OncoGenex: A Cancer Biotech Worth Betting On

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In the next few weeks I plan to highlight under-appreciated and under-followed biotech companies-the first of which is OncoGenex (OGXI). These names represent a significant profit potential for those who have a longer-term perspective. Too many traders have a very short hold period and, in turn, miss opportunities that Endocyte (NASDAQ:ECYT) or Pharmacyclics (NASDAQ:PCYC) can give their portfolio over a period of 1-3 years.

As the first installment in this series of CEO interviews, I would like to introduce OncoGenex CEO Scott Cormack and show how he has built a unique cancer biotechnology company. This exclusive interview with Mr. Cormack makes a case that OncoGenex is a bargain-buy at today's price levels.

OncoGenex is both misunderstood by traders and is flying under-the-radar. It may represent a unique buy opportunity for those with a long-term perspective.

OncoGenex is focused on carving a niche for itself in the prostrate-cancer treatment space along with chemotherapy. Also it has an exciting program in the HSP27 space. This is a much better approach than the HSP90 target and is largely ignored by the investment community. This is a mistake and it creates a nice opportunity to enter the name. Bloom Burton analyst, Philippa Flint has a price target on them for $20.

Hope you enjoy getting to know OncoGenex and that you profit substantially from this name!

Sam: Tell our readers a little bit more about when and how you started OncoGenex with Dr. Martin Gleave in collaboration with the University of British Columbia.

Scott: Sure. Dr. Gleave and I were first introduced by the University of British Columbia (UBC) in about 1998, and we started having discussions about the formation of a company focused on bringing a novel approach to treating cancer. In 2000, we formally incorporated the company to commercialize product candidates discovered by the Prostate Center at Vancouver General Hospital, which is located in Vancouver, British Columbia. Dr. Gleave is a Distinguished Professor in the Department of Surgery at the University of British Columbia, Director of Clinical Research at the Prostate Center at Vancouver General, and Director of Research in the Division of Urology at UBC. He has a number of degrees including an M.D. from the University of British Columbia and he also did his fellowship in Urologic Oncology at Texas MD Anderson Cancer Center in 1992.

Sam: Tell us more about Dr. Gleave and his urology background. Does that help OncoGenex since the conventional wisdom says that urologists are the key to prostate cancer drug success?

Scott: Dr. Gleave's role in OncoGenex is very key to us. I think there are a number of companies that have an excellent ability to research biology and develop new chemical entities through chemistry, but often the fallout is the translation of that science into practice for treatments for medicine and understanding how you treat patients, what the needs are specifically in that paradigm. I think that's an aspect that Dr. Gleave brings to our interaction quite substantially because, on a daily basis, he is treating patients as the end user of a number of not only product candidates, but also as a surgeon. I think the expertise that he brings to us really allows us to refine our focus on the patient and what the true needs are that are being unmet by conventional therapies in the marketplace or in development.

I think the other fact that Dr. Gleave brings to us is that because he is practicing and is a very well-known key opinion leader in the area of prostate cancer and urology generally, we have an ability to interact with some of the best practitioners in the space. That is, again, paramount as you think about trying to prioritize your clinical trials and translate the science that you're developing into clinical practice.

Sam: Scott, what is cytoprotective protein clusterin?

Scott: Clusterin is the target of our drug product candidate called custirsen. Clusterin is a cell survival protein. The best way to describe this is, as you try to kill tumor cells with a host of various therapies, whether that is with chemotherapy, radiation, or other therapies, tumors always try to survive. That's basically the nature of what tumors are doing in all life forms. One of the mechanisms that they utilize to allow them to circumvent therapeutic intervention is the development of these survival proteins. Clusterin is an important one in that category. When we treat patients with various therapies, clusterin is produced by tumors cells and it confers very broad spectrum treatment resistance that allows the cell to survive. What we try to do is inhibit the production of clusterin and make companion therapies work longer, and hopefully better, with the view of improving survival for all patients.

