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.

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.