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On December 13, 2012, Oncolytics Biotech Inc. (ONCY) jumped nearly 40% after the company announced initial positive top line data from a Phase 3 study of patients with head and neck cancers treated with Reolysin (Respiratory Enteric Orphan Virus) and two chemotherapy drugs, paclitaxel (Taxol) and carboplatin (Paraplatin).

Researchers found that patients on the Reolysin regimen were more likely to have stable or smaller tumors than patients who only took chemotherapy.

The study, known as REO 018, included 105 patients. Oncolytics researchers found that 86% of patients who were treated with Reolysin had stable or smaller tumors approximately six weeks after treatment, compared with 67% of patients treated with paclitaxel and carboplatin. Patients in the trial had tumors that had metastasized. They were not helped by previous platinum-based chemotherapy or taxane chemotherapy.

A second analysis showed Reolysin in combination with two types of chemotherapies was more effective in stabilizing or shrinking metastatic tumors than the two other chemotherapies alone.

"To the best of our knowledge, this is the first successful double-blinded randomized data from a clinical study using an intravenously-administered oncolytic virus," Brad Thompson, Ph.D, president and CEO of Oncolytics, stated.

Reolysin

Oncolytics has a pipeline that consists of one product that appears to be effective for a wide range of cancers. Reolysin is a proprietary variant of the reovirus, an acronym for "Respiratory Enteric Orphan Virus," which is widely found in the environment, as well as in the respiratory and bowel systems of humans and other mammals. According to Oncylytics, most people (70% to 100%) have been exposed to the reovirus. Most people have been exposed before they were 12 years-old. Infections are typically asymptomatic. In clinical trials, Reolysin has been shown to be well-tolerated, with patients exhibiting only mild, flu-like symptoms. Reolysin has been used alone, but has been found to be more effective in combination with chemotherapy and radiotherapy for various cancers.

Reolysin is based upon research conducted by Onclytics Chief Operating Officer, Matt Coffey, Ph.D. In 1998, while conducting graduate work at the University of Calgary, Coffey and other students found that a certain reovirus showed potential as a cancer therapeutic because it reproduced well in cancer cell lines, specifically in those cells that display an activated Ras pathway, a characteristic that could play a role in two-thirds of all human cancers. Reolysin can selectively kill tumor cells with activated Ras pathways.

Head and Neck Cancers

According to the National Cancer Institute at the National Institutes of Health, cancers that are collectively known as head and neck cancers usually begin in the squamous cells that line the mucosal surfaces inside the head and neck, such as areas inside the mouth, nose and throat. Cancers of the brain, the eye, the esophagus, and the thyroid gland, as well as those of the scalp, skin, muscles and bones of the head and neck, are not usually classified as head and neck cancers.

Head and neck cancers account for approximately 3% to 5% of all cancers in the United States. These cancers are nearly twice as common among men as they are among women. Head and neck cancers are also diagnosed more often among people over age 50 than they are among younger people.

The American Cancer Society estimates that more than 52,000 men and women in the United States will be diagnosed with head and neck cancers in 2012. In 2002, the World Health Organization (WHO) found that there were 600 ,000 new cases of head and neck cancer and 300, 000 deaths each year worldwide, with the most common sites being the oral cavity (389, 000 cases a year), the larynx (160 ,000), and the pharynx (65 ,000).

Approximately 90% of all head and neck cancers are squamous cell carcinomas. These cancers are frequently aggressive in their biologic behavior, and patients with these types of cancer are at a higher risk of developing another cancer in the head and neck area. These cancers often spread to the lymph nodes of the neck.

Head and neck cancer is highly curable if detected early. If treated early, most of these cancers have a five-year survival nearing 90% with standard therapy that usually includes some form of surgery. Radiation therapy and chemotherapy are also used. Unfortunately, the average survival rate for head and neck cancer is low due to the lack of early detection and the inability of current therapies to achieve a sustained response when the disease is in an advanced state.