Sam: When I think of custirsen, that's the technical name you've given in the company, I think of basketball player John Stockton who himself did not score many points but instead created openings for Karl Malone to score the points. In my mind, custirsen by itself does not cure cancer, but it helps those attack cell do its job better by using the defense against it. Am I about right?

Scott: Yeah, I think, Sam, that's a good analogy. Custirsen, unless you're using very high doses in the lab, doesn't tend to be directly killing tumor cells. Rather, what it does is as you described. It is taking out the defensive mechanism of the cell, which allows the original companion therapies to work more effectively. In that way, your analysis of John Stockton being custirsen, I think, is right. If you then take that analogy to chemotherapy, docetaxel specifically might be Karl Malone. I think that's not a bad analogy. The original chemotherapy of docetaxel is an active agent. It's the tumor cell's ability to adapt that becomes the problem and allows patients and their tumors to circumvent the ability of docetaxel to continue to work. Custirsen will basically disable that mechanism and allow docetaxel to continue to score, if you will, using your analogy.

Sam: Prostate cancer treatment development is a crowded field. How do you fit in?

Scott: It has become crowded in the last couple of years in some areas in the disease continuum. The disease as you well know, will progress from being fairly responsive to therapies, and in particular hormone ablation strategies, but patients invariably will progress. As they go through that progression cascade clinicians turn to other therapies like chemotherapy and radiation therapy and so on. In the area that we're specifically developing custirsen is not crowded. We're really the only drug that's being developed in a late stage clinical trial now in combination with docetaxel. There certainly are a lot of therapies that exist before the utilization of docetaxel, and there are some that have been approved in the backend after docetaxel has stopped working for patients. Right where we are developing this drug, which is in combination with chemotherapy, there's high unmet need- there's chemotherapy available to these patients and we're really the only Phase III product that is being developed in that space. Therefore, I don't think there really is crowding in this protected area of unmet need for these patients.

Sam: When we look at your Phase II data from custirsen, the Kaplan-Meier curves look impressive. Clear separation, and so does the hazard ratio of 0.61 unadjusted and 0.49 adjusted. However, bears I speak with say that you have data mined and that your data are bogus. Is that true?

Scott: No, it isn't. There are a couple of points I think that should be mentioned and remembered in the context of this particular study. First of all, the patients presented in all the data sets that we present are intent to treat and what that means is all patients were included in the analysis even if they only got a single dose of custirsen. The intent was to treat those patients and make it include survival analysis, so it is all patients. There's no specialty mining for specific responders.

The second point is that this study was not an OncoGenex sponsored study; rather, it was conducted by the National Cancer Institute of Canada, the NCIC, as an independent third party. They developed the protocol. They ran the analysis. They collected the data, and the data that has been presented and published in JNCI is all the data from the NCIC study and the investigators therein. We didn't do the analysis. We didn't run that data set. As you know, JNCI is highly regarded and one of the most referenced journals that there is for clinical oncology and it's a peer review journal. I think, as you know, it's a high bar for scientific integrity.

I think the other points that are worth mentioning is that this particular study has undergone a great deal of diligence by various pharmaceutical companies, Big Pharma in particular. As we were looking to do the licensing deal, and that includes obviously Teva, substantive analysis and diligence was done on the data set before they ultimately did the licensing agreement with us in 2009.

The last point that I think is worth mentioning is when we presented this data set in 2009 at ASCO we hosted an investor meeting after the primary presentation. That was the principal investigator from the trial and other key opinion leaders in the area of prostate cancer that sat on the panel. One of the panelists on this session was Dr. Brent Blumenstein who independently went through all the data and analysis, and he presented all of his analysis in that open forum. Those data sets and his analysis are specifically available on our website that people can go through. I think in conclusion to your comment and those comments of theirs, this isn't data mining. This is taking data as it appears, intent to treat, and it was as presented by the investigators with their conclusions. Really, it's not the OncoGenex view that was being presented. This is independent research that was being done.

Sam: Thanks, Scott. Basically, the bears are wrong on this point.

