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.

Cyclacel Pharmaceuticals: What You Don’t Know

I am long (CYCC).  I wrote this article myself and have not be compensated for it by any party mentioned or unknown.

Spiro Rombotis

“We are pleased to report that subsequent to the end of quarter the required number of events have been observed in the study approximately 1.7 years after the last patient was enrolled.”

Spiro Rombotis – August 10, 2016 – 4:30 PM ET – On the Phase 3 (SEAMLESS) Trial

Investing in nano to small-cap biotechnology stocks is hit or miss gambling at its finest.  At its finest because unlike a roulette wheel the gambler has an informed, albeit, clouded idea of where the ball will land.  The better the idea, or investment thesis if you will, the better your chances are at winning.  And should you come across a piece of information that advantages your chances, such as the quote above, you will do better than those who don’t.  And while we all might read the same report, or listen to the same conference call, what we comprehend there will be different.  And those differences are what separate the winners from the losers in biotech investment.

As previously mentioned in my introductory video, I left Cyclacel Pharmaceuticals (CYCC) for dead back in December of 2014 after having been notified by the company that the Phase 3 (SEAMLESS) trial had crossed the futility boundary and would be unlikely to readout in a statistically significant way.  The stock, which had been in steady decline dropped nearly 50% on that day and has not since recovered.

To say that I was surprised when on August 12th, H.C. Wainwright’s analyst Andrew Fein put a price target on CYCC of $173 a share is to understate that by quite a lot.  It did, however, get me to thinking about his possible motivations for doing so.  Before I address these issues, it should be noted that Fein’s price target is based upon a (SEAMLESS) surprise.  His estimate, sans (SEAMLESS) success, is, nonetheless, a lofty $60 per share.

In An Asymmetrical Investment Opportunity The Downside Risk Must Be Limited

And the best way to achieve that buffering is to find an equity which is already significantly undervalued.  So, why then is Cyclacel, a biotechnology company in this most lucrative sector of oncology, so steeply undervalued?  The answer to this question can be sourced in two ways.

First, if we go to the most recent quarterly report, we find that Cyclacel has lost investors over $329m since its United Kingdom inception in 1996.  This birthplace of Cyclacel will be important to our operating thesis and referred to as this article unwinds.  In 2007, shares reached a relative value of $600 each.  Since then, the company has executed numerous and unexpected equity raises and several reverse stock splits which have undermined investor confidence.

Second, with the cloud of a negative report on the (SEAMLESS) pivotal trial in elderly Acute Myeloid Leukemia hanging overhead, investors are rightfully loath to jump in ahead of that storm.  If one already knows that bad news is on the other end of the ringing phone, why pick it up in the first place?  That’s logical.  But sometimes it’s best to abandon logic in favor of a deeper understanding of what the issues are.  Because, in some peculiar instances, the bad news is that you’re just not getting everything you’d hoped for.  Only half.  I’ll explain that later.

To give you an idea of just how undervalued Cyclacel is relative to other oncology focused developmental biotech stocks, I’ve constructed a comparative graphic for your consideration.  Cerulean Pharma (CERU), a company applying its nanoparticle drug conjugate technology to cancer therapy recently suffered a setback in the development of its lead compound CRLX101.  In a Phase 2 trial targeting Renal Cell Carcinoma, CRLX101 in combination with Avastin or standard of care (SOC) failed to demonstrate statistically significant benefit against SOC alone.  In fact, the control arm outperformed the active arm.  Shares of Cerulean were cut by more than half on this day and, yet, Cerulean is still valued 50% higher than Cyclacel.

Ceurlean Comp

As you will note in this graphic, Cerulean is nearly 85% dependent on the positive perception of CRLX101 as a measure of its importance to the developmental pipeline.  Yes, there are other opportunities when pairing this compound with existing therapies but that is cause for concern when assessing the potential commercial value of the asset moving forward.  Contrast this with Cyclacel’s pipe which features a good mix of attractive candidates including a CDK inhibitor; a variety of MOA’s; and addresses a good mix of therapeutic populations and you are left to the inevitable conclusion that Cyclacel’s real worth has yet to be unearthed.  In fact, it is my considered opinion, that were you take sapacitabine out of the mix entirely; rename Cyclacel as, for instance, AdromedaBio; and launch the company within the framework of a fresh IPO, the resulting market-cap would reach in excess of a quarter billion dollars.  And yet, here we sit at $20m.

Fein’s Price Target On A (SEAMLESS) Homerun Could Be Way Off

In the world of greed that is Wall Street banks and biotech companies, we must always speculate on the motives of sell-side analysts in establishing what to casual observers might be fantastical price targets.  In the already referenced Q2 2016 report, we can clearly see that Cyclacel entered into an At Market Issuance Sales Agreement with FBR Capital Markets & Co. on June 23, 2016 to sell $4m worth of the company’s common stock.  To suggest that Fein’s comments which led to a $3.43 or 64% climb in the share price over 3 market days didn’t open the door to executing on that ATM agreement would be to bury one’s head in the proverbial sand.  While not knowing the specifics of this particular contract, ATM’s are usually structured so that the investment bank (FBR) buys shares at the lowest price within a specified period of time and is thereby able to sell them later for a sizeable profit.  That speculative bit of expedience noted, let’s see if we can’t find some logic in Mr. Fein’s generous assessment.

