ProNAi Is Not Quite Dead In The Water

| About: Sierra Oncology, (SRRA)

Summary

ProNAi Therapeutics had a seemingly promising DNA interference technology fail in phase 2 study, as reported at ASCO 2016.

The failed trial is a major setback for a company with no other drugs in the advanced pipeline.

A deep reserve of cash and equivalents may help ProNAi weather the storm and introduce a small molecule inhibitor into clinical trials.

ProNAi Therapeutics (DNAI) entered the NASDAQ just last year with an IPO that netted them nearly $150 million. Its hopes rested on the success of its lead drug candidate, an anti-Bcl2 interfering oligonucleotide called PNT 2258.

Unfortunately, at ASCO 2016, the company reported modest activity for this agent in diffuse large B cell lymphoma that failed to justify continued development of this therapy. The stock gapped down 70%, from around $6.30 per share to $2 per share.

Today, I'd like to explore the results that led to suspension of development of this therapy, as well as the prospects for ProNAi in oncology. Should you consider this decrease in price a bargain?

The high hope and sinking ship of DNA interference

DNAI hedged their oncology hopes on a technology designed to enter the cell and shut down expression of cancer-related proteins, in this case Bcl-2.

Early results of PNT2258 in a cohort of relapsed/refractory non-Hodgkin lymphoma patients showed some activity and good tolerability back in 2014. 4 out of 4 patients with DLBCL had at least a partial remission, driving hopes that a larger trial would unveil benefit for PNT2258.

The results of that study, Wolverine, were reported at ASCO 2016. Out of 37 patients enrolled overall, 3 had a response. Tolerability was good, and this response rate was modest, but ProNAi decided to shutter the Wolverine study to focus on other endeavors.

Of course, this was a huge blow to a company, losing its most advanced drug, in fact its only drug in clinical trials. Investor sentiment has fallen accordingly. The company that was valued at figures approaching $1 billion just last year has now sunk into the microcap stock range.

The silver lining

Hope springs eternal for ProNAi shareholders, though. As of the last quarter, the company maintains a cash balance of $141 million. Its current burn rate is just north of $10 million per quarter, with over 60% of that being allocated to research and development. In my opinion, this is a favorable prioritization of science over employee compensation, and ProNAi will probably need to continue at a high level of R&D in order to expedite a product to clinical trials.

At this rate, the company has around 3 years of operating cash left, which would be ample time to move a product fairly deeply into clinical trials.

That product would appear to be a small molecule inhibitor of Cdc7, a kinase that controls cell division. It is called PNT141, and we have not heard so much as a sniff in terms of published preclinical data for this drug just yet.

Therefore, in lieu of specific information about PNT141, we should consider the science behind Cdc7 as a target in oncology. No other company has brought an inhibitor of this enzyme to market, so there has not yet been a proof of principle for this strategy.

What does Cdc7 do? It promotes the proper control of cell division by phosphorylating various molecules involved in DNA copying. One of the hallmarks of cancer is disruption of cell cycle regulation, and as it turns out, increasing the levels of Cdc7 is one way to accomplish this.

In preclinical studies, inhibitors of Cdc7 have been shown to inhibit the growth of tumor cells, which is a pretty important step in the development of any anticancer agent.

While ProNAi's efforts are new, it should be noted by investors that past attempts have been made by other pharma companies to target Cdc7. BMY partnered with Exelixis (NASDAQ:EXEL) to develop one agent, but clinical study was abruptly terminated in 2010 without comment.

Takeda Pharmaceuticals (OTCPK:TKPHF) also has a Cdc7 inhibitor in its pipeline, and a phase 1 trial in non-heme tumors was initiated in April 2016. None of these projects has received much fanfare or discussion as of yet, but we may start to see some study on the concept of Cdc7 inhibition in cancer.

Also, PNT2258 is not quite dead in the water just yet. Wolverine was shut down, and this was indeed its most advanced clinical trial. However, ProNAi saw efficacy signals in other forms of non-Hodgkin lymphoma. We do not yet have guidance on whether the company will drop all development of PNT2258, or only that its use has been stopped in DLBCL. Granted, the outlook is not good for this technology, but I don't think it's quite time to write it off entirely.

Conclusions

ProNAi remains an interesting, speculative investment prospect. Certainly, it suffered a major setback at ASCO with the termination of Wolverine. However, it maintains a huge cash balance that will push its next endeavor forward. Potential shareholders should probably not expect dilution in the very near term as a result.

However, despite the cash balance, ProNAi remains a huge risk due to lack of a diversified pipeline. As of this writing, its lead compound appears to have been totally halted (though possibly not, it remains to be seen), and its backup compound is still in preclinical development. We might see the initiation of a clinical trial late this year or in 2017, but then there is still quite some time before we see results come out of those studies. What's more, we do not yet have a strong indication that Cdc7 will be safe and effective. Safety, especially, is one thing that concerns me gravely. We simply don't know what the toxicity of Cdc7 inhibition is, and it could shoot any prospective trial down.

So it looks like ProNAi will need to accelerate its current efforts, and it may need to seek licensing of other promising technologies. I'd keep an eye on ProNAi, but be cautious. The risk is high. The reward is potentially very high.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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