Onconova Therapeutics: The Power Of The Number 75

  • As noted in my previous article covering $ONTX, the market eventually responded the same way to adding patients to (INSPIRE) as they would have to outright failure.
  • I’ll explain why I passed on an easy opportunity to exit with a 25% profit.
  • The market isn’t smart but it sure is stupid when it comes to assessing the meaning of this Data Monitoring Committee (DMC) adjudication and the value of CEO Ramesh Kumar’s partnering hand.
  • The critical importance of the need for 75 high-risk patients in the original (INSPIRE) study population may explain the DMC decision to add more patients – not falling short of statistical significance.

Declaration: I am long Onconova Therapeutics (ONTX) 15.3k shares.

Full Disclosure: I have not, and will not, receive compensation from any corporate entity for this or any other article I author and publish on this platform at my own expense and for the sole benefit of the retail investor.

Monday, January 22nd, 2018 – Always do your own due diligence and consult a professional financial advisor before making any investment decision.

I almost never quote myself in an article that I compose but, in this instance, I just can’t resist. From the concluding remarks of my previous post entitled; Onconova Therapeutics – The Destroyer of Happy Holidays we have this warning.

There is one other possibility I didn’t address in this missive – the trial continuing with added patients. At this point, however, that’s equal to outright failure as the company would be unable to fund the trial’s progression to completion.

That sums it up nicely, doesn’t it? I did not, however, fully entertain the possibility enough to consider all of the implications tethered to it. Therefore, allow me to do so now by addressing two issues.

  1. What adding patients means to this study which is, in fact, different from other pivotal studies that require enhanced power to reach statistical significance.
  2. If a partnership can be reached to avoid cancellation of the study, bankruptcy or massive dilution and what that agreement might look like.

(INSPIRE) Is Now Deficient In The Required Number Of High-Risk Patients

Adding power to a study usually means that while the candidate arm has not crossed the futility boundary and remains capable of acheiving its objectives, it is underperforming and requires added patients to turn the tide in its favor against control. But because (INSPIRE) is two studies in one – assessing rigosertib in both high and higher risk patients separately, it’s impossible to apply a standard assessment of what the DMC’s intentions actually were.

For example, we know from the press release that over 170 of the previously required 225 patients had been enrolled prior to January 17th 2018. We know from the conference call that over 70% of those patients numbering 119 were from the “very high risk” population. Therefore, it’s entirely possible that the DMC found that only 51 patients from the “high risk” population was entirely insufficient to rule out chance even if that group was ostensibly on track to reach stat-sig.

Before you preemptively laugh off this analysis understand that the original trial size was loosely targeted to 75 patients in control (physician’s choice) and the remaing 150 to be split evenly between the high and higher risk groups. We know that the trial size has been elevated to 360 patients – 120 in control and 240 total in both rigo arms. So, if the revised trial continues to enroll at a 70/30 clip of higher-risk to high-risk patients respectively, then the total number of high-risk patients enrolled in the study arm by trial’s end will be 72 – a number ironically close to the originally intended number of 75 which was deemed sufficient to power the study. Think about it!

Were (INSPIRE) to have continued as planned only 45 evaluable patients in the high-risk study group would have been accrued – a number insufficient to rule out chance. Of course, it could be that both candidate arms are falling short of the primary and secondary endpoints originally established. Were that the case, then the market’s reaction would be justified. But what if only one arm is difficient? Consequently, as I see it, we have four distinct possibilities.

  • Both rigosertib arms are underperforming and in need of added patients.
  • Only one arm is underperforming and in need of added patients.
  • One arm is underperforming and the other short of the requisite number of evaluable patients.
  • Neither arm is underperforming but the high-risk arm needs more patients to rule out chance.

This is a smart assessment that the market is generally incapable of making. It won’t, however, be lost on Ramesh Kumar when he begins soliciting potential partners to see this trial through to completion. Convincing them of the potential viabilities at hand won’t be difficult but holding onto Europe at anything beyond a single digit sales royalty will be. Therefore, he and everyone associated with this equity should resign themselves to lower expectations.

