By Douglas Murphy-Chutorian, MD

The pharmaceutical and biotech industry are in an eternal quest to produce cancer drugs that don’t have side effects against normal cells. Medical investments of considerable research dollars want therapeutic cancer killers that are non-toxic. One Canadian healthcare stock in the biotechnology space (Oncolytics Biotech – ONCY.TO) is developing such a product, Reolysin.
Reovirus is a virus that preferentially replicates in cells with an activated Ras pathway. This pathway is activated in some cancer cells, but not in normal cells. This is the basis of the oncolytic potential of Reolysin.

ONCY has an on-going Phase IIIa clinical trial of its product in refractory head and neck cancer. Combined with cis-platinum, Reolysin showed a 43% partial response in early studies which compared favorably to the 6% partial response rate observed with Erbitrux. The current study is 80 patients with a blinded controlled to be followed by Phase IIIb study of 200 patients. Endpoint will be survival at three months. Expect to see data in 15 – 18 months.

What is exciting about ONCY, is that the new cancer treatment might also be effective in other cancers. Trials are being done to treat cancer in skin (melanoma), lung, colon, pancreas in both U.S. and Europe. Expect to hear about interim data from Phase II non-squamous cell lung cancer in the fall, and more head and neck cancer Phase II data by year end.

Market cap is $193 million and stock price is $3 per share. $25 million in cash and ONCY is using $1.5 million per month. Two evident possibilities are that ONCY does another equity financing, perhaps after the fall data release, and/or signs a geographically limited partnership agreement with double digit royalties and milestone payments. It might be prudent to have a position and then look to increase that position when the equity financing causes a dip in stock price. On the other hand, positive data in the lung study could boost the stock higher than current pricing, even with a subsequent equity offering.

Since this is a longer term small cap medical company investment, ONCY is the kind of stock that one puts away for 18 to 24 months and has an expectation for a doubling of the stock price.

Disclosure: Long ONCY.TO at the time of writing.

The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. No one should act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

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Filed under: Healthcare Stocks

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