Oncolytics Biotech has a 313 per cent upside, says Leede Jones Gable

With the thought of a Phase III cancer trial on the horizon Leede Jones Gable analyst Douglas W. Loe is staying steady with his assessment on biotechnology name Oncolytics Biotech (Oncolytics Biotech Stock Quote, Charts, News, Analysts, Financials TSX:ONC). Loe delivered an update to clients on Friday where he maintained his “Speculative Buy” rating and $8.50 target price on ONC, which at press time represented a projected one-year return of 313 per cent.

Oncolytics is a Calgary-based developer of cancer biologics currently undergoing testing for pelareorep, an intravenously-delivered immunotherapeutic compound found to induce anti-cancer immune responses and promote an inflamed tumour phenotype. Oncolytics is currently undergoing testing in several Phase II cancer trials, focused primarily on breast and pancreatic cancer and secondarily on multiple myeloma.

Oncolytics provided a fourth quarter 2021 financial report and update on Thursday, showing zero revenue for the quarter and year (as the company is still in clinical trials) and a net loss for the Q4 of $7.8 million compared to a net loss of $9.3 million a year earlier. Operating expenses were $3.8 million and R&D expenses were $3.7 million. ONC ended the quarter with $41.3 million in cash and equivalents.

“We begin 2022 with a strong foundational dataset and potential value-inflection points expected across our pipeline throughout the year,” said Dr. Matt Coffey, President and CEO, in a press release. “Chief among these potential inflection points is the expected fourth quarter top-line data announcement for BRACELET-1, our randomized Phase II trial in HR+/HER2- metastatic breast cancer. This trial builds upon prior clinical data demonstrating pelareorep’s ability to deliver statistically significant survival benefits and synergize with checkpoint inhibition in breast cancer. Importantly, its completion represents the last major clinical step on our path to a registrational study.”

Looking at the quarterly report and update, Loe said the financials came in-line with his expectations and that the company should have sufficient capital on hand to fund pelareorep Phase II clinical trials “well into the first half of 2023 and perhaps further than that. Loe said he’s not expecting any new Phase II studies to start up over the next few quarters.

“The suite of ongoing Phase II (and usually partnered) oncology studies that Oncolytics is supporting is now and always has been quite aggressive, a strategy that we endorse as a way to firmly establish which of many possible cancer indications the firm should pursue in Phase III,” he said.

Loe said while pelareorep’s historic Phase II performance in metastatic breast cancer is still positive, defining a future Phase III strategy remains a key focus in his investment thesis for Oncolytics.

“We stand by our long-held view that pelareorep can be a useful oncolytic virus construct in multiple cancer markets, and recent Phase II updates are consistent with that view. As we asserted in our last research comment, the paint is fully dry on the legacy 74-patient Phase II metastatic breast cancer trial that initially reported positive survival benefit back in early F2017 and which generated so much enthusiasm on pelareorep’s oncologic prospects,” Loe wrote.

“Our valuation is still based on NPV (35 per cent discount rate) and multiples of our F2025 EBITDA/EPS forecasts, with a bias toward reducing the discount rate embedded into our methodologies once Oncolytics advances pelareorep into pivotal Phase III testing, probably in metastatic breast cancer initially just based on its Phase II history in that indication. Our enterprise value calculation is based on updated FQ421 balance sheet data (cash of $41.3 million, no long-term debt) and fully-diluted shares outstanding of 62.2 million,” he said.

ONC is down by about 50 per cent over the past 12 months and year-to-date the stock is up about ten per cent.