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By Jake King

A recently announced collaboration with Array BioPharma (NASDAQ:ARRY) on a small molecule HER2 inhibitor may be the best thing to happen to Oncothyreon (NASDAQ:ONTY) since the company reincorporated in the U.S. six years ago. Oncothyreon plans to begin Phase Ib clinical testing of ONT-380 (formerly ARRY-380), a selective inhibitor of the HER2 tyrosine kinase receptor, by the end of this year, although details of the program have yet to be revealed. HER2 is a well-understood oncology pathway, and HER2 inhibiting therapeutics like Roche's (OTCQX:RHHBY) monoclonal antibody Herceptin (trastuzumab) have been wildly successful. But small molecule tyrosine kinase inhibitors, like Tykerb (lipatinib), haven't seen the same level of success due in-part to toxicity issues and less robust efficacy. Neratinib, in development at Puma Biotechnology (NYSE:PBYI), has meanwhile rekindled an interest in HER2-inhibiting small molecules, although it and Tykerb are dual inhibitors of HER1 (EGFR) and HER2. Inhibition of HER1 has been linked to dose-limiting side effects, thus there's reason to believe that selectively targeting HER2 without hitting EGFR, like ONT-380, may allow higher dosing and thus efficacy in both standalone and combination regimens.

At a $97M market capitalization with $69.6M in cash, the markets aren't allotting much value to the pipeline at ONTY, and rightly so - a history of cash burn, developmental disappointments (most recently the Phase III failure of Stimuvax) and now a subgroup analysis of the failed trial have soured investors on the name. Nevertheless, -380 could be a compelling asset, and perhaps the most realistic candidate in ONTY's pipeline.

ONT-380

On May 30, Oncothyreon and Array BioPharma announced a development and commercialization collaboration for ARRY-380, an orally active, reversible and selective small molecule HER2 inhibitor. ONTY paid $10M upfront and will fund and conduct proof-of-concept trials in breast cancer before the two conduct jointly a Phase III program. Array and Oncothyreon will co-promote -380 in the U.S. (splitting expenses and profits), while ONTY receives royalties approximating 50% of profits ex-U.S., where Array commercializes alone. The deal was funded almost entirely by the sale of 5M shares of common stock and 5M warrants to Biotechnology Value Fund for $9.8M in net proceeds.

HER2 is one of four receptors in the ErbB family of plasma membrane-bound receptor tyrosine kinases, which includes ErbB1/HER1/EGFR, ErbB2/HER2, ErbB3/HER3, and ErbB4/HER4. Two of these signaling pathways, HER1 (or EGFR) and HER2, are commonly involved in the development of some cancers; over-expression of these genes plays a key role in the pathogenesis and progression of certain cancers. About 20% of breast cancers for instance, are HER2-positive, overexpressing HER2 due to a mutation in the ErbB2 gene. HER2-positive breast cancers are significantly more aggressive than HER2-negative and are generally associated with increased disease recurrence and a poor prognosis.

That's why Roche's HER2-targeting therapeutics like the monoclonal antibodies Herceptin and Perjeta (prestuzumab), and the antibody-drug conjugate Kadcyla (ado-trastuzumab emtansine), are on track to collectively generate more than $6B in revenue this year.

That's also why shares of Puma Biotech , which develops the small molecule TK inhibitor neratinib, have climbed from $10 to $50 in just over a year of public listing - PBYI, with neratinib as its sole asset, is valued at over $1.4 billion.

When HER2 was initially being explored, inhibition of HER2 and EGFR was desired given the mentality that two is better than one, with the belief that dual inhibition would be able to address potential resistances down the line. But inhibiting both EGFR and HER2 with TKIs increases toxicity significantly. That's what makes ONT-380 an interesting asset. The small molecule is selective of HER2, with limited EGFR activity. Dual characteristics of being both a small molecule (oral availability) and the only HER2-selective asset in development allow for a meaningful differentiation between ONT-380 and other competing drugs like Neratinib and the approved Tykerb (lapatinib), demonstrated by a thus-far extremely mild side effect profile, which could open the door to a multitude of combination therapies. In addition, there's the possibility of addressing brain metastases in HER2+ breast or solid tumors; pre-clinical testing demonstrated that -380 passes through the blood-brain barrier, which MABs are unable to do.

In 2008, Array BioPharma initiated its first study of ARRY-380 in order to explore its potential in patients with advanced HER2+ solid malignancies. Designed as a two-part study (Parts 1 & 2), Array split up its total enrollment of 50 patients into groups of 30 and 20 in order to first establish ARRY-380's safety profile and maximum tolerated dose, which would then be used in the second leg of the study to examine the drug's efficacy and PK profile.

