OncoGenex Pharmaceuticals: Novel Products, Financial Flexibility

Perhaps unprecedented in the realm of biotech companies, OncoGenex Pharmaceuticals (NASDAQ:OGXI) has an astonishing four years of cash. It will end this year with approximately $83-85 million, enough to see it through the completion of three Phase III trials of lead candidate OGX-011 (custirsen) and two Phase II trials of the promising OGX-427.

OncoGenex is a developer of antisense-based cancer therapeutics. It shot out of obscurity during the 2009 ASCO with compelling data from a Phase II trial for custirsen in combination with docetaxel in late stage prostate cancer. Results showed custirsen was able to extend survival over docetaxel alone by 6.9 months and lowered the risk of death during the study by 39 percent.

OncoGenex ran up from a $5 stock in the months prior to ASCO to over $30. Investors had reason to be excited - Cougar Pharmaceuticals was recently purchased for $1 billion by J&J (NYSE:JNJ) for their prostate cancer drug and Dendreon had just released results from their successful Phase III trial of Provenge, also for prostate cancer. Moreover, with only 6 million shares outstanding at the time, the stock was certainly prone to such volatility.

It would appear the company’s choice of partners has spoiled the fun. In December 2009, OncoGenex signed a deal with generics giant Teva Pharmaceuticals (NYSE:TEVA) for $60 million upfront, $370 million in milestones, and tiered royalties from the mid-teens to the mid-twenties, with the opportunity to co-promote. The stock has since lost about half its value and now trades around $16.

Even as the stock has dropped, significant investor appetite remains. On October 22, the company was able to complete the sale of over 3 million shares, raising $46.7 million in gross proceeds. This is a huge dilution on a stock that today has only 11.8 million shares outstanding, fully diluted- yet it trades higher today than at the time of the offering.

OncoGenex has an interesting pipeline, but to make sure it gets over the goal line with the cash on hand, it is working only on custirsen and OGX-427, the two most advanced projects. Patients are enrolling in two ongoing Phase III prostate cancer trials.

The first, termed SATURN, was initiated in June 2010; its primary endpoint is whether durable pain palliation for 12 weeks or more is observed in a greater proportion of patients treated with docetaxel/prednisone plus custirsen compared to docetaxel/prednisone plus placebo in metastatic castrate-resistant prostate cancer (CRPC). The second, SYNERGY, compares overall survival in patients treated with either docetaxel/prednisone plus custirsen or with docetaxel/prednisone alone also in men with CRPC. Both trials are fully randomized. An eagerly awaited Phase III trial of custirsen in NSCLC will begin in 2011.

It is important to note that the costs for these Phase III trials are fully covered by Teva. The funds raised from the recent financing, therefore, allows for development to continue on the wholly owned OGX-427. Like custirsen, OGX-427 is an antisense molecule based on 2nd generation Isis technology. It inhibits the production of heat shock protein 27 (Hsp27)- a lesser known cousin of Hsp90, target of multiple drugs in development and subject of many large deals.

Both are what are called “molecular chaperones” that assist with protein folding and transport, and have been shown to be upregulated in a variety of tumors. While Hsp90 is well studied and has been well characterized, helping form the foundation of many of today’s ongoing development projects, Hsp27 on the other hand, is only now coming into its own as an oncology target.

OGX-427 is the most advanced candidate targeting Hsp27, and as far as I know, only one other biotech – a small European company – is also working on this target. This is a confirmation of the difficulty in targeting Hsp27 with small molecule compounds as well as testimony to the low level of characterization of the protein.

A Phase II study of OGX-427 sponsored by the British Columbia Cancer Agency has already begun in prostate cancer. The company will soon begin a second Phase II study of its own in metastatic bladder cancer- the 5th most diagnosed cancer. It will be a randomized three-arm trial enrolling 180 patients testing two doses of the study drug compared to control.

In summary, OncoGenex has candidates targeting two unique mechanisms through the novel antisense mechanism. On the plus side, antisense, unlike siRNA has overcome many of its delivery and targeting issues. To the extent results are an artifact of off-target effects- that should be put to rest by the biomarker results from the Phase I OGX-427 data. However, novel targets combined with novel technologies will certainly raise red flags during the regulatory review process, which may lead to delays.

My belief is these drugs will eventually prove themselves, but it is certainly a long-term play. Things may begin to get interesting after the Phase II OGX-427 as the company looks for a second partner to maximize the product’s potential.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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