in Scientific American that as early as in 1904, a woman in Italy, who had cervical cancer and then got bit by a dog, was cured of a very large tumor probably by the Rabies virus which was given as an antidote to the dogbite. Many classes of viruses have been studied, including the Herpes virus and Reoviruses, and the latter is ONCY's specialty.
According to Alan Melcher, a professor of clinical oncology at the UK's Leeds Institute of Molecular Medicine, "cancer cells have an impaired interferon response that makes them vulnerable to viral attack." Drugs like Reolysin exploit that impairment, which is not present in normal cells.
These viruses, called oncolytic viruses (they break down, or lyse, in cancer cells) attack the tumor both directly and through a triggered immune response. The latter is long lasting, and can last long after the cancer has been cleared from the body. Reovirus research, funded by the charity Cancer Research UK and studied in 10 patients with advanced bowel cancer, showed that the virus worked by "killing cancer cells directly and triggering an immune response that helps eliminate leftover cancer cells." It is possible to give the treatment in an injectable form in outpatient departments because of its high safety profile.
What is taking Oncolytics so long to get to the market
In most cases of drug development, years, even decades of research goes behind a drug at the academic level, issues are sorted out, and then a company is formed, which can quickly get to late stage trials and market approval. When people look at the company's history, they tend to forget the academic years.
For example, oncolytic abilities of genetically engineered poliovirus (PVS-RIPO) research at the Gromeier Laboratory at Duke University is already older than 10 years, and they are still in their phase 1 stage. They are being funded by government funds and charities. If this were a public company, they would be funded by investors - but investors have less patience than charities.
In Oncolytics' case, it didn't happen like that. The company was formed when research was still at academic levels. The company went public within two years of its birth, and when there had been no proof of concept. Initially, the company traded high, at $10 levels, because investors believed in the concept. If the academic years were behind it, that valuation would have continued.
However, Oncolytics went through a long phase of trial and error, and investors lost interest. Grow up, and we will take another look, they said. Well, that day is almost here.
In its early years, Oncolytics tested Reolysin for early stage head and neck cancer using intratumoral (IT) therapy. However, the trials were disappointing. Researchers finally discovered that Reolysin works best with metastatic cancers, not local cancers like they were testing in head and neck. The primary role of Reolysin seems to be in triggering the immune system to attack cancer cells, which is not as efficient as other options in early stage. On the other hand, the primary usefulness of many other cancer treatments is localized, and they fail or become non-specifically cytotoxic when sent against metastatic tumor. So, monotherapy for Reolysin was abandoned, and it was combined with known chemotherapy agents carboplatin and paclitaxel, or as neoadjuvant therapy in presurgical settings.
Another discovery was the particular genetic mutations which, if present in patients, made Reolysin more effective. From the beginning, ONCY researchers knew that a "particular mutated gene in the Ras pathway, KRAS, would be important. They went on to discover that patients with abnormalities in two other genes, EGFR and BRAF, were also far more likely to respond to reovirus than other patients were."
These studies took time, especially for an underfunded Canadian company, hence, after 17 years of effort, they have nothing yet to show in the market.
But, as CEO Brad Thompson told Forbes, "We get it. We know what we have to do to get there."
Comparison of T-Vec and Reolysin
The first difference to be noted between T-Vec (and most other viral cancer drugs) and Reolysin is that Reolysin doesn't have any major engineered genetic mutation, it is a so-called wild-type or "naked" virus (as Brad Thompson clarified to me, it is a very close naturally occurring relative of the wild type, a type 3 Dearing, one of the 3 strings of Reovirus, and a dozen base pairs different from the wild type, and this can be, and has been, patented) that naturally attacks cancer cells. For example, "the technology behind T-Vec augments HSV-1's affinity for cancer cells with modifications designed to make it more suitable for therapy: Scientists deleted the virus's ICP47 gene, which ordinarily helps to shield herpes from the immune system, and they deleted its ICP34.5 gene, involved in mechanisms that ordinarily promote the virus's ability to infect neurons." Nothing like that was required for Reolysin.
