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It has been 11 months since the FDA partially lifted the clinical hold it had imposed on Oncothyreon's (ONTY) out-licensed, late-stage cancer vaccine product candidate, Stimuvax.

ONTY 1 month Chart
ONTY 1 Month Chart
[Click to enlarge]

The stock is up nearly 55% since the phase 3 trials were allowed to resume. More impressive is its current three week 33% climb, in which several new 52 week highs were created after Rodman & Renshaw initiated coverage with an "outperform" rating and a $10.00 price target and Wedbush raised its price target on the company to $7.00.

What is Stimuvax worth?

In December of 2008, German drug maker Merck KGaA (MRK) acquired exclusive worldwide rights to develop, manufacture and commercialize Stimuvax. Merck has confidently suggested that the product candidate has the potential to generate $1B in peak annual sales.

From a recent Oncothyreon 10-K filing:

We are also entitled to receive royalties based on net sales of Stimuvax ranging from a percentage in the mid-teens to high single digits, depending on the territory in which the net sales occur. Royalty rates were reduced relative to prior agreements by a specified amount which we believe is consistent with our estimated costs of goods, manufacturing scale-up costs and certain other expenses assumed by Merck KGaA.

After Merck's $1B projection, but before the brief FDA imposed hold on clinical trials, a European analyst covering Merck put Stimuvax's potential peak gross sales at a more conservative 350M euros ($500M USD) by 2017. Using the vague royalty data as detailed in the above 10-K excerpt, I feel comfortable assuming the average global royalty rate to be 11%. Any way you look at it from there, if approved, Stimuvax would be worth at least $7 per share to Oncothyreon.

No need for near-term dilutive financing.

The company recently raised $40M in a 10M share offering. The cash will be used to fund its pipeline, namely its PX-866 and ONT-10 cancer-fighting compounds. The company stands to make another $6M, should the underwriters fully exercise their options to purchase more shares.

Oncothyreon's Pipeline
ONTY Pipeline
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As I have mentioned before, chasing bios at or near their 52 week highs can be hazardous to your portfolio. Having said that, I took yesterday's 9.7% pullback from a newly forged 52 week high of $6.19 as an opportunity to enter a long ONTY position. I will be looking to add shares in the near-term, should a continuation of yesterday's sell-off occur, and will be monitoring the position closely.

Disclosure: I am long ONTY.

Source: Oncothyreon Pullback Provides Buying Opportunity