Value Remains At OncoGenex After Borealis-1

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Summary

While it is not rational to declare the apatorsen platform validated on a trial not achieving statistical significance, I think that the results in patients with low performance are promising.

After dropping 11% the day of the Borealis-1 results, the stock has since climbed 6% in a very bloody biotech tape, illustrating the downside protection of its balance sheet.

Given the numerous catalysts and apatorsen's effectiveness in the lower-performance subgroup, I believe that the current depressed valuation and minimal enterprise value present an attractive entry point.

I initially recommended OncoGenex (OGXI) as a long candidate on December 9th at $2.22, stating that I believed "OncoGenex's substantial cash runway, coupled with its deep pipeline and numerous notable catalysts, ma[de] this a very attractive buy at current levels." Since my recommendation, the stock has declined almost 4% to $2.14. This decline since my recommendation was fueled by an approximately 11% drop on Friday December 19th as the market reacted to the company's release of data from the Phase 2 Borealis-1 trial in patients with metastatic bladder cancer that have yet to receive a first line of chemotherapy. In this piece, I will look down to break down the results from the Borealis-1 trial, as well as discuss how it will affect OncoGenex's potential future direction. I will also briefly update my previous discussion on the company's current valuation.

Borealis-1

Given that the data release from Borealis-1 was expected more towards the early part of 2015, the release from OncoGenex on December 19th may have caught some investors a bit off guard as it did myself. While there certainly are some positives to take from the press release, many in the investment community lamented that the PR was unclear and lacked data, which is a fair complaint. When I asked the company about this, OncoGenex noted that it plans to present additional data from the trial at a future scientific forum, though it has not defined at what point this will be. I personally am hoping we might see additional data at the American Society of Clinical Oncology (ASCO) meeting May 29th-June 3rd.

Borealis-1 was structured as a trial with three groups, each with 60 subjects:

Group 1: Placebo and standard chemotherapy

Group 2: Apatorsen (600 mg dose) and standard chemotherapy

Group 3: Apatorsen (1000 mg dose) and standard chemotherapy

The primary endpoint of the trial was overall survival (OS). Per the press release, the apatorsen 600 mg dose and standard chemo group showed a 14% reduction in risk of death (overall survival hazard ratio = 0.86). Well, given that we don't have a p-value, what exactly does this mean? To answer this question, we'll have to visit the most recent 10-Q.

Per the 10-Q: "The trial is being conducted as an event-driven trial such that we anticipate the final analysis will have at least 80% power to show a critical hazard ratio of approximately 0.66 to 0.72." Given that the lower hazard ratios illustrate superior results, the hazard ratio of 0.86 missed the primary endpoint, given the defined target provided by the 10-Q. Data for the 1000 mg group was not included, as the press release only noted that the treatment provided less benefit due to increased adverse events causing a higher rate of treatment discontinuation. When I touched base with the company in regards to p-values, OncoGenex noted that the p-values had not been released and that this small Phase 2 trial was not sufficiently powered to show a statistically significant overall survival result. The trial had been designed with a high hurdle, such that there would have been the potential of an early submission to the FDA in the event that it was met. While I find it hard to get excited about the overall results, I do think that an extremely promising silver lining in the data is the effectiveness of the treatment in patients with a lower performance level, which was defined by a Kamofsky score of 80% or less. Patients in this subgroup will show some substantial symptoms of the disease, and will often have difficulty taking part in normal activity. For this subgroup (which amounted to over one-third of the study patients), the treatment was extremely successful, as it resulted in a 50% reduction in risk of death (overall survival hazard ratio = 0.50) compared to the control group, which suggests the drug is quite useful in treating patients that are in the worst condition.

In my previous article, I had suggested that Borealis-1 might serve to provide a read-through to the other apatorsen trials. After seeing the data provided and noting various reactions, I am not sure exactly what type of read-through it provided. Needham came out soon after the press release and reiterated a buy rating with a $14 price target, suggesting that the positive OS results validated the apatorsen platform. The summary of the note that I was able to locate did not discuss the issue of statistical significance. The market clearly disagreed with Needham's conclusion in regards to the results, as evident by the greater than 10% drop in share price on the day of the data release. I personally have a hard time taking any conclusive stance on the apatorsen platform at this time. While I don't think it is rational to declare the apatorsen platform validated on a trial not achieving statistical significance, I do think that the results in the patients with the lowest performance are encouraging, though targeting this subgroup would certainly be a smaller market for the treatment and would mean lower potential revenues. When I broached the topic of specifically concentrating on this group of patients, OncoGenex seemed very interested in just studying this subgroup in future trials, and I believe that this could increase the chance of success for future trials and allow the company to get a product to market at a quickened pace. When I asked how these results justified the apatorsen program, OncoGenex highlighted the results of Borealis-1 in conjunction with the single-agent data from the superficial bladder cancer trial as illustrating clear evidence of the biologic activity of apatorsen in bladder cancer.

Valuation

In my previous piece, I had highlighted the extended cash runway at OncoGenex, which is still a huge positive for investors. The company ended the third quarter with $54 million in cash, $39 million in shareholder equity, and guided that cash is sufficient for operations through the third quarter of 2016. The company has been extremely smart in establishing partnerships to reduce the cost of trials, allowing it to provide investors with such an attractive cash runway and a large number of ongoing trials in the clinic. In terms of price/book, the stock is now even cheaper given Friday's decline.

OGXI Price to Book Value Chart

OGXI Price to Book Value data by YCharts

As of my most recent article, the stock was trading at 1.249x book. After the most recent mixed bag of results provided in the Borealis-1 data release, you can now enter this stock at 1.161x book, which severely discounts the potential upside from any positive trial results going forward.

Risk Analysis & Conclusion

The most recent Borealis-1 data release illustrates the risk associated with this company. After OncoGenex issued a mixed bag of data, the stock traded up a few percent in premarket, but was sold off throughout the day of the release, as the trial did not meet its primary endpoint. For a biotech, the drop of around 11% was very reserved, and the stock actually was up almost 6% in the two trading days (in a bloody biotech tape I might add), which illustrates my commentary on how the solid balance sheet will provide downside protection in the event of negative news.

While the overall results from Borealis-1 were not as promising as I would have hoped, I do certainly think that the results from the low performance group are promising. I believe that highlighting apatorsen's usefulness in this subgroup provides the drug with a potential direction to market, though it would be a market with a smaller target patient group. I look forward to more detailed data from the trial at a future scientific forum, and there are many clinical trials in progress (as I highlighted in the previous piece) that will continue to provide numerous catalysts. Given the numerous catalysts and apatorsen's effectiveness in the lower-performance subgroup, I believe that the current depressed valuation and minimal enterprise value present an attractive entry point.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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