How is that good? Well, firstly, there's no extra research or manufacturing cost involved in genetically modifying the reovirus to make it target cancer cells. Secondly, the virus only targets cells with the Ras pathway (and a couple other genes like BRAF and EGFR that were later discovered) so it is extremely onco-specific.
That second point is very important. That is what makes a major difference between reolysin and T-Vec. Since the Ras pathway is present in 30% of all human tumors directly, and plays a central role in signal transduction in approximately two-thirds of all tumors, that gives ONCY's Reoviral product Reolysin a much larger scope.
One critical difference between Reolysin and almost all other oncolytic viruses being studied is that the reovirus can travel through the vascular system without being targeted by our immune system. According to a study:
Recent evidence from Melcher's laboratory, published last June in Science Translational Medicine (first author, Robert A. Adair) showed that although Nabs quickly eliminated free-floating reovirus in plasma, viral particles sequestered in carrier cells-specifically, peripheral blood monocytes, granulocytes, and platelets-acquired a "stealth phenotype" that protected them from the immune system. In an accompanying editorial, Bell wrote that cell-associated virus "was able to travel through the patient's circulatory system, avoid antibody neutralization, and deposit in metastatic tumor sites in the patient's liver . . . once the virus reached the tumor, it was capable of replication and spread within and between tumor cells.
This ability makes it go to places where an intratumoral therapy wouldn't work.
T-Vec's approval and how that helps Reolysin
I asked Brad what their reaction was when Amgen spent a billion dollars on a competitor. He said, "We were thrilled. It established pharma interest in the area, and also guaranteed that T-Vec would have the resources behind it to finish development."
When I asked him how T-Vec's approval will help Reolysin, he said, "T-Vec getting approved will help the entire product group. The last remaining question "can a virus get approved in the EU or the USA for the treatment of cancer" will be answered. The approval will enhance the values of all the other virus projects in the area whether it be for financing, partnering, or buy out."
Other experts concur. Experts describe the outcome as pivotal not only for T-Vec's developer but also for the roughly 15 additional oncolytic viruses now in development. "This is the first big phase III, and if the results are positive, they will give the field an enormous boost," says Alan Melcher.
There are three ways to understand this. First, for a niche science area like viral oncotherapy, any advertisement is good advertisement. Amgen's buyout of BioVex and subsequent entry into the approval process increased investor awareness, so that's good for Reolysin. Secondly, as CEO Thompson says, the FDA/EMA will also be made aware of the legitimacy of the platform. Viral oncolysis is already approved in China, but not so in the West. A single approval will break the barrier, so to say. Thirdly, these therapies are complementary, but together they can take on the entire cancer space. So, each virus has its genetic peculiarities that lets it target certain cell receptors, certain genetic populations, and certain tumor types. So, for one drug to be approved does not mean the market is closeted. Rather, it means that the market opens up for another indication.
Operational issues: which trial to market
ONCY has had 31 trials in its entire lifetime, which can get a little confusing for investors. Here's the complete list:
(click to enlarge)
Source
I asked the CEO about their trial priorities, and he said the first priority is neoadjuvant therapy in muscle invasive bladder cancer. A neoadjuvant therapy is given before surgery, with respect to bladder cancer, specifically those at T2-T3 stages of the TNM classification, or where the tumor has invaded the muscle walls of the bladder, but hasn't progressed further than that, to T4, or outside the bladder. The priority is because this is one cancer with a singular endpoint where Reolysin's excellent tumor reduction capacity can be tested. That is borne out by Reolysin's excellent PFS data from the REO18 study. ONCY has also done animal studies in bladder cancer. "In an animal model of TCC, Dr. Moore's group found that 70% of the animals had no evidence of tumours after treatment with REOLYSIN, with no evidence of toxicology found as a result of treatment."
These priorities were given in a meeting this year as well.
ONCY's second priority is GBM or glioblastoma multiforme, the most advanced and most common form of glioma (brain cancer). Note that ONCY has an ODD for malignant glioma. The reason Brad cited is to "exploit the immune response effects which are to extend OS in an indication where we have data and the patients have poor outcomes- GBM." Oncolytics has done multiple trials for glioma. Interestingly, Brad said that ONCY asked the FDA for an ODD on pediatric GBM first, but the FDA went ahead and gave them ODD for the entire range of gliomas.
