Stimuvax Trial Failure: A Value Opportunity in ONTY

On December 19, Oncothyreon’s (NASDAQ:ONTY) shares tumbled 50% as development partner Merck KGaA (OTC:MKGAY) expedited some bad news before the New Year. L-BLP25 (or Stimuvax), a cancer immunotherapy being tested against non small-cell lung cancer (NSCLC), failed to meet its primary endpoint in a Phase III trial. However, a closer look at the data and the background of the story suggest long-term upside for ONTY.

Despite Stimuvax's failure, we note long-term value based on the company's strong pipeline (4 Phase II trials) and capital resources with a relatively low cash burn. With a $115M market capitalization and cash position of $80M, ONTY makes for an interesting play at current levels. Upside surprise for ONTY exists based on a subgroup analysis of the recently reported Phase III trial, which may prove Stimuvax's utility as a stand-alone immunotherapy, a compassionate-use compound, or as a combination treatment with similar products. Whether or not ONTY continues to develop Stimuvax or decides to just advance its second-generation Stimuvax candidate (called ONT-10), remains to be seen, but these facets are discussed in further detail below.

Merck KGaA stated on Wednesday: "The Phase III START trial of its investigational product L-BLP25 (formerly referred to as Stimuvax®) in patients with unresectable, locally advanced stage IIIA or IIIB NSCLC  did not meet its primary endpoint to demonstrate a statistically significant improvement in overall survival (OS)." But more importantly, Merck KGaA said, “Notable treatment effects were seen for L-BLP25 in certain subgroups.” Bob Kirkman, CEO of Oncothyreon, was unable to elaborate, as Merck had yet to share more information, but Dr. Frances Shepherd, Coordinating Investigator of the START trial, stated, "Notable treatment effects were observed in certain subgroups of patients and warrant further investigation of L-BLP25." Merck continues: “Further analyses are planned in the coming weeks to explore the potential benefit-risk profile of L-BLP25 in certain populations. This data will be discussed with external experts and regulatory authorities over the coming months. The START study results will be submitted for publication in a peer-reviewed journal and presented at a future international scientific meeting.”

Although Merck has not indicated at which event data will be presented, the American Society for Clinical Oncology (ASCO) meeting in May 2013 would likely be the earliest release.

The START study was a Phase III, multi-center, randomized, double-blind, placebo-controlled clinical trial designed to evaluate the efficacy, safety and tolerability of L-BLP25 in patients suffering from unresectable, stage IIIA or IIIB NSCLC who have had a response or stable disease after at least two cycles of platinum-based chemoradiotherapy. The study involved more than 1,500 patients in 33 countries. The primary endpoint of the START study is overall survival (OS). L-BLP25 is a mucin 1 (MUC-1) antigen-specific cancer immunotherapy that was designed to stimulate the body’s immune system to identify and target cells expressing the cell surface glycoprotein MUC-1. MUC-1 is expressed in many cancers, such as NSCLC and has multiple roles in promoting tumor growth and survival.

The failure is a major blow to ONTY, which spent a decade developing the vaccine, and to lung cancer sufferers worldwide who currently have no quality, approved maintenance therapies for Stage III NSCLC. Furthermore, Stimuvax may have found application as an off-the-shelf therapeutic vaccine in other cancers that expressed the same MUC-1 tumor antigen as NSCLC (breast, prostate, stomach and ovarian). But, it remains to be seen what the notable treatment effects in subgroups are. What is very clear is that historically, the FDA has not approved drugs that miss their primary endpoint despite a favorable subgroup analysis, and it is unlikely that they will make an exception here. New trials will take a number of years to design and complete, suggesting that ONTY should be valued based on cash and its Phase II small molecule candidates.

It’s now becoming clear that therapeutic cancer vaccines might be most efficacious in earlier-stage cancers, after they are treated and have minimum residual disease. Theoretically, it is conceivable that there might have been a clear efficacy signal in the stage IIIA patients, but that the trial failed statistically on OS due to the lack of efficacy in stage IIIB patients. If this speculative scenario is true, then given the trial size, proven safety of Stimuvax, and the desperate need for maintenance therapy in NSCLC, a reasonable case could be made for compassionate use in stage IIIA NSCLC patients while the developers await data from a confirmatory Phase III study.

It is difficult to predict what the future of the therapeutic cancer vaccine program will be until full data are released. Oncothyreon has been a pioneer in the cancer vaccines space, and in 2009 the National Cancer Institute identified MUC-1 as the second best cancer vaccine target out of 74 tumor antigens. There is a general misunderstanding regarding the validity of MUC-1 as a good therapeutic cancer antigen target. ONTY has a follow on vaccine, ONT-10, that is in Phase I development, which may be more efficacious than Stimuvax, as it can elicit both an antibody response to MUC-1, as well as a cellular response.

The difficult question for Merck and ONTY is whether to pursue these favorable subgroups with further long and expensive studies, abandon cancer vaccines completely, or to evaluate ONT-10 in the subgroups that demonstrated the “notable” benefit. ONTY owns full rights to ONT-10, but after the Stimuvax failure, it has little, if any, value unless it shows spectacular benefit in the Phase I study or there is a strong signal from subgroup analysis.

Lung cancer is a very difficult cancer to treat, and the list of chemotherapy failures is legion. Whilst intuitively attractive, it has yet to be proved whether or not greater efficacy will be seen in vaccines that target multiple tumor antigens, or a combination of single-antigen vaccines. Closely following Stimuvax is the MAGE 3 cancer vaccine being developed by GlaxoSmithKline (NYSE:GSK); this Phase III 2270-patient trial should have top-line data towards the end of 2013. The MAGE 3 vaccine is being evaluated in earlier-stage lung cancer (IB, II, IIIA) and may have a greater chance of success. Another intriguing possibility, however, is that should the MAGE 3 trial also fail to meet its primary endpoint but demonstrate some efficacy, the way forward might be to perform a trial combining both the Stimuvax and MAGE 3 vaccines. Although Merck KGaA might be considered the natural licensee for ONT-10, it may in fact be a better fit for GSK should a combination approach be viewed as the next step forward.

Regardless, the hopeful place for these cancer vaccines will be in consolidation and maintenance therapy for cancers that have been treated with surgery, chemo, and radiotherapy, and reduced to a low residual disease state. Cell-based or dendritic vaccines, like Dendreon’s (NASDAQ:DNDN) Provenge, will probably be used in more advanced cancers due to cost and complexity. As many companies are now pursuing rarer diseases, others are taking on difficult-to-treat cancers, and 2013 could prove to be a seminal year for Immunocellular (NASDAQ:IMUC) and Northwest Biosciences (NASDAC:NWBO) with their cell based approaches to Glioblastoma Multiforme, the most deadly form of brain cancer.