The Long Tail Of The Sapacitabine Kaplan-Meier Curve

In my last, and most critical, article on Cyclacel published June 10, 2014 I included the following graphic provided by the company depicting a long tail to the Kaplan-Meier curve.

Kaplan-Meier Plot MDS

And here is what the clinical trial leader of the (SEAMLESS) study, Hagop Kantarjian M.D., said at Cyclacel’s presentation regarding the shape of that curve.

You know, we’re noticing this in the long-term follow-ups, because people say there are no cures but when you look at the long-term follow-up of the frontline, and Dr. Manero makes that point, there is a tail to the curve which is in the range of 10 – 20%, even without the transplant. And these are patients who continue therapy. So it is possible. He makes that point consistently and people just dismiss it, but there is a tail of the curve with hypomethylating agents, even in the frontline setting. So it’s possible that maybe in the salvage set that that’s what we’re seeing in that context with sapacitabine. That is, there could be a population of patients that’s more sensitive to a particular drug where they stay longer on it.

So essentially, what is being said is that patients who respond well to sapacitabine tend to respond very well.  They live considerably longer creating a longer tail to the curve.  This is important because, unlike other molecules in other studies that may have crossed the futility boundary early, sapacitabine in the (SEAMLESS) setting may have been late to separate from control.  This study was supposed to have concluded in late 2015.  But the final events (deaths in both arms) didn’t happen until early in Q3 of this year.  Please go back to that first quote from Spiro Rombotis and reread it carefully.

The above graphic examines only 3 doses of drug and does not compare it to a control.  However, we can clearly see that early disappointment in survival by the majority of patients is met with encouraging longevity later.  I’m not saying that this will be enough to overcome an inauspicious start but I am saying that hope is still alive and in biotechnology investing that sentiment is meaningful.

Sapacitabine Remains Desirable If Only Because Oral Administration From Home Is Preferable To Intravenous Delivery In A Hospital

The population of patients in the (SEAMLESS) pivotal trial is age 70 and above.  Their constitutions don’t lend themselves to transplants or chemotherapeutic regimens that often save the lives of younger patients.  Many choose to simply die as peacefully and painlessly as possible in hospice settings.  Consequently, providing a milder treatment option that can be taken from home would be attractive to this sick and needy patient population.

Decitabine, commercially named Dacogen, was first approved by the European Medicine Agency on a failed Phase 3 trial (DACO-016) and is currently standard of care in elderly AML.  In the (SEAMLESS) trial, Dacogen is used alone in the control group.  This will give both the EMA and FDA their first look at the actual performance of decitabine in the clinical setting since 2011.  If sapacitabine, an orally administered alternative to Dacogen improves upon patient outcomes, both primary and secondary, even without being statistically significant, there is still a possibility that Cyclacel, originally a European company, could gain commercial approval there.  A nod in Europe would make access in the United States to sapacitabine almost mandatory on a patient-provider basis.

Additionally, Cyclacel is in ongoing conversations with the EMA to open the door to investigational trials involving sapacitabine in the pediatric population.  Positive trends in (SEAMLESS) will, no doubt, widen possibilities there as well.

Catalysts

Cyclacel is perhaps the least promotional company in biotechnology today.  Among the many that I’ve followed, Cyclacel is the least likely to toot its own horn.  And while, selfishly, I wish this weren’t so, I can appreciate the integrity of that approach.  Regardless, CEO Rombotis mentioned several upcoming catalysts that could drive the price higher.

  • (SEAMLESS) Phase 3 data report in Q4 2016
  • DNA Damage Response Program (Seliciclib + Sapacitabine) Progress Phase 1 Extension Cohort in a breast cancer patient population enriched for BRACA mutations
  • CDK Inhibitor Program (CYC065) Report topline results of the Phase 1 trial in patients with solid tumors
  • Investigator Sponsored Trials in Rheumatoid Arthritis and Cystic Fibrosis Report data when made available

It should be noted that recent and prior data readouts from some of the aforementioned trials were very positive with stock surges in excess of 50%.

In Conclusion

Cyclacel is becoming somewhat of the lovable loser on Wall Street.  Once thought to be underwhelming, the company’s early stage pipeline is showing signs of efficacy and gathering investor interest.  (SEAMLESS) remains an eyebrow raising study that could open the doors to commercial approval in the EU even without demonstrating statistical significance on its primary endpoint of overall survival.  And while Andrew Fein’s outrageous price target of $173 per share on a (SEAMLESS) homerun might be the most eyebrow raising of all, it too could be a lowball estimate should that dream come true.  How much of the AML and off-label MDS market could sapacitabine capture is unknown.  While my estimates are considerably lower than others, I’m no expert on this or any other subject.  Many qualified assessments run as high as $500m.  Should that be the case, Cyclacel would fetch a market capitalization of roughly $2b.

I’ll leave it to you and your calculator to do the math.

Always be well…

Additional disclosure: Any information or opinion expressed herein may not be true, accurate or correct and it does not constitute any 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 information, the accuracy of which is as good as the public sources it was derived from. Do not act on anything I have written. Rather, do your own due diligence and consult an investment professional before making any investment decision. Acting on what any one writer, including me has imparted to you is foolish at best. I have no better access to resources or gift of opinion formulation than you do. I sometimes make mistakes. 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 upwards or downwards. These events can be of a wide variety not limited to news-related occurrences, 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, invest at your own considerable risk attaining the just reward your efforts have wrought.