They announced in June this year:
Planned Registration Program for Muscle-Invasive Bladder Cancer
The Company has filed an Investigational New Drug Application ("IND") to conduct a small run-in study in patients with muscle-invasive bladder cancer. Pre-operative patients will be treated with a combination of gemcitabine, cisplatin and REOLYSIN® and assessed for histopathological response and safety. Subject to confirmation of histopathological responses attributable to REOLYSIN®, the Company intends to conduct a larger registration study in this indication.
Planned Registration Program for Gliomas
The Company recently announced that the IND containing the protocol titled "MC1472: Phase 1 Study of Replication Competent Reovirus (REOLYSIN®) in Combination with GM-CSF in Pediatric Patients with Relapsed or Refractory Brain Tumors" was active. The Company intends to conduct a separate small run-in study combining the standard of care (surgery followed by radiotherapy and temozolomide) with REOLYSIN® in adult patients. Subject to confirmation of responses, the Company intends to conduct a larger registration study using the better therapeutic regime.
I asked Brad when we can expect results from the 2 run-in studies, and he said by the first half of 2016, we will have results. As he said, "It will be very much confirmatory "are you seeing anything" data." In my opinion, these results, more than anything else, will also confirm the company's status as a serious contender for the market.
Some data from trials
Recent release of topline survival data from two trials is encouraging for Reolysin. A PFS of 94 days in test arm versus 50 days in control arm was observed in head and neck (REO18), with statistically significant OS (p=.0146). Similarly, in pancreatic cancer (NCI-8601), there was a 39% improvement in PFS from the control arm in 44 patients with KRAS mutated pancreatic cancer.
The safety profile of Reolysin is also impressive. According to the corporate presentation:
- More than 1,100 patients treated, more than 1000 intravenously at doses up to 3x1010 TCID50 daily
- No maximum tolerated dose (MTD) reached to date
- Monotherapy toxicities have generally been mild (Grade 1 or 2) and included chills, fever, headache, cough, myalgia, runny nose, sore throat, fatigue and Grade 1 or 2 lymphopenia and neutropenia
- Transient Grade 3 and 4 toxicities included lymphopenia and neutropenia
- These symptoms were more frequently observed from Day 2 of treatment and usually lasted less than 6 hours
- Safety profile has been confirmed in a randomized setting in Oncolytics' REO 018 study of head and neck cancer patients
ONCY announced that a trial sponsor recently presented data at ESMO covering final results from the company's REO 017 Phase 2 study of Reolysin in combination with Gemcitabine (GEMZAR) in 33 patients with advanced pancreatic adenocarcinoma. Data showed "this drug combination can increase median overall survival, as well as generate an approximate two-fold increase in one-year survival rates, and a five-fold increase in two-year survival rates when compared to gemcitabine therapy alone as seen in historical data." Gemzar is the well-known chemotherapy agent developed and marketed by Eli Lilly. The data compared with historical controls is given below:
(click to enlarge)
Patent Protection
I mentioned that ONCY has some 370 patents globally, 56 of them in the US, and many pending patents. I was worried that with all the delay, that they may have problem with their patent protection. So I asked Brad about that, and he said:
Composition of matters claims go to 2028, the virus itself. Pharmaceutical use patents, which are weaker, go to 2023. The Hatch-Waxmann extension. And then all the manufacturing, co-therapy patents, some expire before 2028, some after. The signpost claims are the composition of matter claims which are the longest, upto 2028. Now that's one of the reasons we went for the orphan drug status, people may ask "why now," the reason was to basically get that non-patent exclusivity for those indications. 7 years in the States and 10 in Europe, if we need it, it will be there. If we don't need it, fine. Having that extra 10 years in Europe is handy.
So, if they can get a drug to market before 2020, they can have at least 7-8 years of non-generic and ODD exclusivity, which is good.
Orphan Drug Designations
ONCY has multiple orphan drug designations from both the FDA and the EU.
