It turns out that the virus can actually destroy (via lysis) a certain group of cells that have an activated Ras signaling pathway. Ras, an abbreviation for rat sarcoma, is a related group of proteins expressed by the ras family of genes. Researchers believe the Ras signal transduction pathway may be involved in more than two-thirds of cancers. The history of these discoveries is fascinating, but you can relax because I won't put you to sleep with that story today.
Calgary, Alberta-based Oncolytics Biotech Inc. (ONCY:NASDAQ; ONC:TSX)is testing its reovirus formulation, which it calls Reolysin, in patients with squamous cell carcinoma of the head-and-neck in a phase 3 study. It's already a difficult disease indication, especially when it recurs following surgery—and to make matters worse the patients are treatment-experienced, which implies that their tumors have probably become more resistant to therapies. This type of last-ditch trial design is typical in cancer studies, since ethics dictate that patients receive standard of care treatment before experimental therapies are tried. I've been following Oncolytics since 2007, and I was very keen on catching up with opinion. In an interview with Senior Biotechnology Analyst Philippa Flint of Toronto-based Bloom Burton & Co., she told me she was "optimistic" about upcoming results. Flint has had wide experience at big pharma. She was vice president medical affairs at AstraZeneca Plc (AZN:NYSE), where she supervised personnel working on more than 100 clinical trials. She has also been a consistent top-ranked earnings estimator and taking StarMine honors from 2004–2008. Flint understands drug development.
She calls Oncolytics "a fascinating company," with which I agree wholeheartedly. "It is very much at a critical juncture in the development of the company itself," she says. "We're waiting right now for data from the first 80 patients of a phase 3-randomized trial of Reolysin." She cautions that this study is crucial because it has an all-important control arm that would determine if the data from the experimental arm (Reolysin) would actually be statistically significant. "This will be the first truly randomized data in a controlled setting out of the company." When will these data be forthcoming? "In the next month or so, we should see progression-free survival (PFS) data from these first 80 patients who have all been treated for at least 12 weeks," she says. "If the data are positive, then I think that will be extremely favorably regarded because the drug could potentially be used in a variety of other cancer indications." Of course, being a one-product company, Oncolytics could face significant downside since investors really love to punish disappointment. She has the company rated Speculative Buy with a $10 target price, which would represent dramatic upside from the company's recent $3.25–3.60 range.
Flint also follows Saint Laurent, Quebec-based Paladin Labs Inc. (PLB:TSX), a specialty pharma with what she describes as a "very solid" management team. "It has grown organically and through product and company acquisitions," she says. "It has the majority of its business in Canada, but it has expanded internationally and notably, most recently, into South Africa." She refers to the company as the "Bank of Paladin" because it sometimes loans money to other pharmas. "And it gets a great return on its investments," she says. I want to know if she thinks this banking aspect of the business as a serious part of Paladin's business model. "No," she says, "But I point it out because I think that Paladin is always looking for products or companies that will help it expand its business, but it also opportunistically uses its cash wisely in a low-risk manner to get a very attractive return in ways that other companies may not necessarily do."
The company has a low beta of 0.36, and she is rating it a Buy, but the company is fast approaching her $50 target price. She points to the company's very recent acquisition of the South Africa-based Litha Healthcare Group Ltd. (LHG:SJ) "When Paladin starts to report on a consolidative basis, starting in Q3/12, we'll see a significant bump up in revenues and EBITDA," she says. "I think investors will continue to be very satisfied with year-over-year growth as a result of this acquisition and other products that it is introducing." She indicates that the target price will be reevaluated next quarter when the company reports results that include the new Litha addition.
Flint is also following QLT Inc. (QLTI:NASDAQ), which she rates Speculative Buy with a $10 target price. There was a major shakeup on the board, with six new directors being elected in early June. Even the CEO was voted off the board, but he remains CEO. Investors seemed to love it as the stock ticked up after the announcement. "We still see it as undervalued just based on looking at its cash position," she says. Then she ticks off the figures. "It has more than $4/share in cash. It has about $1.80/share in continued consideration from its 2009 sale of Eligard (leuprolide acetate) to Tolmar Holding. Right there, we have almost $6 worth of value," she says. "It also sells Visudyne (verteporfin) to treat wet age-related macular degeneration (AMD). Although we see Visudyne's sales slowly declining, it still earns about $25M annually, which is about $0.50/share," she says. "So when you take all of those things into consideration, we're looking at around $6.50 in value, and the stock is now trading at $7.80–8.
QLT has two clinical programs in development, including a synthetic retinoid (QLT091001) program for retinitis pigmentosa and related diseases, and a punctal plug program for glaucoma. "We believe that there is significant value that could be created in either one of those programs," she says.