Beggars Can’t Be Choosers

Onconova Therapeutics has had the smell of desperation about it since Baxter walked away from their previous deal following the (ON-TIME) debacle. Things aren’t any better now. Looking for favorable terms when one is days from running out of cash and in need of more money to finance a trial taxiing to a longer runway of completion is not possible. That’s right! Not possible.

Neither is there a way to execute a public offering that would generate enough cash to reach the (INSPIRE) readout now projected into 2019. The company will need in excess of $30m to accomplish that. How will they get it?

Ramesh Kumar Has Several Hole Cards To Play In The Partnering Game.

Mr. Market is as dumb as a rock to believe that Onconova has only two options remaining following the interim review  – bankruptcy or dilution. These two death rattles are as obvious as the black eyes on a domestic abuse victim’s face. But Kumar holds the prized jewel found in any therapeutic candidate’s treasure chest – Europe – still in his hands. Any commercial pharma company that wants to compete cheaply in the blood disease space might be irresistibly drawn to Onconova at this time. The price of entry will be cheap and the rewards of success gigantic when placed in perspective.

Any hypothetical outcome to follow is predicated on the absolute nature of this “data firewall” that Kumar spoke of at the Interim Conference Call.  If he’s able to communicate to a prospective partner confidentially that the study is on track to succeed but that the high-risk study arm needed more patients then the terms could be far better than what I’m about to indicate. That’s an important if/then scenario that doesn’t necessarily mitigate the partner’s obvious advantages but I needed to raise the point nonetheless.

An Upfront Payment Is Not Required

It’s highly unusual for a partner not to offer an upfront payment. Baxter posted a non-refundable $50m when last Kumar struck a rigosertib ex-U.S. commercial and developmental deal. That likely won’t happen this time around. Instead, a partner will likely offer to buy an ownership share of the company. Onconova has already indicated an intention to raise $15m through dilution but now will need $15m more to remain viable.

A deal could be structured so that the partner bought a 7-14% share of the company by purchasing 1m common shares at $15 each or 2m shares at $7.50 each respectively. Either way, Onconova would likely be able to exercise approximately 3m outstanding warrants at an average price of $5 each for an additional $15m totaling $30m.

A partner would love this because if they at any time felt uncertain about the prospects of (INSPIRE) success they could sell those shares on the open market incurring only an incidental fee for admittance into the rigosertib bonanza.

The Dreaded 6% Sales Royalty Is Likely On Offer

A fixed single digit sales royalty is all Kumar could reasonably expect to get in my estimation but, then again, I’m not the master negotiator that he historically has been. Kumar has the option to place both IV and frontline rigosertib on the bargaining table and likely has done so. He could ask for the prospective partner to fund the frontline study. The prospective partner could then make that contingent upon (INSPIRE) success before writing a check.

In Conclusion

Nowhere in the blogosphere have you read an analysis of the DMC’s decision to increase the power of (INSPIRE) remotely like that which you’ve encountered here. There are two other distinct possibilities other than underperformance of the study arm which remain in play. In and of themselves, these possibilities kick open the door to a prospective partnership and I fully expect a suitor to walk through any day now. And while bankruptcy and massive dilution remain the likely scenarios implied by the falling stock price, I hold fast to my own insight and every share I’ve accumulated over the past many months.