A significant amount of head and neck cancer therapy research has centered around the epidermal growth factor receptor (EGFR), a transmembrane tyrosine kinase receptor involved in the proliferation and survival of cancer cells. Almost all head and neck cancers, 90% to 95%, have high levels of EGFR expression. EGFR is the first molecular target against which monoclonal antibodies have been developed for cancer therapy. In March 2006, the US Food and Drug Administration (FDA) approved the first head and neck cancer treatment in 45 years-cetuximab, an anti-epidermal-growth-factor-receptor (EGFR) monoclonal antibody.

Bristol-Myers Squibb's (BMY) and Eli Lilly's (LLY) Erbitux (cetuximab) was approved by the FDA to be used in combination with radiation therapy to treat patients with squamous cell cancer of the head and neck that can not be removed by surgery. The FDA found cetuximab to be the first drug approved for head and neck cancer that has shown a survival benefit in this population. In November 2011, Erbitux was also approved for use as a monotherapy to treat patients whose head and neck cancer has spread (metastasized) despite the use of standard chemotherapy.

Other monoclonal antibodies like Amgen's (AMGN) Vectibix (panitumumab), and YMI Biosciences' (YMI) nimotuzumab may also prove to be effective head and neck cancer treatments.

In June 2011, Copenhagen, Denmark based Genmab (GEN.CO) announced that it was discontinuing research of another fully human EGFR monoclonal antibody, zalutumumab, a drug that was showing promising results treating squamous cell carcinoma of the head and neck because it was unable to find a partner to finance costly trials of the drug, which were necessary to achieve regulatory approval.

Conventional treatments have been found to be inadequate for the majority of advanced or recurrent head and neck cancer patients. The major limitations of current treatments are the lack of specificity for the tumor cell and unacceptable toxicity to the patient. As a result, research in therapeutics for advanced, chemotherapy-resistant or recurrent head and neck cancer patients has focused on new treatments that exploit biological differences between tumor and normal cells. These therapies include monoclonal antibodies, molecular inhibitors, gene therapy, photodynamic therapy and oncolytic virotherapy.

Oncolytic virotherapy utilize biotechnology to convert viruses into cancer-attacking agents by reprogramming viruses to kill cancerous cells without damaging normal cells.

Oncorine, also known as ONX-015 or H101 (Recombinant Human Adenovirus Type 5 Injection) is the first oncolytic viral therapy approved by any regulatory agency in the world. In November 2005, the Chinese State Food and Drug Administration (CFDA) approved H101, an oncolytic adenovirus, to be used in combination with chemotherapy as a treatment for patients with late-stage refractory nasopharyngeal cancer, a type of head and neck cancer.

H101 is a modified adenovirus, a type of common cold virus found in most people. By deleting an E1B-55kd segment in the virus, its ability to selectively replicate in and kill tumor cells results, while leaving normal cells unaffected. The SFDA approved H101 after a study group found a 27% increase in the number of patients taking H101 who had complete or partial tumor size reduction compared with the control group.

H101 is almost identical to ONYX-015, a virus Onyx Pharmaceuticals (ONXX) created in 1987 by genetically engineering an adenovirus. Although clinical trials found that ONYX-015 was generally safe and selective, some research concluded that the drug was not very effective. In 2000, Pfizer (PFE) suspended the ONYX-015 trial after acquiring Warner-Lambert, Onyx's development partner. Without funding, Onyx discontinued the ONYX-015 program. Shanghai Sunway Biotech Co., Ltd. acquired global rights for ONX-105. Onyx Therapeutics discontinued the therapeutic virus program in 2006. Few companies continue to work with adenovirus because the virus spreads very slowly and its capacity to express other genes is extremely limited.

