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

Onconova Therapeutics – The Destroyer Of Happy Holidays

I/we are long Onconova Therapeutics (ONTX)

Sunday, December 31, 2017 – Always do your own due diligence and consult a professional financial advisor before making any investment decision.

After Friday night’s filing of a $15m shelf offering, it’s far easier to wish you a Happy New Year than it is to feel it. As someone who is unhealthily committed to a disproportionately large position in Onconova Therapeutics (ONTX), I’m experiencing gnawing sensations at the other end of the sentience spectrum including those of worry and grief. This most unpleasant ride which began for me in late May of this passing year has featured a limp-along equity raise near Thanksgiving that was followed by an avalanche of selling activity trapping investors beneath a freezing pack of price killing snow. Two of three holidays have now been utterly ruined by circumstance and provide yet another reason to steer clear of nano-cap biotech investing.

Fearing the worst at this juncture is the most logical response. There have been few if any buy-indicators and most of the good news published by the company could best be described as benign or suspect. The recent commercial and developmental partnership of Onconova’s CDK-4/6 Inhibitor in China would be a perfect example of this – the terms of which were not disclosed and the partner, HanX, not well known.

There are now only two logical outcomes for the INSPIRE interim review. Probable failure and possible continuace – either “as planned” or weighted toward one of the two subgroups of high or higher risk patients. Moving foreword, I’ll refer to this  as “continued with adaptations.” Failure, a crossing of the futility boundary that this S-1 filing and stock trading pattern allude to, will result in the death of rigosertib as a clinical trial prospect – at least in adult MDS; possible delisting of the company on the NASDAQ; emphasis on a pipeline asset (ON123300) that hasn’t yet entered the clinic; and a string of inevitable value clobbering reverse splits and equity raises down the road. Not a pretty picture!

That noted, I remain convinced that this issue is, as yet, unsettled. And, it is possibilities, isn’t it, that have us gambling in this very high risk/reward end of the stock market investment pool. Consequently, what follows are tidbits of information, analysis and speculation that will help long position holders like me to make informed decisions on what to do next should what is possible become what is actual early next week.

INSPIRE Continuance Comes In Two Strengths And With Or Without A Chaser

Since the aforementioned S-1 came without an affixed share price  those of us on StockTwits have been desperately trying to convince ourselves that an announcement regarding trial continuance is the root cause of this omission. Ah, the human mind is a tricky and miraculously self-protective mechanism. This idea was bolstered by a fall in short positions and anemic after hours trading given the apparent gravity of the situation. Of course, the choice of date and time, Friday night before a three day weekend, likely had a lot to do with that. As a result, premarket Tuesday could be a better indicator of investor sentiment. I’m about to speculate on these two versions of continuance – “As Planned” and “With Adaptations”; their effect on the share price and how I’ll play them. Enjoy!

Extra-Strength: Continue As Planned

Let’s cover a few crucial data points before we continue. The market capitalization of ONTX as of market close Friday, December 29th was $16.13m (10,758,537 shares x $1.50). Importantly, there are 3,294,771 shares of common stock issuable upon the exercise of outstanding warrants at a weighted average of $5.10 each. Important because any rise above $5.10 will likely bring badly needed capital into the company of up to $16.8m and automatic dilution of up to 30.6%.

The INSPIRE real-world U.S. MDS population comes in at about 5k patients. At a common price point per treatment of $100k intravenous rigosertib targets a $500m U.S. market. Because cancer treatment centers are centralized throughout the country only a small salesforce would be required to access this market. Additionally, rigosertib would undoubtedly be added to a schedule of matched genetic markers and therapeutic treatments that already exist for doctors to reference making the task of physician awareness all the easier.

An announcement, therefore, that the trial will “continue as planned” would be greeted enthusiastically by Mr. Market. Developmental biotechs are appraised both on a variable market multiple and their ability to capture that market. Fair value for Onconova on a supposition of INSPIRE success in late 2018 should come in at about $1bn. It would, however, take the market a significant time to catch up to this reality. The doubters wouldn’t go away easily and the Feuerstein/Ratain Rule would still be in play.

How much of a share price ascent should we then expect if the trial continues as planned? I’m guessing between 7 and 14 times it’s current level ($10.50 – $22.00). Should that be the case, $16m of capital flows in by way of those previously addressed warrants and an equity raise in the upper single digits or higher is a no-brainer.

Significantly, the new market-cap of the company would be factored on roughly 14m shares plus the number issued to raise the additional $15m. Keep this in mind as financial sites are late in making accurate calculations and, sometimes, deliberately misleading. If we assumed the best and the equity raise was 1m shares at $15 each, the new market-cap in this most optimistic of scenarios would be $225m (15m shares x $15 per share = $225m).