Scott: I believe so, yes.

Sam: Another point that the bears bring up against your name is that never in the history of oncology drug development has there been any successful combinations with chemotherapy drugs such as docetaxel. Is that true?

Scott: I think that's a fair statement. There have been a number of agents that have been combined with docetaxel in prostate cancer that have not shown an improvement in survival in Phase III studies. I think there's an important distinction between those drugs that are being evaluated or have been evaluated in combination versus what we're doing with custirsen. The primary difference is, as we talked about at the beginning, custirsen is not a classic cytotoxic agent. It is disabling the ability of the cell to develop resistance, and in this case the docetaxel. We're taking out the adaptive mechanism of the cell to enable docetaxel to work better. That's in stark contrast to other therapies that have been evaluated, which are in and of themselves cytotoxic agents. It's very common when you start looking at combining cytotoxic agents where combined toxicity is observed for putting a couple of drugs together and not deriving a clinical benefit that you'd like to see. I think that is why when you look at what we're doing, first of all, and consider the biologic rationale of disabling the natural process that exists when you treat with docetaxel, I think that one point distinguishes us clearly. The second is our safety profile is actually very clean from a toxicity profile. We never did hit MTD (maximum tolerated dose). We had a very clean profile through the Phase II trials and the previous Phase I trials. I don't think we're getting to that same limit of toxicity that you see with combining with other cytotoxic agents. I think the safety profile and the tolerability seem to weigh in our favor at this point as well.

There are a number of examples in this space where Phase II studies have been evaluated that may have led to Phase IIIs, but the study that was conducted in Phase II with other drugs had shown a positive benefit but when translated into a Phase III, they studied different dosing or schedules that may have imparted a negative outcome on the trial. Had they actually gone forward with the same regimen maybe they may have seen success, but of course, we will not know because those studies wouldn't be repeated. I think it is fair we haven't seen other agents combined with docetaxel that have given a survival benefit, but our biology is very different. The safety profile, I think, is favorable and we're not combining cytotoxics together, rather, we're looking to disable a natural mechanism that is working against docetaxel.

Sam: Is it the lack of cytotoxicity and the biology of your agent why you expect positive data from the Phase III trial?

Scott: Those two points I think are key. I think the third point, though, is that we came out of a randomized Phase II clinical trial showing an overall survival benefit. This is an observation that has been made in a randomized trial previously, and Phase III is designed with the same dosing, the same schedule, the same patient population, and we're looking to repeat an observation that was made previously.

Sam: Tell us more about the role of Isis (ISIS) and its antisense technology that gives you an edge. Isn't your drug target undruggable without Isis technology?

Scott: It really is. The target clusterin is we believe an important cytoprotective protein. Most of the biology we're looking to inhibit exists within the cell, but it is also secreted outside of the cell and does exist in the serum at fairly high concentrations. For both of those reasons, it is difficult to develop either small molecular inhibitors or monoclonal antibodies that would inhibit clusterin. What we've done is we've turned to an alternative strategy to inhibit the production of this protein and utilizing Isis's antisense technology, the second generation chemistry that allows us to take a best of breed technology through Isis's chemistry, combine with our inhibitor to inhibit the production of clusterin. Isis's technology is key to getting to an otherwise undruggable target of clusterin.

Sam: You announced completed enrollment in the Synergy trial on November 6, 2012, enrolling 1,000 patients. Was the enrollment ahead of schedule or on plan? When do you expect data? What are some key endpoints we should look for?

Scott: Accrual was actually a little ahead of plan. The trial was originally designed to be an 800-patient study that we had looked to complete enrollment by the end of 2012. We increased that number to 1,000 patients early on in the trial but didn't modify the timeline. As you said, we announced completion of enrollment in November, and so we achieved a higher accrual target well within the timeline that we had specified to the street. That trial accrued very nicely for us, and we're very pleased to see that.

