ONC : TSX : C$2.00
ONCY : NASDAQ
BUY
Target: C$6.50
COMPANY DESCRIPTION:
Oncolytics Biotech is a biotechnology company with a biologic therapy in late-stage development for the
treatment of various cancers. The company’s lead product, Reolysin, is a live virus that has the ability to
replicate in certain cancers, thus destroying the cancer cell. Oncolytics is now conducting several randomized
studies for Reolysin (including head & neck and pancreatic cancers), which should read out over the next
several months.
All amounts in C$ unless otherwise noted.
Investment recommendation
Oncolytics reported top-line data for Reolysin in head and neck cancer (H&N). While the company reported positive median PFS for Reolysin (13.4 weeks vs. 7.1 weeks in the control), limited detail, some omitted data points, and a lack of statistical analysis, painted an incomplete picture for investors. We believe that there were likely a number of confounding factors that impacted the analysis; however, expectations for these results were certainly much higher. As such, we believe that selling from investors with a shorter time horizon pressured the stock.
Investment highlights
We continue to believe that Reolysin shows signs of efficacy in this indication. However, additional data points (the metastatic disease data) and analysis is required to further understand these results.
Oncolytics expects to advance Reolysin into a registration study in H&N cancer. This trial is likely to be single-blind to mitigate the
drop-out risk due to the higher incidence of fever in the test group.
We continue to anticipate a number of data announcements in the near term, including results from the REO 018 metastatic-only patient group (likely in H1 2014) and the Phase II randomized pancreatic cancer data (expected in coming months).
Valuation
We value Oncolytics using a pNPV model of Reolysin in key indications including H&N cancer. Following this data, we have extended Reolysin development timelines and lowered our estimated probability of success in H&N to 45% (from 55%). As a result, we are lowering our target to C$6.50 (from C$8.00), which continues to support our BUY rating.