Phase I data for ARRY/ONT-380 from the aforementioned dose escalation has been completed in 50 patients, 43 with HER2+ metastatic breast cancer and 7 with solid malignancies. These patients failed to benefit from prior treatment regimens, with 100% progressing on Herceptin and 80% progressing on Tykerb. Study data pointed towards an unusually mild side effect profile, with adverse events primarily being Grade 1. ONT-380's selectivity of HER2 is believed to be the reason for the low incidence and severity of common EGFR-inhibition-related adverse events such as diarrhea, rash and fatigue. Phase I treatment resulted in no cardiac events or Grade 4 AEs. Despite the heavily pretreated patient population (failed to benefit from herceptin/tykerb), out of the 22 HER2+ breast cancer patients with measurable disease treated at maximum dosage (600mg BID), three patients demonstrated a partial response, with an additional three patients demonstrating stable disease for at least 6 months -- eliminating stable disease responders, Phase I data points to a response rate of 13.6%. Note that lapatinib as a monotherapy generated a 4.3% response rate in a prior Phase II trial, and neratinib as a monotherapy did 29% in a prior Phase II study, although patient pre-treatment varied between trials.

There's certainly some evidence of clinical activity in HER2+ cancers, which we find compelling given the large addressable population, differentiated selectivity, and possibility for combination regimens. Oncothyreon is guiding for initiation of a Phase Ib program before the end of 2013 in HER2 malignancies, with top-line data later in 2014. It remains to be seen how these trials will be structured, but -380 is a compelling addition to a thus-far disappointing pipeline. Tykerb, the only approved small molecule HER2-inhibitor did $360M in sales last year.

The Rest of the Pipeline

Biotech investors will be well-aware of the spectacular trouncing ONTY took in December of last year when the START trial, a Phase III study of the cancer vaccine Stimuvax in NSCLC, failed to reach its primary endpoint. But in mid-May, Oncothyreon and partner Merck KGaA (OTC:MKGAF) revealed that a subgroup of patients (n= 806) who received concurrent chemoradiotherapy (CRT, chemotherapy and radiotherapy given at the same time, as opposed to sequentially) before administration of Stimuvax demonstrated a statistically significant improvement in overall survival compared to placebo. In the study's primary population (n=1,239), median OS was 25.6 months for patients in the L-BLP25 group compared with 22.3 months for those in the placebo group (adjusted HR 0.88, 95% CI 0.75-1.03, p=0.123). In the subgroup of patients receiving initial concurrent CRT (n=806), patients receiving L-BLP25 had a median OS of 30.8 months compared to a median OS of 20.6 months in patients receiving placebo (HR 0.78; 95% CI 0.64-0.95; p=0.016).

While the subgroup analysis was pre-defined, consisted of a large patient population, and the benefit statistically significant, subgroup analyses are a slippery slope. It's unclear how many subgroup analyses were planned (is this 1 of 100 that happened to hit?), and licensee Merck KgaA, which has sole control of the asset, has yet to rationalize the survival benefit in lung cancer patients receiving concurrent chemo-radiation. To top it all off, the new class of anti- PD-1 and PDL-1 immunotherapies in development at Roche, Merck (NYSE:MRK), and Bristol Myers (NYSE:BMY) may make Stimuvax obsolete before it even hits the market if Merck KgaA runs another large Phase III trial in patients receiving concurrent chemoradiation.

Merck KgaA still hasn't made clear whether development of Stimuvax will continue, or in what form, but Oncothyreon believes a decision will be made this Fall following discussions with regulators. Merck may simply return the asset to Oncothyreon, in which case we would expect ONTY to move the follow-on vaccine ONT-10 further through the clinic instead, as management expects a similar and improved profile in patients receiving initial concurrent chemoradiation. The company is guiding for preliminary results from a 78-patient trial of ONT-10 in solid tumors in early November at the annual meeting of the Society for Immunotherapy of Cancer.

Finally, Oncothyreon develops PX-866, an inhibitor of the phosphatidylinositol-3-kinase (PI-3K). This is a crowded space and -866 hasn't impressed anyone so far. Most recently, Oncothyreon buried the news that a Phase I/II trial of PX-866 in combination with cetuximab did not meet its primary or secondary endpoints in patients with metastatic colorectal cancer. It seems Oncothyreon has largely given up on the asset as well - the company omitted entirely discussion of the five ongoing trials in six cancer indications from its latest investor presentation, although management mentioned Phase II data for the compound in squamous-cell carcinoma in head and neck cancers will be announced before year-end.

Would we rush out and buy ONTY based on ONT-380? Not yet, but it's worth keeping an eye on as the next steps for Stimuvax play out and -380 moves into proof-of-concept trials, likely in CNS metastatic breast and 2nd or 3rd line metastatic HER2 cancers. It's worth noting that in the second quarter, a number of funds took new positions in the small company, which could be attributed to the -380 licensing: First Manhattan initiated a 1.9 million-share position, Millennium now owns 2.1 million shares, and First Eagle upped its position from 200K to 1.2M shares. Oncothyreon has made clear that -380 is a focus (investor presentations have all centered on the asset since licensing), and given the poor track record of cancer vaccines - see Vical (NASDAQ:VICL) and even Dendreon (NASDAQ:DNDN) - not to mention the red flags raised by sub-group analyses, seeing a new asset at Oncothyreon should be encouraging for those still underwater following the Stimuvax failure.

Source: You Might Own Oncothyreon For All The Wrong Reasons