Mild-Strength: Continue With Adaptations

This becomes a highly problematic scenario that relies upon the competency of our CEO, Ramesh Kumar, to effectuate. His ability to convince Mr. Market that the commercial opportunity remains significant is pivotal in how enthusiastically investors respond. Truthfully, I can’t gauge it because I don’t know how large a swath of that 5k potential patients we’re addressing. Hopefully, Kumar does and can communicate that well enough to encourage new initiates to dive in. Sell-side analysts will, no doubt, play a part in that process but the onus remains on Kumar’s skillset.

I could easily see only a doubling of today’s share price as confusion holds newcomers at bay. Then again, I could also see a sevenfold increase if Kumar articulates the commercial opportunity compellingly. As a result, I’m not sure how impactful a $15m public offering would be on the risen share price. If at the low-end of the spectrum ($3.00) devastating. If at the high end ($10.50) eminently tolerable.

The Partnership Chaser

A commercial and/or developmental partnership would ensure that the top end of both price targets would be reached with ease. Onconova owns the worldwide rights to rigosertib except in Japan and Korea where Symbio has already secured them. An upfront payment of $10m or more with the usual milestones and royalties would serve to validate the chances for regulatory approval and commercial success. And CEO Kumar has already demonstrated a knack for reaching these accords, therefore, I expect one.

How Much Data Will Be Made Public At Interim?

I get this question from time to time and respond by stating – as little as possible. Trial veracity depends, in large part, on how little patients are biased by what they know and don’t know about the drugs they’re taking. Therefore, I don’t expect CEO Kumar to be telling us with any degree of specificity how long patients are living in either trial arm. I do expect him to speak in generalities such as – the trial is on target to reach its primary endpoint. I do believe, however, that data can be shared with potential partners which makes any announcement along those lines all the more compelling.

How I’ll Respond To The Various Outcomes

I’ll refer all questions by way of email or on StockTwits to this article and retain the right to sell my 15.3k shares as I see fit. That noted, if the trial continues with adaptations, I’ll likely sell some or all of my shares if the price rises short of $5 on the day of that announcement. If the price goes higher, I’ll likely hold firm.

If the trial continues as planned without a partner, I’ll likely sell some of my shares but retain most of them. In either scenario, with a partner, I’ll likely hold them all through the data readout in 2018.

In Conclusion

Pessimism rules my Onconova world. While I clearly don’t see defeat from every vantage point, Friday’s S-1 filing added to an already bleak outlook. I’ve noted the long odds of success with every video and article I’ve published but still pressed forward without selling a share and accumulating whenever I could. 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.

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 sub-analysis of biotech equities for the past three years and in my personal life for nearly four decades.

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.

The All-Everything INSPIRE Interim Review – No Illusions!

I/we are long Onconova Therapeutics (ONTX)

November 17, 2017 – Always do your own due diligence and consult a professional financial advisor before making any investment decision.

No sane person retains a long position in a developmental biotechnology company that is less than two months away from running out of cash. And yet, even after several articles and videos attesting to this fact, many investors seem perilously unaware that this is the predicament we find ourselves in with Onconova. I can attribute this to my limited self-published exposure and the casual investor’s limited due diligence.  It doesn’t help at all that the issue, unsurprisingly, wasn’t addressed directly in the Q&A session that followed the Q3 Conference Call by sell-side analysts covering ONTX.

Once a thriving enterprise with a deep pocketed partner, Onconova is now the ugly duckling of the developmental space with all of its pipeline eggs riding precariously in a shaky interim review basket. With a market-cap of less than $20m and a phase-3 trial not funded anywhere near to completion, this DSMB futility analysis now represents the biggest binary event in recent biotech history. Utilizing five hypothetical press release headlines to capture the five distinct possible outcomes, we’ll examine the effects that these will have on the company and, more importantly, on the share price. But before we do, a brief word about the most recent public offering.

920k New Shares Will Flood The Market Weekly

It has long been stated that equity raises are a necessary evil in the realm of biotechnology investment. That “necessary evil” today is accentuated by excessive executive remuneration and a Wall Street banking system replete with blood sucking greed merchants who work in coordination with each other to line their already bursting pant pockets. A stunning example of this would be Synergy Pharmaceuticals (SGYP) recent equity raise that was a tethered prelude to a loan facility requirement hidden from public view.

That noted, Onconova’s recent stock offering of 920k shares at $1.50 each, though dilutive by discount, hardly constitutes anything that could be characterized as evil or even draconian. Depressing – yes. Evil – no. The paltry proceeds of just over $1m will likely see them through to the interim analysis of INSPIRE and no further. The biggest drawback will be on the upward price movement of the stock as daily over the next several weeks the lion’s share will be sold back into the market for a profit of between 5 and 50%. It’s easy, therefore, to see how wealth begets wealth on Wall Street.

