Oncolytics Biotech Inc. Target Price $ 8

ONC : TSX : C$2.52
Target: C$8.00


Oncolytics Biotech is a biotechnology company with a biologic therapy in late stage development for the treatment of various cancers. The company’s lead product, Reolysin, is a live virus that has the ability to replicate in certain cancers, thus destroying the cancer cell. Oncolytics is now conducting several randomized studies for Reolysin (including head & neck and pancreatic cancers), which should read out over the next several months.
All amounts in C$ unless otherwise noted.

Life Sciences — Biotechnology
Investment recommendation
We expect data from Oncolytics’ Phase III head & neck cancer study of Reolysin anytime this month. Oncolytics was originally set to announce results from this trial last summer; however, prior to analyzing the data, the company noted an imbalance of responses, suggesting that two groups of patients were responding differently to treatment. The upcoming results should be a major milestone for the stock, representing a first look at key randomized efficacy endpoints for Reolysin. With data now on the horizon, we continue to recommend risk-tolerant investors accumulate the stock ahead of these anticipated catalysts.
Investment highlights
 Protocol changes somewhat mitigate clinical and regulatory risk. Following approval from the FDA last year, Oncolytics changed the Phase III study protocol. Although investors initially responded negatively (due to uncertainty and extended timelines), we believe that these changes have partially mitigated clinical risk.
 We would view a strong trend (on the primary endpoint) to be positive. Although enrollment was expanded to 160 patients, we believe that the study presents a low likelihood of producing significance on the primary endpoint. However, we expect that a strong trend in the overall survival analysis could be viewed as positive.
 We see a higher bar for metastatic disease. On the secondary analysis of metastatic tumours, we believe that Oncolytics needs to show stronger evidence of efficacy. While the interim analysis (last December) produced positive results, we believe that this must translate to the final survival endpoints to be viewed as successful.
We value Oncolytics using a probability weighted NPV model of Reolysin in key indications, including head & neck cancer. Based on this analysis, we arrive at a 12-month target price of C$8.00, which supports our BUY rating.

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