Ovarian cancer - Reolysin has ODD from both the FDA and the EMA, for ovarian cancer that afflicts more than 30,000 women every year, with almost 15,000 women dying from the disease from a total patient population of about 200,000. Reolysin has two trials in ovarian cancer.
Pancreatic cancer - Both the FDA and the EMA granted ODD to Reolysin for pancreatic cancer. About 70% patients have RAS pathway activated, making them viable target for Reolysin.
Cancer of the Fallopian tube - The FDA granted an ODD in March this year. "The FDA's recognition of ovarian and fallopian tube cancers as distinctly separate indications paves the way for a more targeted approach to the treatment of gynecological cancers," said Dr. Brad Thompson, President and CEO of Oncolytics. "We are pleased to have secured our third Orphan Drug Designation in the United States and look forward to continuing our development and commercialization program for REOLYSIN."
Reolysin also received ODDs for Primary Peritoneal cancer, Malignant Gliomas and Gastric cancer.
The Money
Last week, ONCY shares rallied more than 26%. The stock saw a pullback later in the week and is currently trading at around $0.65. As of May 6th, 2015, ONCY had $31.5 million in cash and short-term investments on its balance sheet. This translates to around $0.27 per share. So the market is assigning a value of around $0.40 per share for ONCY's Reolysin. As I said, even if the drug reaches commercialization stage in just one of the many indications it is being evaluated for, the upside could be tremendous.
Let's first take a look at the potential in head and neck cancers. According to a report from GlobalData, the competitive landscape in head and neck cancer treatment market is sparsely populated. The report further notes that existing approved products are not very effective. In fact, GlobalData notes that one of the most promising products is Reolysin.
Globally, there are around 600,000 new cases of head and neck cancers. In the U.S. alone, around 40,000 people are diagnosed with head and neck cancers each year, according to estimates from the American Cancer Society. Around 11,000 patients die each year from the complication. The head and neck cancer market is estimated at $3.2 billion and there is significant unmet need. Given that Reolysin is seen as one of the most promising products, it could easily capture a substantial portion of this market, if reaches commercialization stage.
According to Edison Investment Research, Reolysin could capture 30% of the head and neck cancer market at peak. I think the assumption is slightly conservative, considering Reolysin could become the best-in-class product. I am assuming a 40% market share and 40% probability of commercialization. According to data from Torreya Partners, the probability of approval from Phase II is around 40%. While Reolysin has completed a sort of Phase III in head and neck cancer, there is still some time before a regulatory filing. Therefore, I have taken the probability of success at 40%. Based on these assumptions and the size of the market, Reolysin could achieve peak sales of $512 million.
Now, ONCY has already stated in its 20F filing that it intends to partner or joint venture with larger pharmaceutical companies that have existing and relevant marketing capability for its products. Assuming a royalty rate in mid-teens, ONCY could generate net revenue from Reolysin in head and neck cancer at peak of around $75 million.
Then there is GBM where Reolysin has potential. The GBM treatment market itself is not very large. According to ResearchMoz, the market could reach $583 million by 2019 from $305 million in 2012. This translates to a CAGR of around 8.4%. If the market continues to grow at the same CAGR until 2025, it would be worth around $950 million. This could roughly be the time when Reolysin could reach peak sales. I am assuming peak market share of around 10% for Reolysin, given the competition in the GBM space. This would translate to peak sales of about $100 million. I am assigning a higher probability to Reolysin in GBM despite it being in early clinical stages because an approval for one indication will make approval for other indications easier. I am taking the same probability for GBM as I did for head and neck cancer i.e. 40%. So the risk-adjusted peak sales would be $40 million. Again, I have assumed mid-teen royalties so this would translate to roughly $6 million.
Finally, there is bladder cancer. According to GlobalData, the bladder cancer market is expected to grow at a CAGR of 4.5% between 2012 and 2017 to almost $300 million. If the market continues to grow at the same pace until 2025, it would be worth around $425 million. I am assuming a 20% market share for Reolysin at peak in bladder cancer. This would again translate to peak sales of around $100 million and risk adjusted peak sales of around $40 million. Net revenue for ONCY based on this would be again around $6 million.