As for data, the analysis that we're looking to complete for this trial is a survival analysis and is based on a specified number of death events. We expect those events to accrue by the end of 2013, and then data would be a couple of months following that, into the first part of 2014. We'll continue to watch the events accrue through the balance of the year, but that's the present expectation.

Sam: Thank you for that. Another program that is intriguing is the OGX-427. Care to tell my readers what it is and how does it work?

Scott: OGX-427 is a very intriguing program. It is the second product candidate in the clinic for us. It is very distinct from the custirsen program. It is designed to inhibit another cytoprotective protein, although it's very different, it's Hsp27, one of the small heat shock proteins, but biologically it operates similarly: When you apply treatment stress to tumor cells they produce Hsp27 as a defensive mechanism. Again, we're looking to block production of Hsp27 to disable the development of resistance through that mechanism, and hopefully make the companion therapy that we combine it with more effective.

Sam: OGX-427 is not a John Stockton. It actually has single agent potency, correct? Did you not report a complete response (CR) at ASCO 2012 in combination with prednisone?

Scott: Yeah, that's an important distinction. Inhibition of Hsp27 in preclinical models that we've been evaluating is showing very profound single agent activity. That is distinct from what we've observed with custirsen. When you apply this and look to inhibit Hsp27, we see true cell killing capability with this agent, which is distinct. That's not to say that we don't get synergistic activity when we combine because we do and that is the primary path, but there is single agent activity with this agent. As you've noticed, when we've presented the preliminary data from our prostate study in combination with prednisone in a randomized Phase II trial we did observe a complete response and a host of partial responses, which we're obviously pleased to see. That drug has now expanded into not only another trial in prostate cancer, but we're also exploring the potential of this agent across a number of different indications. So far it's prostate cancer, bladder cancer, and we're looking to expand into lung cancer and potentially into pancreatic cancer as well.

Sam: With high profile failures in heat shock protein 90 with Infinity Pharma (NASDAQ:INFI), etc., what makes you think heat shock protein 27 will work?

Scott: I think there's a big distinction between Hsp27 and Hsp90. We could talk a little bit about Hsp70 as well. There are a number of heat shock molecules that can control trafficking of proteins within the intracellular matrix and also apoptosis. Hsp27 has a number of very specific client proteins and it is very uniquely stress associated, that means under normal conditions you don't see very much of Hsp27. It's only under stress environments where you see an up regulation event that confers broad spectrum resistance. Hsp90 is quite different because it is effectively a housekeeping gene. It traffics and chaperones a number of proteins- that's a regular part of the cell biology- and so when you inhibit Hsp90 you're also disrupting normal pathways of cell biology, which is why I think you see more common side effect profiles when you knock out Hsp90 because you're also disabling the normal cellular process. That is not the case when you're dealing with Hsp27, based on the biology that we've been studying.

Sam: The investing community has it basically wrong. The hype about Hsp90 has yielded nothing but failures. Hsp27 is what they should be excited about.

Scott: Yeah, I think so. I think Hsp27 is a unique oncology target. When we look at targets to interrupt, ideally what you want to inhibit is something that is unique in cancer biology or that would be able to differentiate between an effect in cancer cells and those of normal cells. I think Hsp27 fits that bill, whereas Hsp90 probably does not. I think it does have a unique attribute, and I think hopefully as the science continues to evolve, publications will get out there and people will become more informed about Hsp27 and its biology and its opportunity to go across many, many different tumor types. I think the excitement will continue to escalate for an Hsp27 inhibitor, specifically the OGX-427 molecule.

Sam: Switching gears, why metastatic bladder cancer? What is the rationale here?

