Byron Capital’s Loe Bullish on Oncolytics Biotech

Last month, Calgary’s Oncolytics Biotech (TSX:ONC) completed a bought deal financing, raising $21.3-million by selling 5.1 million shares at $4.20. The cash will help Oncolytics to fund its phase three trial for Reolysin, a treatment for head and neck cancers.

The move increased the number of shares Oncolytics has outstanding to 76.3 million, but means the company has a healthy war chest of $56.1 million to fall back on.

Byron Capital Healthcare analyst Douglas Loe says the impact of Oncolytics dilution is basically offset by the reduced financial risk shareholders now enjoy. In a note to clients today, the analyst maintained his Speculative Buy rating and $9 target price on the stock.

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Oncolytics Biotech’s history goes all the way back to the early 1990′s and discoveries made in the Department of Microbiology and Infectious Diseases at the University of Calgary. The company has since poured ten of millions of dollars into the development of a cancer treatment based around a formulation of reovirus, a family of viruses that can affect the gastrointestinal system and have shown to have oncolytic, or cancer killing properties.

Reolysin is a proprietary form of human reovirus developed by Oncolytics. Reovirus is found naturally in mammalian respiratory and bowel systems. Every human is exposed to these viruses, which are found in our gastrointestinal systems and respiratory tract, but the vast majority of us do not show any symptoms from their presence there.

Decades ago, researchers began to suspect that reovirus showed potential as a cancer therapeutic because it reproduced well in cancer cell lines, specifically in those cells that display and activated Ras pathway, a characteristic that could play a role in two-thirds of all human cancers. Oncolytics Biotech has become a world leader in the area, with nearly three-hundred patents to date.

Loe believes this financing allows Oncolytics to “to generate risk-mitigating clinical data without financial distractions…”. The Byron analyst bases his valuation on fiscal 2016 forecasts, when he believes Reolysin revenues will contribute $36 of Oncolytics $96 million topline. But because he believes the market for Reolysin far exceeds the initial head and neck cancer market, Loe says Reolysin-based revenue can exceed $363 million by fiscal 2020.

Shares of Oncolytics Biotech closed today down 2.9% to $4.05.

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