Oxigene: Why I Think This Risky Biotech Is A Speculative Buy
Nov. 14, 2014 9:15 AM • oxgn
- The recent selloff over the past week leaves Oxigene (OXGN) valued just above the cash on the balance sheet.
- