Onconova Therapeutics: I Am Inspired!

Warning: This article covers a nano-cap equity (a stock trading at a market-cap below $50m).  At this level of capitalization the word “gambling” is more appropriate than the word “investing” where taking a position is concerned.
Disclosure: I am long Onconova Therapeutics (ONTX) and Cyclacel Pharmaceuticals (CYCC).

Blogging in relative anonymity on my own website is appealing to me on so many levels.  The greatest benefit, however, is the ability to be completely honest about the equity I’m covering.  Too many times, I would be accused by readers of being a “secret short” – someone who wasn’t really invested in the company but was cleverly trying to drive the share price lower for profit.  That never happened!  And it’s not going to happen!  Rather, I will continue to be brutally honest because that’s the only way I can sleep soundly at night knowing that I have a secure grasp on the risk I’m taking.

The purpose of this article is to give the reader insights into the equity known as ONTX that they won’t find anywhere else.  I’ll discuss the following topics in detail.

  • Why I believe the (INSPIRE) Phase-3 trial is destined to succeed.
  • Why the FDA is supportively working with Onconova CEO Ramesh Kumar.
  • The particulars of the SymBio developmental and commercial agreement with Onconova and why it matters.
  • How the strained financials of the Company could lead to an investor unfriendly merger or ruthless dilution.
  • And why a beaten down equity with sound science represents the best value in developmental biotech.

The Gruesome Cause For (INSPIRE) Success

I wish I could tell you that it is the awesome power of rigosertib in high-risk MDS patients that is fueling my optimism for a positive outcome in the registration trial known as (INSPIRE) but it’s not.  Yes, intravenously administered rigosertib was proven to be more beneficial than best supportive care in patients with excess blasts in the failed (ONTIME) study, although, not in a statistically significant way.  And in a large subset of high-risk patients mostly unresponsive to hypomethylating agents (azacitidine (AZA) or decitabine (DAC)) it performed slightly less well.  But it was the control group of best supportive care (BSC) in this corralled subgroup that folded like a $10 tent in a 10 mph windstorm that has my profit meter pegged green.  The following Company graphic from the Pioneers Conference held on May 2nd explains it better than words can.

The (INSPIRE) inclusion protocol is based upon this 131 patient subset depicted on the right.  When we compare the median overall survival of patients in both intent to treat (ITT) populations, we see that rigosertib patients in the larger (ONTIME) venue lived approximately 8.2 months compared to 7.9 months in the (INSPIRE) subset – a falloff of approximately 9 days.  In the BSC arm, we see patients surviving approximately 5.9 months in the larger (ONTIME) study group compared to 4.1 months in the (INSPIRE) subset – a decline of 1.8 months or 55 days.  Analysts will naturally look to see an improvement in the active arm which they won’t find and will be inclined to dismiss degradation of performance in the control arm as an aberration that will be corrected in a larger study.  While this usually makes sense, in this particular instance, it doesn’t make any sense at all.

  • This subgroup of 131 patients is comprised of those who did not respond to HMA therapy.  And they will most likely be given HMA therapy again plus BSC in control.  If it didn’t work once, it likely won’t work twice.
  • On the battlefield of cancer psychology a positive attitude is predicated upon an intelligent body communicating with a cooperative mind.

Now, I know that a lot of you will jump in and say, gobbledygook Mike, gobbledygook.  Not over the first bullet point, which is fairly self-explanatory.  The notion of an intelligent body, however, is an affront to the Western mindset, although, it shouldn’t be.  Most illnesses are cured not through the administration of active therapies but, rather, by allowing the body to heal itself through rest and the quieting of the mind.  Most of the healing in instances of trauma takes place by sedating the patient so that their mind induced panic doesn’t inhibit that  process.  And while the mind can work against the body’s natural ability to regain equilibrium, it can also aid in that process.  Visualizations, for instance, that are at once relevant and detailed have been shown to do this.  And if the body is communication something positive to the mind regarding a change for the better, the mind will be inspired by that information to reinforce that direction.  Conversely, if the body is saying, “we’ve been down this pathway before and it didn’t work” then the mind will reinforce that direction by acquiescing.

Given these two truths, I expect that patients in the control arm of the (INSPIRE) study will perform at the same diminished rate as they did in the subgroup defined above.  Active arm patients, however, will be given a new drug – rigosertib and their bodies will be stimulated to fight their cancer in a new manner that will also serve to trigger patient optimism.  Having already failed one round of HMA therapy, they won’t perform as well as they did in patients from that larger population, many of whom had success, but they will engage their disease with more vigor.  Consequently, I expect almost the same performance in the (INSPIRE) setting as we saw in that subgroup of 131 (ONTIME) patients.  That being the case, in my estimation, (INSPIRE) will be a raging success.

For specificity on the inclusion criteria, we find the following information from page 3 of the 2016 Annual Report (10K).

The INSPIRE trial will enroll higher-risk MDS patients under 82 years of age who have progressed on, or failed to respond to, previous treatment with HMAs within nine months or nine cycles over the course of one year after initiation of HMA therapy, and had their last dose of HMA within six months prior to enrollment in the trial.

The Fukushima Effect

In a curious connection made only on this platform, the FDA and SymBio Pharmaceuticals are operating from the same realization – instances of leukemia in Japan and the United States are going to rise rapidly over the next decade.  I’ve already extensively addressed this phenomenon in an article you’ll find here on my website but rates of AML, MDS and lymphomas of all kinds will rise exponentially in Japan.  When news of this finally hits the shores of this country, the U.S. government will have some explaining to do.  It will be very important at that time for the FDA to be able to say that they’ve been approving new therapies to treat these swelling patient populations.  From SymBio’s perspective, it’s all about profit.

Listen to Onconova CEO Ramesh Kumar speak at various presentations and, if you have ears to hear, you will understand that the FDA is doing everything possible to drag rigosertib across the regulatory finish line.  It is a drug that helps patients.  And there hasn’t been an approved therapy for over a decade.  But the FDA isn’t known for coddling companies that aren’t in that large-cap club.  They are known, however, for cudgeling them along to near death.  Few expected that the FDA and Onconova would agree to another registration effort let alone so quickly.  And even now, we find them exhibiting a degree of flexibility I haven’t encountered since the agency’s interactions with Vanda Pharmaceuticals (VNDA) over tasimelteon development in 2013.  Just listen to Ramesh Kumar at the recent Q1 Conference Call talk about statistical assessment of the trial.

Our statistical analysis plan, now under review by the FDA and EMA, will provide the basis for data analysis at the interim and top-line intervals. We expect this review to be completed in the second quarter.

In this analysis, the INSPIRE study design permits two looks into the study populations, ITT, as well as a predefined IPSS-R very-high-risk subgroup, providing two shots on goal with the data.

From this quotation, we can surmise two important aspects of the FDA’s involvement with Onconova management regarding this trial.

  1. That (INSPIRE) was allowed to enroll and progress prior to the completion of a statistical plan of analysis.
  2. That the FDA is so willing to approve rigosertib that they are providing an additional pathway involving a smaller, very-high risk subset of patients.

I’ve only been around the biotech sector for a scant four years but this is unprecedented in my experience.  And, from the investor perspective, it provides a second catalyst, or, at least, a second lifeline of hope where the issue of ultimate approval is concerned.

We Know A Lot About The SymBio Agreement

But like anything worth having, you have to dig for it!  We find the following details on page 7 and 8 of the previously referenced and linked 2016 Annual report.

Under the terms of the SymBio license agreement, we received an upfront payment of $7,500,000.  We are eligible to receive milestone payments of up to an aggregate of $22,000,000 from SymBio upon the achievement of specified development and regulatory milestones for specified indications. Of the regulatory milestones, $5,000,000 is due upon receipt of marketing approval in the United States for rigosertib IV in higher-risk MDS patients, $3,000,000 is due upon receipt of marketing approval in Japan for rigosertib IV in higher-risk MDS patients, $5,000,000 is due upon receipt of marketing approval in the United States for rigosertib oral in lower-risk MDS patients, and $5,000,000 is due upon receipt of marketing approval in Japan for rigosertib oral in lower-risk MDS patients.  Furthermore, upon receipt of marketing approval in the United States and Japan for an additional specified indication of rigosertib, which we are currently not pursuing, an aggregate of $4,000,000 would be due. In addition to these pre-commercial milestones, we are eligible to receive tiered milestone payments based upon annual net sales of rigosertib by SymBio of up to an aggregate of $30,000,000.

Further, under the terms of the SymBio license agreement, SymBio will make royalty payments to us at percentage rates ranging from the mid-teens to 20% based on net sales of rigosertib by SymBio.

While the details here are somewhat unexciting given the fact that leukemia rates in Japan are, as of 2012, roughly half that of those in the United States; the U.S. population is nearly 2.5 times larger than Japan (324m to 127m respectively) and drug pricing there is significantly lower; rates of leukemia are going to climb due to the ongoing catastrophe we now know as Fukushima Daiichi.  The press isn’t telling you this.  The governments of Japan and the United States aren’t telling you this.  But I am.  And I’m not going to be wrong.  It takes roughly 5 years for blood cancers to bubble up to the surface following severe exposure to radioactive particulates.  And the Japanese people, once made healthier by their predominantly seafood diets, are now in further trouble due to the daily drenching of the Pacific Ocean in hundreds of tons of radioactive water.

Why do you think SymBio happily signed this agreement in 2012 one year after the calamity, and stayed in it while Baxter backed out in 2015 after the (ONTIME) failure?  Why do you suppose that of the 169 (INSPIRE) sites worldwide there are 44 active in the U.S. and 33 in Japan?  Think about the stats that I gave you above.  Twice as many instances of leukemia in the U.S..  Two and one-half times the population.  But only a third more U.S. sites?  There should be at least 5 times as many sites in the United States.  One could attribute the disparity to the fact that SymBio is underwriting some of the associated costs thereby saving Onconova precious resources.  But the only other causal factor that I could imagine would be that sites are set up where patient demand is the greatest.

Think about it!

“Climb god damn it!  Climb!”

When the antihero of the movie, Swordfish clearly sees there won’t be enough runway to accommodate his airborne bus before it slams into an old fashion neon sign, he barks out the desperate order to climb.  What appears to be an unfortunate inability to avoid a catastrophic outcome is, in reality, just enough to accomplish the plan at hand.  And that’s precisely the position Onconova finds itself in today – a shortening runway in front of a lengthening need for cash.  Whether Ramesh Kumar is as resourceful as the mastermind in this fictional tale has yet to be determined but he’ll need to be every bit as savvy.

I’ve already addressed Onconova’s financial predicament in a cautionary video entitled; ONTX Nearing the Fiscal Cliff.  This production dispels the notion that the planned Phase-3 trial of oral rigosertib in conjunction with azacitidine is being delayed due to ongoing discussions with regulatory bodies.  It’s not!  It’s being delayed because they don’t have the money to run these trials in parallel.  It’s also why promising preclinical candidates remain bound in the out-of-clinic domain.  There’s just no money.

The Company spent $8.3m last quarter alone and had roughly $20m in pro forma cash and cash equivalents at the end of that quarter.  I’d like to think that newly published data at ASCO in June from the (ONTIME) study subset of patients would cause the stock to rally enough to allow for another, perhaps, more substantial equity raise.  But that notion is doubtful since retail investors are still licking their wounds from that $2.49 per share $5m gouge back in April.

There might be other means of seeing (INSPIRE) through to the 2H of 2018 topline data readout.  A partnership could be struck on those preclinical candidates.  Or, perhaps, one could be sold outright.  A commercial and developmental agreement could be struck for rigosertib in the U.S. or ex-U.S. territories other than Japan and Korea.  But I’m not too sure how the Baxter agreement impedes upon those aspirations.  Loans, at this stage of the game, are unlikely.  Although, if Ramesh Kumar is buying his own rhetoric as I am, he might be able to collateralize such a loan to keep the ball moving forward.  Tapping the notorious Lincoln Park agreement at these prices seems too little in a situation that is rapidly becoming too late.

An Unfavorable Merger Seems Increasingly Likely

The only method of obtaining cash that makes sense to me at this point would be a merger with a company that has cash but no existent commitment to a compound in hand.  That fallback outcome could prove disastrous to current shareholders unless, of course, you own shares in that equity as well.  I, for instance, would love to see Onconova merge with Cyclacel Pharmaceuticals (CYCC).  The latter has money, although, not much of it.  They attractively carry a comparatively miniscule burn rate.  The new company would prioritize the (INSPIRE) trial and sport two of the most promising CDK Inhibitors to hit the clinic in 2018.  The combined market-caps would be less than $40m but would rocket higher given the derisking of the (INSPIRE) trial and synergies relative to their hematological platforms.

I know that biotech executives read my articles even here on this lowly side road of equity analysis.  I also know that they’re not alone.  Hedge fund managers and other contributors from established platforms peruse my ideas.  They shudder to think how they missed out on that Cyclacel double earlier this year.  Maybe they’ll feel better knowing that the run-up took place too near to my publishing an article for me to sell into that strength.  I have principles where others do not.  Another, ah shucks moment for me.  But if, per chance, you, Ramesh Kumar, are reading this now, please know that you are always in the care of heaven above even when the waters below are aflame in doubt.  Trust in this trial.  Trust in what you have fashioned.  It’s real.  And it’s good.

Investing In What Others Throw Away

If you haven’t noticed already, I like investing in companies that have been abandoned by other investors.  Not because I feel sorry for them.  I don’t!  Not because they remind me of me.  They do!  But mostly because as the value proposition changes for the better lazy investors fail to recognize that the change has taken place.  And that becomes a very, very profitable realization as long as you make it early enough to get in before their reawakening takes place.

Always be well…

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