The Conversation (0)
OncoGenex Pharmaceuticals is developing solutions to the challenge of overcoming increasing resistance to cancer treatments and offers upside opportunity to investors targeting undervalued biotech stocks.
Life Science Investing News (LSIN) recently spoke with Medical Technology Stock Letter Editor John McCamant about this market and the opportunities he sees in the space. McCamant says there hasn’t been much focus on the area of cancer treatment resistance, but he believes it will be “a significant area going forward.” Combination drug treatments that delay the onset of resistance will increase effectiveness, adding value to a company’s technology platform while improving the longevity and quality of life for cancer patients.
Cancer treatment often involves the use of multiple drugs. Traditional chemotherapies are toxic drugs that blast the body to attack cancerous cells, but can also kill healthy cells. “The newer drugs for the most part have more precise mechanisms that target more cancerous cells than healthy cells,” says McCamant. “Regardless of the method, chemotherapy or a targeted drug, over time there is resistance so another drug or another drug in combination to combat that resistance is needed.”
OncoGenex Pharmaceuticals Inc. (NASDAQ:OGXI) is a development-stage biotech company making headway in this up-and-coming arena of cancer treatments targeting mechanisms of resistance and is now in Phase 3 trials. Custirsen is designed to work in combination with Taxol, a leading chemotherapy drug, to decrease resistance and increase its effectiveness.
“Custirsen is one of two major drugs licensed to OncoGenex by Isis Pharmaceutical (NASDAQ:ISIS), considered a leader in antisense drug or nucleic acid technology which precisely targets specific genetic codes,” explained McCamant. “Teva Pharmaceutical Industries (NYSE:TEVA) is the partner and they are paying most of the costs for the Phase 3 trial. We believe that’s a nice validation for the technology and the drug candidate.”
The other major product candidate in OncoGenex’ pipeline is OGX-427, a second generation antisense drug. In January 2013, the company initiated multiple investigator-sponsored Phase 2 trials to evaluate the addition of OGX-427 to commonly used anticancer therapies in patients with advanced bladder, lung, pancreatic and prostate cancers.
Major inflection points on the horizon for OncoGenex
LSIN: What are the upcoming catalysts of value to investors interested in OncoGenex?
John McCamant: We’re waiting on data from the Custirsen Phase 3 trials due out in the second half of 2014. Data from the OGX-427 Phase 2 trials are due out in the fourth quarter of this year.
LSIN: So, the Phase 3 data will be the most significant inflection point and could make 2014 a banner year for the company?
JM: Phase 3 data is what you go to the FDA with, so if Phase 3 data is positive you’re that much closer to bringing the product to market. The validation process is important because you don’t just bring your product to market in a few months. You’re talking about a process of at least 10 years from the discovery in a lab to actually getting into the marketplace. So our job is to find those different inflection points along the way in the development cycle and use our analysis and judgment of whether it’s undervalued or overvalued.
LSIN: At $10 a share is OncoGenex is undervalued? If so, why?
JM: “Clearly. They are in Phase 3 of a cancer program with Custirsen and they are sitting at a market cap of about $140 million and the evaluation for companies with Phase 3 cancer drugs is generally higher, about $300 million to $500 million and even higher. As to why it’s undervalued, it’s the stock market. It’s perception. Once a company is into Phase 3, it can take a few years to produce data so there’s not a lot of news flow or juice to give investors. Plus, antisense drugs are still in a show-me stage. The first antisense drug to reach the market was just approved earlier this year: Isis Pharmaceuticals’ Kynamro. OGX-427 is in Phase 2 trials and providing some news flow. We have had some data from it this year, but from what we can see the market hasn’t included it into the company’s valuation.
LSIN: What makes you excited about OncoGenex?
JM: They understand the antisense space very well and their partnerships with Isis and Teva provide validation. In addition cancer drugs are very expensive today, as high as $100K per drug sometimes. New technologies that can be combined with drugs like Taxol to lower resistance and improve their effectiveness can potentially lower those costs. We think they are advancing an effective technology with tremendous potential in other markets around the world. People haven’t focused on cancer treatment resistance and we think this is a significant area going forward. As that area develops, drugs such as those being developed by OncoGenex that work in concert with other cancer treatments will find more markets. I think it is a really good space for them coming into the market timing wise.
OGXI a Buy for Analysts
McCamant’s Medical Technology Stock Letter has rated OncoGenex as a Buy under $20 with a target price of $30 a share.
McCamant isn’t the only analyst with an approving eye on OncoGenex. Douglas Loe, Global Healthcare and Technology analyst at Byron Capital Markets, has said investors can get OncoGenex’s OGX-427 “clinical upside for free at current levels.” In a March 2013 research report, Mr. Loe gave the OncoGenex a Buy rating and a target price of $30.50 a share, calling the company’s clinical pipeline “among the most robust . . . in our coverage universe.”
Jim Jubak — investment guru, MSN Money columnist and the manager of Jubak’s Picks portfolio — recently blogged about the company’s Q1:2013 financial report, noting that OncoGenex has cash on hand that should be sufficient to fund operations into 2015. The company is also a member of Jubak’s Picks portfolio and he “recommends the stock for patient — very patient investors.” He says the “driver . . . will be the results of the Phase 2 and Phase 3 trials, “but doesn’t expect significant positive news on that front until later in 2013.” He has a target price of $22 a share.
Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.