This note was sent to PropThink’s Premium subscribers on Wednesday September 25.
On August 22, Mr. King spotlighted a recently in-licensed asset at Oncothyreon (ONTY), the selective HER2 inhibitor ONT-380, as the most attractive asset in the pipeline. That article, here, offers some background on the oncology drug developer and outlines why ONT-380 is a compelling candidate and ONTY a tempting holding, despite its injurious history.
On Wednesday, Oncothyreon announced that partner Merck KgaA will continue development of the partnered product tecemotide (formerly Stimuvax or L-BLP25) and plans to begin a new Phase III study, dubbed START2, testing the cancer vaccine in patients with unresectable, locally advanced (Stage IIIA or IIIB) NSCLC who have had a response or stable disease after two cycles of platinum-based, concurrent chemoradiotherapy (CRT). Tecemotide failed a previous Phase III study, START, late last year. But a subset of patients taking tecemotide after concurrent CRT (as opposed to sequential) in the failed START trial demonstrated a statistically significant OS improvement compared to placebo, 30.8 months versus 20.6 months (n=806; HR: 0.78; 95% CI 0.64-0.95; p=0.016). We’re skeptical of this type of analysis, although it’s worth noting that this was a large and predefined subset in the START trial. An ongoing Phase III trial in Asia has been amended to test tecemotide in this same patient population. The trial won’t be complete for a few years.
ONTY gained almost 30% on the news.
Given that KgaA develops tecemotide entirely on its own (ONTY receives milestones and royalties), Oncothyreon is moving forward with its wholly owned, 2nd-gen MUC-1 targeting vaccine, ONT-10. The company plans to present data from an ongoing Phase I trial in solid tumors at the Society of Immunotherapy and Cancer meeting, November 7-10. We’ll see the first immunogenesis data for -10, and the company will outline its future plans for the vaccine. We suspect the data will be “positive” from an immune response standpoint given similarities to the Phase I trial of tecemotide over a decade ago – MUC-1 expression, stage of disease, and endpoints.
Additionally, on September 3rd the Dana-Farber Cancer Institute initiated a Phase I trial of ONT-380 in combination with Herceptin (trastuzumab) in patients with brain metastases from HER2+ breast cancer. ONTY expects to begin its own Phase Ib/II trials with ONT-380 in the fourth quarter. Target indications have not yet been discussed publicly, but ONTY has mentioned CNS and 2/3-line metastatic disease.
In the next few months, the company will 1) initiate the first of its own ONT-380 trials; 2) present ONT-10 data and lay out the go-forward plan; and 3) release results from PX-866 trials. In our view, PX-866 is a dud. We find it hard to imagine a partnership materializing for ONT-10 without proof of concept given the Stimuvax failure and similarities. Cowen and Company issued a note Wednesday morning suggesting that ONTY is now a buyout target for Merck KgaA based on a high probability of success in START2. We also would not own ONTY based on take-out speculation. Merck KgaA implemented an aggressive expense cutting operation in 2012, and although the “Fit for 2018″ plan is ahead of schedule, the company has continued to make reductions in 2013. In March, the company suggested that it would spend 2013 reducing debt and would not be conducting any large M&A.
The rest of these catalysts are incremental, which is why we’ve been shy to take a position in ONTY. While ONT-380’s differentiation from other HER2-targeting cancer products makes it a compelling asset, proof of concept for it and ONT-10 won’t materialize until, presumably, late next year. We’d rather be more involved during the relatively quiet period beforehand.
We’ll also consider taking a position ahead of the November Phase I ONT-10 results in expectation of “success”, noting that continued bullish comments from analysts like Cowen could prop up the share price following.
Read PropThink’s previous coverage of Oncothyreon here.