Always be well…

Thaumaturgical Disclaimer: As a practicing person of magic and aspiring warm-hearted wizard, I’ve utilized tarot cards as a basis for the sub-analysis of biotech equities for the past three years and in my personal life for nearly four decades. These readings sometimes play a role in my ideational constructs but must be consistent with the facts at hand and not run counter to a logical assessment of the equity considered.
Mental Illness Disclaimer: I’ve been diagnosed as suffering from manic depression. Therefore, my reactions to events can sometimes be more pronounced than the facts warrant. I owe investors complete transparency and am the only ideator in biotech to provide that. Please focus on the ideas presented and don’t hesitate to contact me with any factual errors found in the article text.
General Disclaimer: Any information or opinion expressed herein may not be true, accurate or correct and it does not constitute a suggestion to buy, sell, hold or adopt any investment strategy for this stock or any stock that may be mentioned. Reliance upon information in this article is at the sole discretion of the reader. The sole purpose of my article is to entertain by providing an opinion and information the accuracy of which is as good as the public sources it was derived from. For example, KOL’s often utilize exaggerative terminolgy to describe a product or asset they are promoting on behalf of a biotechnology company they’re associated with. Do not act on anything I have written, a CEO has spoken of, or a sell side analyst has stated. Rather, do your own due diligence and consult a professional investment advisor before making any investment decision. Acting on what any one writer has imparted to you is foolish at best. I have no better access to resources than you do. I sometimes make mistakes. And there are a myriad of things, which can happen in lieu of any forward-looking statement I have made. Any stock featured or mentioned in an article I compose is subject to all manner of influences, which can change its value in dramatic fashion both higher and lower. These events can be of a wide variety – news related; managerial decisions; trial failures; stock manipulations; and so on. I make every effort to declare positions I have in stocks I cover or mention in an article but reserve the right to move in and out of said investments at my own discretion based upon the wisdom of doing so. I implore you to do your own due diligence and invest at your own considerable risk attaining the just reward your efforts have wrought. Additionally, if you are aware of any misstatements of fact contained in this or any article I have written, you are encouraged to email me immediately at the link given in the header above or address them in the comments section.

Dynavax Technologies’ Heplisav-B Offers No Competition Whatsoever To GSK’s Engerix-B

 

  • The market’s reaction to nonexistent Heplisav-B sales in 2018 won’t be fair though it certainly will be crushing.
  • Sales won’t begin in earnest until well into Q2 of this year.
  • Existing stockpiles of entrenched competitor Engerix-B will have to be run down before customers can even commit to trying Heplisav-B.
  • Large organizations often purchase vaccines as part of contract bundles that can’t be parsed out and negotiated separately from other therapeutic products contained within them.
  • Heplisav-B revenue inflection points, therefore, won’t be realized until 2019.
Declaration: I hold no position in Dynavax Technologies (DVAX) and have no intention of initiating a position over the next 72 hours.
Full Disclosure: I have not, and will not, receive compensation from any corporate entity for this or any other article I author and publish on this platform at my own expense.
Saturday, January 13th 2018 – Always do your own due diligence and consult a professional financial advisor before making any investment decision.

The Slow-Motion Crash Of Dynavax Technologies Is Fully Under Way

Millions of investment dollars are daily leaving Dynavax Technologies as smarter, wiser investors and impatient traders are moving away from an equity skidding out of control. CEO Eddie Gray is deliberately downplaying the logistical nightmare set before him. He barely mentions the mothballed manufacturing facility that needs to be brought back to commercial life and possibly recertified by the FDA. He speaks repeatedly of a centralized marketplace for hepatitis-b vaccine administration when common sense tells us that’s simply not true. And he publishes a graphical reference to a market of diabetic patients that today does not exist and likely won’t without a supplemental NDA (sNDA).

Strangely though, he has already acknowledged at the J.P. Morgan 36th Annual Healthcare Conference held on January 11th that 2018 Heplisav-B sales will be slow if not abysmal. In his own words.

In 2018, we forsee two phases. In the early part of the year, our teams will be focused on those factors which support access to Heplisav-B reimbursement contracting and institutional review and process. With that baseline, we’re in position to begin accelerating sales of Heplisav-B and support expanding access to the market. By engineering this foundation correctly, we will then drive additional (we will additionally drive) significant revenue inflections through 2019 and 2020.

