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.
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