So, why not do a more aggressive warrant laden raise with interest bearing preferred shares that could have seen them through to the conclusive data readout in middle to late 2018? Perhaps, only God and CEO Ramesh Kumar know this for sure but that’s the first question I’m going to try to answer in this article. So, from the least to the most likely scenario we have these three.

  • The equity lenders didn’t see a future beyond this coming interim review that warranted a larger sum of money or a greater corporate involvement (see headlines 1 and 2 below).
  • CEO Ramesh Kumar has thoroughly rebuffed these back alley bankers in order to protect the value of his and our shares.
  • Kumar sees a positive interim review triggering a non-dilutive, income generating event the size and nature of which remains known only to him (see headlines 4 and 5 below).

A Myriad Of Ways To Look At This Offering

It’s clear that Ramesh Kumar seeks to arrive at the interim analysis of INSPIRE with his company fully intact and uncompromised by the vulture capitalists of Wall Street’s underbelly. No one can convince me that he wasn’t given the opportunity to raise ten to twenty million dollars in a creatively structured offering that would have decimated the value of our holdings. By doing so, he could have made it past a futility boundary breach intact. As it is, such an event would likely result in the end of Onconova as we now know it. Kumar, therefore, is either confident of what he has or is rolling the dice like the rest of us are.

For Claity’s Sake – Let’s Play The Hypothetical Headline Game

INSPIRE is not a prototypical phase-3 trial. The structure is far more similar to that of a phase-2 endeavor – open label and unblinded. It’s also adaptive after an interim review the parameters of which have only recently been agreed upon by the FDA and European Medicines Agency. The fact that both regulatory bodies are working closely with the company on all aspects of this trial attests to not only the need for new leukemia therapies but that, additionally, these agencies find therapeutic value in rigosertib. I don’t believe that most casual investors understand any of this. In fact, I think they’re all about to get a heavy dose of due-diligence-neglected when the interim review turns out positive. That stated, the declining share price worries me in that the network of clinical trial physicians is not encumbered by absolute silence. Mitigating these concerns is the multi-country, worldwide stage that this study has been set upon. Therefore, we trudge bravely into the night unaware of the dangers though others might be.

What the casual investor is privy to, however, is that Onconova’s previous big pharma partner, Baxter, bailed after the ON-TIME prelude failed. What they can’t seem to appreciate is that the runway to a return on such a large investment was extended beyond that which BAX could afford to bear. These kinds of pragmatic decisions are made all the time by retail investors but if big pharma pulls the plug it’s assumed the value proposition has altogether vanished. And let’s not forget the graveyard that blood cancers are to promising compounds nor the act of desperation that data mining often is when companies are trying to remain relevant. Is it any surprise then that so many investors have long since pushed onto warmer climes? I think not.

Regardless, and, in fact, because of this, the value proposition here is enormous on both sides of the risk/reward ledger. To illustrate this let’s utilize an analytical tool I just now invented called; The Hypothetical Headline Game. We’ll start with the one press release that no long wants to wakeup to and that every long dreads. We’ll also assign a share price to each event and a strategy. As a reminder, these are products of my tormented imagination only.

Headline #1: “The DSMB Has Stopped Onconova’s Pivotal INSPIRE Trial For Futility”

Of course, that’s not how the actual headline would read because biotech companies always spin to the positive. Instead, you’d likely see something about rigosertib’s substantial treatment effect that failed to reach statistical significance. Unfortunately, the end result would be the same – an intraday sell off that would result in a sub-$5m market-cap accompanied by an inability to raise sufficient capital to fund the pipeline moving forward.

If you don’t think this could happen, think again! There’s lots that we don’t know about the so-called “high-risk” patients from other historical MDS trials that would substantially sharpen our perspective in this one.  I’d be tempted to say that big pharma has access to such data as do large investment funds all of whom have now steered clear of involvement in ONTX but the genetic testing used to identify the ITT population in this study is a relatively new development.  Consequently, fear of the unknown seems to be the factor driving most of the trading paralysis.  Additionally, the incredibly high bar to hurdle for the primary endpoint of overall survival – 37% is dissuading as well.

Stock Price: $0.50 to Zero – Strategy: Stay Away From Sharp Objects

Headline #2: “As Recommended By The DSMB Onconova Will Increase The Size Of The INSPIRE Trial”

This usually indicates that a study is under-powered to successfully achieve its primary endpoint. And because this would be off putting to partnering interest, leaving the company in need of further capital, the overall effect would be a negative on par with an outright crossing of the futility boundary. A smack of reality would likely follow a smattering of hope.

