Oncothyreon falls back as Stimuvax results wait another year

Oncothyreon’s 40% share price plunge yesterday on news that partner Merck KGaA’s pivotal trial of Stimuvax in lung cancer will continue to its conclusion, rather than stop early because of clear efficacy, was probably overdone. If anything, the decision of an independent data safety monitoring board should tell observers that it is still too early to draw conclusions, in spite of investor expectations that had been building throughout 2011 and into 2012.

Certainly, there are reasons to be sceptical of the drug’s promise given its rocky history that includes a clinical hold for safety reasons and the record of the one cancer vaccine to get to market, Provenge. The best that can be said is that trial reviewers did not stop the study because Stimuvax’s performance was so poor; the answer as to whether it works will not come for another year.

A very good year

Oncothyreon was one of the darlings of the small-cap pharma world in 2011, its share price climbing 133% in 2011 with the Stimuvax trial in non-small cell lung cancer underway and progress of its clinical programme for PI3K inhibitor PX-866 into phase II (Small caps produce clear winners and losers in 2011, January 6, 2011).

But it clearly is a controversial company among investors: nearly one-third of its shares have been sold short, a sign that many of them expected Stimuvax to disappoint. The short sellers can point to the poor record of cancer vaccines as well as the phase II Stimuvax trial, which on the whole failed to meet its primary endpoint.

Yesterday, shares fell to a 10-month low of $5.07, and continued their fall today, off 2% at $4.95 in early trading.

In terms of Stimuvax's chequered history, 2010 was a mixed bag for the Washington group, as the drug was put under clinical hold by the FDA, after a case of encephalitis reported in a multiple myeloma trial. After the hold was lifted, an initial interim review of the 1,500-patient Start trial in lung cancer, triggered by half of the necessary 705 deaths needed to make a final analysis, passed relatively quietly in December 2010.

Expectations in 2011 built with the timeline for of the second interim review of the Start trial, triggered when three-quarters of the deaths had been reached, was pushed into 2012 from late 2011 (Event – Oncothyreon awaits pivotal cancer vaccine data, December 19, 2011).

Some believed that this has occured thanks to the efficacy of the drug. A trial halt because of clear efficacy, and an accelerated filing schedule, would have meant the company would likely begin receiving some of the $90m in regulatory milestones promised under the deal with Merck. With yesterday's news these funds will now not be seen until 2013 at the earliest.

Riding the storm out

In a call with investors on Tuesday, Oncothyreon executives reported that the Washington group had $66.4m in cash - a pile expanded through a $43m share sale last year – and with expected expenses of $30m-$33m in 2012 has sufficient resources to last into 2013 without needing an injection of funds. Expenses this year will be largely driven by trials of PX-866 and new cancer vaccine ONT-10.

Chief executive Robert Kirkman took an optimistic view of the Stimuvax trial findings: “I actually view today’s announcement as a de-risking event for the trial.”

His spin is correct to a certain extent. Stopping the trial for futility would have cast a huge shadow over the only Oncothyreon product with any value ascribed to it – royalties are forecast at $98m in 2016, according to EvaluatePharma data, giving the vaccine a net present value of $735m, three times market capitalisation after Tuesday’s market fall.

But news that the next big catalyst for the company will not come until 2013 cannot be encouraging for investors. Its remaining products remain are early stage and are in the unproven PI3K and the mostly unproven therapeutic vaccine spaces, which means whatever trials read out in the meantime are extremely high-risk.

An upcoming readout for Keryx Biopharmaceuticals’ KRX-0401, which is the only other phase II or III PI3K without a big pharma partner, may colour the market’s view on PX-866 (Event - Expectations building for Keryx cancer drug, March 6, 2012). Trials for PX-866 in solid tumours and glioblastoma could come by the end of the year.

Thus, Oncothyreon will likely remain in the doldrums for some months to come.

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