Onconova Times The IPO Wave To Perfection

Aug. 6.13 | About: Onconova Therapeutics (ONTX)

Booming investor appetite for all things biotech took a while to elicit an IPO flurry, but now that it has, companies are wasting no time in taking advantage. And among those that have tested the waters, few timed it quite as well as Onconova Therapeutics (NASDAQ:ONTX).

There is plenty to distinguish Onconova from some of its far shakier peers: The company has an oncology project in pivotal trials with a major partner in place, and a couple of binary outcome events will provide key investment triggers over the coming six to eight months. This should reassure anyone wondering why its stock has nearly doubled since listing on Nasdaq less than two weeks ago.

The company has made quiet progress since being founded in 1999, but last year set the stage for what stands as one of the most successful biotech floats of the current cycle. Last April, Baxter International (NYSE:BAX) bought $50 million of equity, and followed this up five months later with another $50 million upfront for European rights to Onconova's lead project, rigosertib.

Dual Kinase Inhibitor

It is rigosertib that is central to Onconova's investment case. The compound is a dual inhibitor of phosphatidylinositol 3-kinase (PI3K) and polo-like kinase (Plk), and an IV form is in Phase III studies in high-risk myelodysplastic syndromes and pancreatic cancer.

It's true that both the PI3K mechanism and myelodysplastic syndromes are crowded areas and pancreatic cancer is a graveyard of failures, but EvaluatePharma lists Gilead Sciences' (NASDAQ:GILD) idelalisib and Novartis' (NYSE:NVS) buparlisib as the only other PI3K inhibitors in Phase III development. Meanwhile, Boehringer Ingelheim's volasertib is the only Plk inhibitor in pivotal studies -- for acute myeloid leukaemia -- and this space has seen many setbacks.

The timing of Onconova's clinical program is key. The myelodysplastic syndromes trial will yield top-line survival data in late 2013 or early 2014, and the pancreatic cancer study is due to undergo an interim overall survival analysis at the same time. Moreover, successful completion of a Phase III study will trigger another $50m from Baxter, which also stands to pay Onconova $25 million for entry into two possible additional indications, $25 million for each filing, and up to $337 million for approval in three lead indications. A quarter of these fees must be paid away to Temple University, rigosertib's originator.

A separate licensing alliance for rigosertib is in place for Japan and South Korea with SymBio, meaning that rights in the all-important U.S. market are still up for grabs, so another deal -- with economics at least as good as Baxter's -- must surely be a consideration once Phase III data are in.

Up 95%

On the back of such enviable catalysts, Onconova floated above its $11-$14 price range, and is now up 95% over the $15 IPO price; it climbed 24% yesterday alone, and might be kicking itself for not taking the opportunity to raise even more. The IPO, completed on July 25, brought in net proceeds of $79.6 million, adding to $81.5 million of 2012 year-end cash.

It's true that such gains would not have been possible without a strong sentiment tailwind, which has after all enabled less-than-stellar businesses with very early-stage assets to attract investors keen to jump on the biotech bandwagon ("Floats Rise Out Of The Biotech Bubble At Last," July 10, 2013). Some, like Agios Pharmaceuticals (NASDAQ:AGIO), have yet to carry out a single human study.

While still risky, Onconova is a more mature business. Although its current market cap of $586 million prices in a lot, a Phase III success could take it higher still.