I initially highlighted OXiGENE (OXGN) as a speculative buy on November 13th in my piece OXiGENE: Why I Think This Risky Biotech Is A Speculative Buy. I argued that a selloff in the stock had provided shareholders with an attractive risk/reward entry for this company with significant cash reserves into Roche's (OTCQX:RHHBY) November PDUFA of Avastin, which I felt had the chance to act as a catalyst for OXiGENE given the similarities between the Avastin P3 trial in platinum-resistant patients with ovarian cancer and OXiGENE's most recent fosbretabulin trial. At this time, excitement around OXiGENE was high with five different Seeking Alpha articles going out on OXiGENE in just a dozen days in mid November. While the thesis of Avastin's approval based on progression-free survival (as opposed to overall survival) acting as a catalyst for OXiGENE given that it would suggest an easier pathway to approval for fosbretabulin did play out with OXiGENE rising from a low of $1.71 on November 14th to a high of $2.15 on November 17th (a gain of over 25%), these gains were not sustained as the stock failed to close above $2 during this rally. Since I highlighted this stock as a potential buy, the name is down almost 24%.
While this had been a frustrating time with minimal catalysts for OXiGENE shareholders, I continue to believe that this name remains a speculative buy as the company is on track to receive feedback from the FDA this quarter in terms of the phase 3 fosbretabulin trial design. Below I will look to discuss recent developments and set the stage for the rest of the year.
March 20 Offering: After losing the gains in share price from the Avastin announcement, OXiGENE shares remained range bound between approximately $1.55 and $1.85 for four months up until the March 20 news as the market waited for news in regards to the company's meeting with the FDA regarding the path forward for fosbretabulin. While the stock had been holding up respectably as holders waited for news, the company announced on March 20 that it had entered into agreement with institutional investors to purchase $10 million of OXiGENE shares in an at-the-market direct offering with H.C. Wainwright & Co. (("HCW")) acting as the exclusive placement agent. This announcement sent shares into a tailspin, declining from approximately $1.60 down to $1.40 (a decline of 12.5%). Due to the dilution, shares have now established a range between $1.35 and $1.60 as we await news.
The offering was completed at a respectable offering price of $1.7125, but each of the 5,839,420 units making up the offering unfortunately included a warrant to purchase one half of a share of common stock with an exercise price of $1.7125 along with the share of common stock. This level will unfortunately act as resistance given warrant overhang in the event that shares approach this level after the response from the FDA. HCW, the exclusive placement agent, was kindly out pounding the table on OXiGENE on April 2 (just two weeks after the offering), reiterating a buy and a price target of $6 per share. HCW analyst Reni Benjamin had the following to say on the name:
OXiGENE's lead drug candidate, Zybrestat (fosbretabulin), is a vascular disrupting agent (VDA) which demonstrated statistically significant results in a Phase 2, GOG-conducted ovarian cancer study in combination with Avastin. With guidance from the FDA regarding a planned Phase 3 trial in platinum-resistant ovarian cancer expected in 2Q15, new data from several ongoing clinical trials expected in the next 12 months, the potential for a corporate partnership, and $37 MM in cash (pro forma), we believe OXiGENE represents an undervalued player with significant upside for the long-term investor.
So, did OXiGENE really need to hit shareholders with significant dilution? As per the March 17 corporate update, the company was well capitalized with $30 million in cash at year-end. The following is a quote from CFO Barbara Riching on the March 17 call:
As we have mentioned before, we continue to expect our cash balances to last through 2016 and fund our ongoing programs. With the anticipated progress in our pipeline, we hope to have multiple options to fund later stage development in the meantime, we are focused on executing our plans and moving forward to achieve our milestones for the year. We look forward to advancing fosbretabulin and OXi4503 in clinical development during 2015 and enhancing the value of these programs with patients and our shareholders.
Three days later, the company diluted anyway. This trend of well-capitalized small-cap biotechs raising cash simply because everyone else is raising is something that is disappointing and not in the best interest of shareholders. Does this mean the company is trying cover itself in the event it cannot identify an appropriate partner for the next fosbretabulin trial? Maybe. While this offering is certainly a reason to be disappointed as an investor, this should not be a factor that exclusively determines your position on the name as fosbretabulin has a lot of promise as I discussed in my previous piece.
April 30 1st Quarter Corporate Update: OXiGENE provided its Q1 review last Thursday, bringing investors up to speed with company operations. As of Q1 end, the company had $36 million in cash. Given the current market cap and this Q1 end cash balance, the market is only applying an enterprise value of $0.9 million in the company. So, besides the cash situation, what did we learn from the call?:
-The company continues to recruit patients in its phase 2 study of fosbretabulin in patients with gastrointestinal neuroendocrine tumors (("GI-NET")). The study was initiated last fall and you can view here on clinicaltrials.gov in more detail. A close review of clinicaltrials.gov shows the company made some interesting updates to the trial in April. Changes can be reviewed here. The main two of note are that the company specified are as follows:
1. The company added a detailed description of the trial, highlighting that the dosing will last up to 9 weeks: "Subjects enrolled in this GI-NET study (OX4218s) will receive weekly dosing with fosbretabulin for up to 3 cycles or approximately 9 weeks."
2. The company moved up the estimated primary completion date from December 2016 to June 2016.
Additionally, on the call the company said that it would complete an interim analysis of the first set of patients in the study by the end of this year.
-The company is making progress planning for the expanded phase 1/2 OXi4503 study in AML or MDS. It expects to submit full protocol for this study to the FDA shortly and is on track to enroll the first patient in the second half of the year.
-Guidance for preparing for the phase 3 fosbretabulin study in ovarian cancer has remained constant with the company stating that it expects to receive feedback from the FDA meeting by the end of the second quarter in regards to confirming the primary endpoint and the nature of the study.
-The company expects results from the phase 2 study "Bevacizumab With or Without Fosbretabulin Tromethamine in Treating Patients With Recurrent or Persistent Ovarian Epithelial, Fallopian Tube, or Peritoneal Cavity Cancer" to be submitted to a prominent medical journal in coming months. A slidedeck on this trial is available here.
-The phase 1b/2 trial evaluating fosbretabulin with pazopanib in patients with ovarian cancer continues to recruit patients with results from the phase 1b dose escalation part of the study expected later this year. The company expects an update on these trials from the investigators at the European Society of Gynecological Oncology conference in October.
-The company discussed the three abstracts related to its preclinical program with Baylor that were presented at AACR in late April. The abstracts were as follows:
While it is early, these results are interesting and encouraging. The second study listed illustrated how small molecule cathepsin L inhibitor KGP94 significantly delayed the initial growth of primary tumors. I look forward to continuing to track the progress of these preclinical assets.
OXiGENE shareholders have had a rough go of it over the past few months, but we are fast approaching news from the FDA on how to move forward with the P3 fosbretabulin ovarian cancer trial. This clarity will allow the company to go full speed ahead with partnership discussions. The company additionally has a number of other catalysts including an interim analysis for the phase 2 study of fosbretabulin in patients with gastrointestinal neuroendocrine tumors by year-end and an update from the phase 1b/2 trial evaluating fosbretabulin with pazopanib in patients with ovarian cancer in October. While there was a lot to dislike about the March offering including the fact that it was laden with warrants, the fact that it was poorly timed as the company could have had superior pricing post-FDA feedback, and the fact that the company did not really even need the cash, this is a well capitalized company with a $36.9 million market cap, $36 million in cash as of Q1 end, and ample catalysts for the rest of the year, making the stock a speculative buy at current levels.
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