Oncolytics Moves On A Hot Streak Of Clinical Data

Last Friday, we saw a huge rally in shares of Oncolytics Biotech (ONCY) following the release of additional positive data for its drug REOLYSIN® in the treatment of squamous cell carcinoma of the lungs. This continues the company’s “good data streak” that a started in November of 2012, which has brought the stock over 113% higher in the last three months alone. It seems that this activity has drawn outside interest, which is propelling ONCY out of obscurity and into the spotlight of the broader biotech investment community. What is all the fuss about?

Since Oncolytics is a single-drug company, we can quickly infer that the company’s potential is locked up in the implied success of their cancer drug REOLYSIN®. This biologic is in a large number of clinical trials, with the most advanced being their phase III trial which combines REOLYSIN with paclitaxel and carboplatin in patients with refractory head and neck cancers.

The treatment’s technology is based on a phenomenon that has only recently been discovered in the laboratory. It has been shown in a number of trials that certain viruses (like herpes for instance) that infect patients with cancer in their upper body and head can actually attack and induce an immune response against these cells, leading to their demise. Since cancer cell destruction is the primary goal of cancer therapy, we are now realizing that viruses hold big potential in cancer treatment.

REOLYSIN® in particular is using an altered form of something known as the reovirus, which is a common, asymptomatic virus that most people have already been exposed to. Oncolytics has tested the safety profile of their strain of the reovirus and found that, for the most part, REOLYSIN only induces mild symptoms that resemble influenza. It is worrisome that this therapeutic would be used in patients with compromised immune systems, but the reovirus seems to be docile enough to prevent any life-threatening side effects at least as far as we know.

Investors also seem excited about the idea that REOLYSIN might be effective against cancer in other parts of the body as well – like the colon. On January 28th 2013, Oncolytics announced positive phase I trial data at the ASCO Gastrointestinal Cancer Symposium. REOLYSIN was used in conjuction with a treatment known as FOLFIRI in patients with metastatic colorectal cancer, and showed that it might be able to drastically slow colorectal cancer for patients that have failed FOLFIRI treatment. Phase I trials should not be taken too seriously largely due to the tiny sample sizes that are used, although the market is clearly embracing the potential for REOLYSIN to expand its indication into a wide variety of cancer types in the distant future.

Investors who are interested in ONCY (or those who are already invested in the stock) have much to look forward to this year, as we should see additional news after the conclusion of “REO 018”, which is Onclytics’ phase III trial for REOLYSIN in the treatment of head and neck cancers. This is the primary indication for this biologic, and should be the first to see FDA approval if all goes well with their eventual BLA submission. Expect the final data for the REO 018 trial to be a big mover of ONCY too, as we’ve only seen success in one endpoint thus far (which was measured as “tumor shrinkage”). There will be other endpoints, which will further make (or break) REOLYSIN’s efficacy and safety profile.

After so much recent strength in the stock, Oncolytics has reached a market capitalization of about $333 million which still prices in some healthy skepticism over the expected approval of REOLYSIN (which would probably occur in Q2 2014). If the REO 018 study provides us with ideal results, I would expect ONCY to move higher in anticipation of better results from REOLYSIN’s other clinical trials and a successful BLA submission down the road, so do keep your eyes open for that press release.