Stock Price: $1 to Zero – Strategy: Stay Away From Loaded Guns

Headline #3: “The INSPIRE Trial Will Advance With Only The Very High Risk Patient Population”

This is the second “shot on goal” that CEO Ramesh Kumar has often referred to in public presentations. What percentage of MDS patients who have failed hypomethylating agents fall into this category I’m not sure but CEO Kumar would undoubtedly be telling us at every opportunity he was given. More importantly, success here would provide Onconova with a foot in the door to commercialization of rigosertib.  If the U.S. market opportunity for second line treatment was between three and five hundred million dollars annually, then that would, at the very least, be cut in half. Whether an ex-U.S. partner would step forward with anything substantial, again, I’m not sure. But the market would likely rally behind Kumar’s narrative.  Interestingly, according to Kumar, the intent to treat population of INSPIRE appears to be weighted toward this group already.  From the Q3 Conference Call we have this remark.

And our prediction was that compared to the previous trial, the new trial which is designed for higher risk patients, the very high risk group would be larger. And I can tell you that that’s exactly what we are finding out that in the new ITT population, the very high risk group continues to be the majority of the patients, a significant majority of the patients.

Unfortunately, a price crushing equity raise chock full of warrants and preferred shares would likely follow.  Interestingly, the company published a supplemental prospectus to this most recent offering detailing an exercise of 3.29m warrants with a weighted average exercise price of $5.10 per share which can be found on page 18.  Though diluting our existing shares by nearly a third, the company would access $16m in badly needed cash.  This might curtail the need for the blood letting I would expect should my $4 target price come true.  In any event, a necessary evil would surely follow in the wake of this news.

Stock Price: $1-$4 – Strategy: Possibly Sell at $4

Headline #4: “Onconova’s Pivotal Phase-3 INSPIRE Trial Will Continue As Planned”

This is the headline every ONTX shareholder would greet with more than a ho-hum sense of relief. It would be validation of both the trial and my investment thesis.  However, I believe that this would presage an even bigger event taking the form of a commercial and developmental partnership that would be announced within days of the news release. Any agreement has to be attractive to both parties and Onconova needs only a small upfront payment of $30m to remain relevant through the INSPIRE data readout in late 2018. That’s an attractive amount to a big pharma entity with a strong oncology sales force (think Celgene). Onconova could be equally demure where sales royalties and milestones were concerned in exchange for full funding of the frontline combination study featuring oral rigosertib in conjunction with Vidaza (azacitidine).

As good as this would be it is nowhere near as good as it gets.  The result, however, would be a soaring share price followed by a standard public offering that we all could live with.

Stock Price: $6-$18 – Strategy: Hold or Sell at the Top

Headline #5: “INSPIRE Is Stopped Early For Success”

This is the extremely unlikely, though not unheard of, catalyst that is almost always followed by news that the trial’s control arm has been moved to treatment with the successful agent, in this case, rigosertib. The stock of said company moves in multiples and not by percentages. What kind of exponential gain are we talking about here? Well, that’s both easy and difficult to explain.

Easy, because the readily accessed patient population represents a potential U.S. market of an honest $300m conservatively and can be addressed by a small sales staff as cancer centers are common domains of cancer treatment. U.S. and European approval would be a foregone conclusion as the company has worked closely with both regulatory bodies and there are no other approved second line treatments.

The terms of that partnership I addressed earlier would be sweetened on both the front and back ends of the agreement with contingencies relative to frontline approval. All of this would spur the market to reappraise the value of Onconova’s pipeline assets and future prospects.

Difficult, because putting a dollar amount to all of this would be hard to do without appearing overly exuberant. Regardless, my conservative guess would be an immediate jump to the mid-30’s followed by a steady climb past $50 per share.  Note that $30 a share would represent a market-cap of only $421.83m a figure I find woefully short of a fair value mark.  Consequently, I believe it would take the market sometime to catch up to the new reality of ONTX.

Stock Price: $35-$50 – Strategy: Buy a Boat

In Conclusion

All signs point to failure.  The market is not enthusiastic about our chances.  That early halt I referenced above is likely a pipe dream born out of a growing sense of desperation surrounding an equity in decline. That noted, every dream realized is in some way founded upon the same shifting foundation.  And those who stand strong must be prepared for whatever comes.  By reading this with comprehension, it is my hope that you’re less likely to slip unexpectedly and that you wobble a bit more gracefully.

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 sub-analysis of biotech equities for the past three years and in my personal life for nearly four decades.

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