In 2011, Amgen acquired BioVex Group, Inc. for $1 billion. BioVex was developing OncoVEX(GM-CSF), a novel oncolytic vaccine that showed promise as a new approach to treating melanoma and head and neck cancer. Several months after buying BioVex, Amgen announced that it was discontinuing OncoVEX research. During the company's second-quarter 2011 earnings call, Roger Perlmutter, Amgen's Executive Vice President of Research and Development announced that the company "decided not to proceed with the OncoVEX GM-CSF Phase 3 program in squamous cell carcinoma of the head and neck. Recent studies have demonstrated that head and neck cancers associated with prior human papillomavirus (HPV) infection behave very differently from tumors with other etiologies. These observations mandate that clinical trials ensure appropriate balance in the representation of subjects with prior papillomavirus infection. Since the changes in clinical trial design required are quite significant, we've elected to halt the current study and to initiate a redesign trial at a later time. Obviously, our approach to new indications for OncoVEX GM-CSF will take into account what we have learned through the conduct of our melanoma trial."

Other companies developing oncolytic viral therapies include GenVec Inc. (GNVC), Viralytics Ltd. (VLA.AX), and privately held companies Neotropix Inc., Crusade Laboratories Ltd., and Wellstat Biologic, Jennerex Therapeutics, Genelux and Oncos Therapeurics.

The research firm, GlobalData, estimated the global head and neck cancer market to be valued at $1.035 billion in 2009. The market is forecast to grow by 8.3% annually for the next seven years to reach $1.809 billion by 2016. This growth is primarily attributed to the high incidence rate, prevalence rate and diagnosis rate of the disease and the high prescription rates of the currently approved products, as well as the development of vaccines, gene therapy and biologics across different stages of clinical trials. GlobalData has concluded that the global head and neck cancer market is moderately served with the current product options and there is significant scope available to new entrants to capture value from underserved segments. The research firm contends that designing a product that can improve the five-year survival rate, reduce tumor size, prevent tumor recurrence and offer a high safety profile is one of key challenges for prospective entrants to this market and could provide a significant market share for any company.

GlobalData found that the global head and neck cancer market is becoming increasingly competitive. The unmet need in the head and neck cancer market is high and if a company wants to capture this unmet need, it will need to improve on the prevailing products' weaknesses and adverse effects.

According to the BioSeeker Group, 127 companies are developing 137 drugs targeting head and neck cancer.

Potential Treatment for a Wide Range of Cancers

Since Reolysin has shown activity in a broad range of cancers, Oncolytics has conducted clinical trials in multiple cancer indications with the objective of developing Reolysin as a human cancer therapeutic. Clinical trials are being conducted in the United States, the United Kingdom, Canada, and internationally.

In November 2012, Oncolytics announced expanded results from two Phase 2 trials , as well as preclinical research in Ras-activated pancreatic cancer.

The first trial, known as REO 16, evaluated 33 patients with non-small cell lung cancer with Kras or EGFR-activated tumors being treated with Reolysin administered intravenously in combination with paclitaxel and carboplatin. Of 30 evaluable patients, researchers found that 27 patients had stable disease or better for a 90% clinical benefit rate . Of the 27 patients, nine patients had partial response (30%) and 18 patients had stable disease (60%). Three patients had progressive disease as their best response.

The second trial, known as REO17, examined patients with advanced pancreatic cancer treated with intravenously administered Reolysin in combination with gemcitabine, also known as Gemzar, manufactured by Eli Lilly, as well as preclinical research in Ras-activated pancreatic cancer. Response evaluation among 25 evaluable patients showed 20 patients had stable disease or better (one patient had partial response, one patient had unconfirmed partial response, six patients had stable disease at six weeks, and 12 had stable disease at 12 or more weeks). Five patients had progressive disease as their best response. A number of patients remained in the study. Some patients were too early in their treatments to evaluate.

Reolysin has been studied in over 30 clinical trials including translational, Phase 1, Phase 2 (single arm and randomized), and Phase 3 studies in a broad range of cancer indications.