That’s right! Eddie Gray sees no “significant revenue inflections” during the eleven months remaining in 2018 and neither should you. The problem for investors is that when a biotechnology company first transitions from developmental to commercial stage, sales are all that matters. Investors want to see real-world validation of the company’s product, technology and pipeline. By suggesting that Heplisav approval was mandated with a clean label and that managerial expertise is now in place, Gray has raised the bar of expectation extremely high.

The Two Secret Saboteurs Of Heplisav-B Commercial Uptake

Saboteur #1: Stockpiles Of Engerix-B

Often times, burried beneath the many words of a CEO at an investor conference are a few that prove essential to an effective contemplative process. I’ve extracted, for your examination, the single most significant statement made by CEO Eddie Gray at J.P. Morgan.

All U.S. customers currently have stocks of Engerix-B that they will need to run down before committing to Heplisav-B.

It becomes effortless to gauge the magnitude of that remark once it is isolated from those of lesser import. Heplisav-B sales won’t start until units of Engerix-B at provider facilities everywhere are exhausted. One need only imagine how competitor GlaxoSmithKline (GSK) delt with this reality over the past many months prior to and following Heplisav approval. Have they, for instance, increased the volume of doses delivered by offering discounts to slow Heplisav uptake? And this isn’t the only strategic move that they could have made.

Saboteur #2: The Crippling Effect Of Product Bundling

Eddie Gray is controverting his own message of confidence every day by noting that it will likely fall into the second quarter of this year before Heplisav-B is added to insurance reimbursement schedules. However, he slapped intoxicated longs briskly across their smitten faces when he noted, for the first time, a significant new barrier to break through. An impregnable shield that will likely hamper Heplisav-B uptake for years to come.

We will clear important access hurdles in complex organizations. Some hepatitis-b vaccine utilization in large process driven organizations such as IDN’s requires achieving formulary, pharmacy or therapeutic committee approval. Procurement review processes and contract discussions particularly in situations where current vaccines may be part of a complex product basket contract, (and they) will be a main focus during this initial launch period to support our long-term success.

What Gray is intimating here is yet another crucial aspect to our understanding of Heplisav-B launch viability. Big pharma companies, and the sales organizations that serve them, have an ongoing practice of bundling products together in packages. This allows them to sell a variety of therapeutics to buyers at discounted prices. The result is the formation of a mote around certain low value propositions such as vaccines which aren’t easily extracted when the discounts apply to other higher cost items. The genius to this approach at preemptively eliminating competition can’t be understated. It has held once promising commercial stage biotechnology companies such as bone graft manufacturer Xtant Medical (XTNT) helpless for years.

A Clean But Unusually Busy Label Is Potentially Off-Putting To Physician Prescribers

When I first penned a cautionary thesis on Dynavax Technologies in August of last year, my concerns about possible label warnings regarding adverse events incited a cascade of relentless personal attacks and belittling dismissals of those concerns. All the while and unbeknownst to me a secret deluge of calls to investor relations from panicked investors was taking place. Don’t believe me? Here’s Eddie Gray at the FDA Approval Call on November 9th of 2017.

We are especially pleased that the label presents the safety and immunogenicity data in a manner consistent with the needs of physicians making clinical decisions. And I would like to highlight a few elements of the label that have been the theme of your questions leading up to today’s approval.

And again, a bit later.

Consequently, there are no special precautions or warnings in the label regarding any adverse events observed in the trial, a question some of you have raised with us in recent weeks.

Overlooked, however, even by me, was a label that has to read more like a science manual than anything standard in the world of vaccine packaging. Here’s another shade of Gray.

The label includes details of events observed organized by each individual trial. So, for example, each trial lists the observed rates of serious adverse events including acute myocardial infarction or AMI thereby showing a numerical imbalance in AMI rates in HBV-16 towards Engerix and in HBV-23 towards Heplisav-B and that there were no AMI’s in HBV-10. Additionally, the discussion of AMI’s in HBV-23 includes clarification that the data as presented in the label and additional analyses did not support a causal relationship between Heplisav-B administration and AMI’s.