Based on the three indications I have discussed, ONCY could have peak sales of around $87 million. This translates to $0.76 per share. This gives ONCY price to sales estimate (based on peak sales estimate) of just under 1x sales at current levels. The average for the biotech industry is around 10x, according to data from New York University. If Reolysin is approved in one indication, an approval in other indications is likely. Therefore, it will be safe to assume that ONCY's multiple should be higher. Even if the multiple doubles from current levels, which is still conservative but accounts for all the risks associated with ONCY, the upside could be significant. Based on this and peak sales estimate for Reolysin in head and neck cancer, ONCY should be trading at around $1.52 per share. This would represent an upside of more than 100% from current levels.
The main risk to the ONCY story is dilution. In fact, that has been ONCY's story since 1998 when the company was founded. The company has been through numerous trials and dilutive offerings that have resulted in significant loss of shareholder value. I raised the dilution issue during my interview with the company's CEO and he said that based on the current cash balance and burn rate, the company has sufficient cash to fund operations until early 2017.
Based on my own assessment, I think ONCY has cash until the middle of next year. As I noted earlier, ONCY has around $31.5 million in cash on its balance sheet as per latest available data. The company had a cash burn rate of around $5 million per quarter in 2014. Assuming that the company burns cash at the same rate going forward, the current cash balance is sufficient to fund operations at least until the middle of 2016. While this means a dilution could happen, the CEO told me that the company has an equity line.
Another risk with ONCY is delisting from the NASDAQ. Just recently in my daily biotech digest, I had noted the enthusiasm among overseas biotech to list in the U.S. I raised the delisting issue as well in my interview. The CEO though played down the whole issue. For one he said that the pricing requirement can be addressed through a reverse stock split. He, however, said that ONCY is in full compliance with the requirements of listing on the Toronto Stock Exchange.
But I would like to emphasize that a NASDAQ listing is important for ONCY at this stage, especially as it looks to attract strategic partners. So a delisting would be a negative for the company.
My Opinion
When you invest in a small biotech, you invest, first, in the people, and second, in the technology. Talking to CEO Brad Thompson, I was left with no doubt that these were sincere people who really believed in their science and would do everything to develop the drug.
However, I also feel that their zeal for research has sometimes made them lose focus of the market. A typical attitude seems to be to "let's go into the laboratory and do some research" rather than "let's go into the market and make some money."
That isn't, in itself, a bad thing. Do you really want scientists that have no zeal for research? However, I think that they want to add someone to the team who has more regulatory and post-approval expertise.
I asked Brad about that, whether their management has regulatory and marketing expertise. Initially he stated categorically that "We do not have the regulatory and marketing experience necessary to introduce a new product, and so want to stick to what we do best." However, he later clarified on call that they have considerable development experience. Specifically, he highlighted the experience of Dr George Gill, VP of Regulatory Affairs, who had been part of teams developing 10-12 oncology products at Bristol-Myers Squibb (NYSE:BMY). Brad said what they don't have is post-approval expertise, specifically in distribution and marketing, which is why they are looking for a partner.
If that is correct, then I think the timeline is going to go like this - run-in results by first half of 2016. If these are positive, I think a jump to a phase 3 trial directly is not impossible, given that the phase 1 trials are not really dose ranging trials - dose ranging has been done before and according to the corporate presentation, no MTD (maximum tolerated dose) has been reached (this is one time their 31 trials will come in handy). That critical step jump will probably need the FDA's blessings, but anyhow, if it happens it will save them couple years. Then, a really comprehensive, pivotal phase 3 trial on the more successful of the two run in trials, which will take until the end of 2018 to complete, and by 2019, we can expect Reolysin in the market for at least one indication.
Author's note - It is not possible to put in a single article the results of 30 odd trials and 20 years of research. So I have left a few things out of the discussion, notably research with PD-L and PD-L1, GM-CSF, and a few other topics. However, these details have been touched upon by Brad Thompson in the interviews, which are published simultaneously with this article.