In addition to the Phase 3 trial examining the effectiveness of Reolysin in head and neck cancer, Oncolytics is conducting Phase 2 trials studying Reolysin in advanced or metastatic breast cancer, previously-treated advanced or metastatic non-small cell lung cancer, advanced or metastatic colorectal cancer, recurrent or metastatic castration resistant prostate cancer, metastatic pancreatic cancer, persistent or recurrent ovarian, fallopian tube or primary peritoneal cancer, squamous cell carcinoma lung cancer, metastatic melanoma, advanced pancreatic cancer, non-small cell lung cancer, advanced head and neck cancers, metastatic sarcomas, and advanced malignancies.

Phase 1/2 studies are investigating Reolysin in recurrent malignant gliomas, metastatic ovarian, and peritoneal and fallopian tube cancers.

Phase 1 studies are examining Reolysin in relapsed multiple myeloma, pediatric relapsed or refractory solid tumors, colorectal cancer, advanced malignancies, various metastatic tumors, and subcutaneous tumors.

The company has completed 15 clinical trials comprising four Phase 2 clinical trials, three Phase 1/2 trials, six Phase 1 trials, and two transitional studies.

The U.S. National Cancer Institute and the National Cancer Institute of Canada have made substantial investments by sponsoring clinical trials to research Reolysin.

In October 2003, Oncolytics announced that the U.S. National Cancer Institute (NCI) approved support for multiple clinical trials to evaluate the efficacy of Reolysin in a range of cancers. Since then, the NCI has sponsored clinical trials investigating Reolysin as a therapy for persistent or recurrent, ovarian, fallopian tube or primary peritoneal cancer, metastatic melanoma, metastatic ovarian, peritoneal and fallopian tube cancers, relapsed melanoma, pediatric relapsed or refractory solid tumors, and recurrent or metastatic pancreatic cancer.

The National Cancer Institute of Canada has sponsored and conducted clinical trials evaluating Reolysin as a treatment for castration resistant prostrate cancer, metastatic breast cancer, advanced or metastatic colorectal cancer, and advanced or metastatic non-small cell lung cancer.

Finances

As of September 30, 2012, Oncolytics had about $26 million in cash and cash equivalents. In 2011, the company had approximately $32.9 million in cash at the end of the third quarter. Total assets were $29.1 million in 2012, down from $36 million in for the same time period in 2011.

Total liabilities were $6.7 million in 2012, an increase from $6.5 million in 2011.

The company's expenses were $9.3 million for the third quarter of 2012, up substantially from $6.2 million spent during the same period in 2011. Oncolytics year-to-date expenses was $28.2 million, up from $17.4 million spent during the same time period in 2011.

Conclusion: Buy

Since Reolysin is a new and novel cancer treatment, there has been a considerable amount of skepticism about the drug's potential viability. However, Reolysin research has been conducted at some of the nation's finest hospitals, such as the Mayo Clinic. Reolysin research has been investigated by internationally respected oncologists, such as the University of Antwerp's Jan Vermorken, who was named editor-in-chief of the Annals of Oncology in December 2008. Both the U.S. and Canadian National Cancer Institutes have made substantial investments in Oncolytics by sponsoring costly clinical trials .

Oncolytics estimates that at least five million new patients a year will develop cancers with Ras involvement. Many of these patients may benefit from Reolysin therapy.

Oncolytics is burning cash fast. At current spending rates, the company will run out of money in 2013. Oncolytics must either cut expenses or raise additional funds by equity or debt financing, or obtain monies from in-licensing opportunities, corporate partnerships, research grants or other means to continue operating.

Despite all the promising clinical news, with a market cap of only $274.48M, Oncolytics is a micro-cap company. All investments involve risk, but investing in micro-cap companies is especially risky. These stocks are often extremely volatile, may be illiquid, and are subject to manipulation. The Security and Exchange Commission (SEC) has a significant amount of information about the dangers of investing in micro-cap companies and penny stocks. You can find it here.

Despite the risk, I think Oncolytics Biotech is a strong speculative buy.

Source: Oncolytics Biotech: What Is All The Excitement About?