Consequently, the label does, in fact, play a dissuasive role in product uptake as physicians will have to wonder why so much information is provided about a product that claims as its central virtue so few doses. Not nearly as much of an issue as product bundling or Engerix-B stockpiling but a hurdle nonetheless.

In Conclusion

Heplisav-B enters into a $270m market with an entrenched product competitor in GSK’s Engerix-B. Existing stockpiles of that vaccine which must be sold prior to customers considering Heplisav administration; inextricable product bundling; and a busy label argue against market uptake. Many an upstart commercial drug company sporting a better product has encountered a level of resistance that is unexpected at first and formidable at last. MannKind’s (MNKD) Affreza would be a perfect example of this.

I see no way around a product launch that will be as disappointing as any that we have witnessed over the past four years. GSK is not an idle competitor and will relinquish market control begrudgingly. Any thought of an acquisition or partnership on favorable terms has to be measured against this foreboding backdrop of circumstance. As a result, those are non-eventualities to the reasonably minded.

Always be well…

Thaumaturgical Disclaimer: As a practicing person of magic and aspiring warm-hearted wizard, I’ve utilized tarot cards as a basis for the sub-analysis of biotech equities for the past three years and in my personal life for nearly four decades. These readings sometimes play a role in my ideational constructs but must be consistent with the facts at hand and not run counter to a logical assessment of the equity considered.
Mental Illness Disclaimer: I’ve been diagnosed as suffering from manic depression. Therefore, my reactions to events can sometimes be more pronounced than the facts warrant. I owe investors complete transparency and am the only ideator in biotech to provide that. Please focus on the ideas presented and don’t hesitate to contact me with any factual errors found in the article text.
General Disclaimer: Any information or opinion expressed herein may not be true, accurate or correct and it does not constitute a suggestion to buy, sell, hold or adopt any investment strategy for this stock or any stock that may be mentioned. Reliance upon information in this article is at the sole discretion of the reader. The sole purpose of my article is to entertain by providing an opinion and information the accuracy of which is as good as the public sources it was derived from. For example, KOL’s often utilize exaggerative terminolgy to describe a product or asset they are promoting on behalf of a biotechnology company they’re associated with. Do not act on anything I have written, a CEO has spoken of, or a sell side analyst has stated. Rather, do your own due diligence and consult a professional investment advisor before making any investment decision. Acting on what any one writer has imparted to you is foolish at best. I have no better access to resources than you do. I sometimes make mistakes. And there are a myriad of things, which can happen in lieu of any forward-looking statement I have made. Any stock featured or mentioned in an article I compose is subject to all manner of influences, which can change its value in dramatic fashion both higher and lower. These events can be of a wide variety – news related; managerial decisions; trial failures; stock manipulations; and so on. I make every effort to declare positions I have in stocks I cover or mention in an article but reserve the right to move in and out of said investments at my own discretion based upon the wisdom of doing so. I implore you to do your own due diligence and invest at your own considerable risk attaining the just reward your efforts have wrought. Additionally, if you are aware of any misstatements of fact contained in this or any article I have written, you are encouraged to email me immediately at the link given in the header above or address them in the comments section.

Biotechnology Conferences 2018

January 8-10 Biotech Showcase San Francisco
January 8-11 J.P. Morgan San Francisco
February 14-15 Leerink Partners New York
March 12-14 Cowen and Company Boston
March 13-15 Barclay’s Global Miami
April 14-18 AACR Chicago
May 15-17 BofA Merrill Lynch Las Vegas

June 1-5 ASCO Chicago

July 16-17 World Biotechnology Berlin
September 10-12 Morgan Stanley New York
October 19-23 ESMO Munich
December 1-4 ASH San Diego