Scott: It's an interesting question. Not a lot of companies are pursuing development for metastatic bladder cancer. There are very few treatment options available for patients with advanced bladder cancer, unfortunately. There haven't been new therapies successfully developed for this indication in decades. To give you some scope on the size of this particular market, there are approximately 73,000 new cases of bladder cancer in the U.S. alone to be diagnosed (that's an expectation for 2013). A little over 15,000 patients die from this disease on an annual basis. From a treatment perspective, it's a difficult disease. Most patients, about 70%, are actually diagnosed with what we call a superficial or non-muscle invasive bladder cancer. That means that the cancer is actually contained within one or more layers of the inner layer of the bladder. About 30%-40% of these patients actually relapse after resection, so that's a very, very high relapse rate. You do the resection and you'll have those patients end up getting relapse after relapse. About 15%-25% of superficial tumors progress to muscle invasive disease, and then they advance into metastatic and about 30% or so have metastatic diagnosis. When you look at that totality of the disease, it's completely underserved, and we haven't seen new therapies developed. It's a very high incidence and high mortality rate disease. As you probably know, one of the pathways can be that patients end up having their bladders fully resected, and of course, that contributes to a very compromised quality of life for these patients, which is just not acceptable. We're hoping with the development plan for OGX-427 that we can curtail that and improve survival and healthy quality of life for these patients as well. I should mention here that OGX-427 is wholly owned by OncoGenex and not partnered.

Sam: Moving to the financial burden. Is it true that your partner, Teva (NYSE:TEVA), now pays for all the remaining expenses for the trial you have in collaboration with them?

Scott: Yeah, the Teva partnership is a very important one for us, not only to advancing the custirsen program, but also from a financial perspective. The development plan that we have for custirsen includes three Phase III trials, all of which are ongoing presently. Two of those are in prostate cancer. We've talked about the Synergy trial, which is 1,000 patients. There's a second trial called Affinity, which is a 630-patient trial, and then there's the third, which is an 1,100-patient trial in non-small cell lung cancer. All of these trials are obviously very expensive when you're running Phase IIIs of this size, and these are all survival trials. The relationship with Teva and the deal with Teva is that we would contribute $30 million to the development plan and Teva picks up all of the balance of the clinical trials. That $30 million commitment that we had was fulfilled by the end of 2012, so where we stand for 2013 and beyond is that Teva will fund all the remaining costs for the clinical trials and development plan for custirsen from here forward.

Sam: That's a good spot to be in. It's truly a smart way to reduce your cash burn, which leads me to ask, how long of a runway do you have with current cash flow?

Scott: We're in a good position. We have cash into 2015 with the cash that we have on the books presently and that includes all the randomized Phase IIs that we're running with OGX-427 and the conduct of the three Phase III trials with custirsen (and the ability to do the latter is obviously because of the Teva partnership). That puts us a year plus past the expected Synergy results which is a nice place to be. You want to have runway after your expected Phase III trial results because obviously trials can accrue or can report data slightly later than you expect, so having that kind of a back-end cushion is important. I think the key message is to get to the Synergy results there is not a cash depletion issue.

Sam: Scott, I think most retail investors and traders may think you are an "expensive stock" at $11. What a folly that would be if they just look at your market valuation. Your enterprise value is nothing. Am I wrong?

Scott: You're quite right, Sam. The company only has 17 million shares outstanding. The vast majority of public companies would have substantially more than that, usually 100 million plus. When you look at the value of the company, stock price alone doesn't determine the value. It's the stock price times the number of shares. With only 17 million, that gives us an enterprise value of somewhere between $175 and $185, and as we just reported on our Q4 call we have about $75 million cash. So the actual enterprise value of the company is sitting around $100 million dollars, which as you said, when you run that analysis and you look at a company that is running three Phase III trials that are supported by Phase II outcome results and specifically survival at a randomized trial for prostate cancer, and a second drug that's in multiple randomized Phase IIs across multiple indications, there is a disconnect in that enterprise value, we believe.

Sam: Maybe if you did a 4:1 stock split you would bring in retail guys who may then think you are cheap. That's just a joke!

Scott: The idea of a stock split isn't really the intention at this point. I think the key piece is to simply look at the market cap of the company and more particularly the enterprise value of the company rather than looking at the number of shares or even the amount shares that are trading on a daily basis. I think is not going to be addressed by a stock split.

Sam: You truly care about quality of investors, don't you? RA Capital, Tang Capital, QVT Financial, these are A-list names. Your institutional ownership and support is amazing.

Scott: We've really spent the last number of years building out the institutional shareholder base. As you said, if you were to look at the filings and the shareholder ownership of this company, you'll find that there is a long list of sophisticated institutional investors. You mentioned a few, RA, Tang, QVT, Fidelity, BlackRock, et cetera. These are names that have sophisticated portfolio managers that have specialized in healthcare and biotech that typically do deep dive diligence. We're very happy with that institutional shareholder base. They've been very supportive. I think that forms the basis of our going forward with the support of key names in the biotech space in the investing community.

Sam: In summary, my readers have an opportunity here to do their own further due diligence, but with an enterprise value of 100 million and some critical Phase III and Phase II studies ongoing in oncology, it seems like a very strong case of value investing. You have big name partnerships with companies such as Teva and Isis and you have A-list support of institutional ownership. Did I miss anything else that you want to share with our readers?

Scott: I think you've caught the primary pieces. I think the other additional elements or pieces that I'd add is it's always a good observation when you can look back in a company that's in Phase III and look at the Phase II data set and get comfort that what we're doing and what we've seen in the Phase II is what we're looking to repeat in the Phase III. We've seen a very robust Phase II signal out of the randomized Phase II in prostate cancer showing a survival improvement and that's what we're looking to do again in Phase III with the same population, same dosing, same schedule. This observation has been seen before and that's really the investment thesis for custirsen.

I think the second point is that there's a second drug here that is in multiple Phase IIs that again is very exciting. We've had two trials read on preliminary data set in Phase I and Phase II already. Those data are strengthening our results with respect to this product candidate, and we're excited about that one as well. I think you have two separate drugs with very good opportunity ahead of those programs, and we're very excited by both of those.

Sam: Thanks for taking the time to speak with me today. I hope our readers take their time and truly get to know you company at a deeper level. You certainly seem like a great candidate to invest in, especially with pivotal results coming towards this year and early next year. Your science seems pretty well thought out, step wise science is what you have conducted. Again, I hope this gives our readers a great opportunity to get to know you better and to get to know your company better. I thank you for your time, Scott.

Scott: Thank you very much, Sam, and thank you for the opportunity to speak to not only you but also to communicate with your readers. Thank you.


Sam: You just increased your authorized share count from 25m to 50m. I think an offering is coming soon. Am I wrong?

Scott: Our present cash carries our operations into 2015, which is approximately a year past when we would expect to release the top line results for the Synergy Phase III trial. So, an additional financing is not required to achieve our objectives. In our proxy, we are requesting an increase to our authorized shares because we have only 25 million shares authorized, which is substantially fewer than our peers. Further, approximately 17 million of those shares have been issued. This is important because, for example, in the event that Synergy is successful, it may be desirable to do a stock split to align our authorized shares more closely with our peers. If we wanted to do a financing, we have enough unissued shares now that we could do a sizable financing so that is not the reason.

Sam: There is a rumor that OGX 427 bladder cancer is enrolling slower than expected. That resulted in bonus reductions for your management team. Please clarify.

Scott: In order to align our compensation to shareholder interests we often include corporate objectives that exceed the street objectives. These types of objectives are stretch objectives. Our compensation history does not allow for bonus targets exceeding one hundred percent. We had a stretch objective for accrual on the Borealis-1 trial because of its importance to the company and to incent the team to exceed expectations. The accrual at the initiation didn't exceed this internal hurdle. The trial is accruing well and to the street expectations though. So, there isn't a problem with the Borealis-1 accrual rate.

Sam: Thanks for the transparency. I think a stock split would be wise, as it would bring average traders into the name and get parity with other higher float, higher liquidity biotech companies.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OGXI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have a long option position. I am not a certified financial adviser and you should consult with your personal financial adviser before making any investment decisions. All investments carry risks, including total loss of capital. Trade based on your own risk tolerance.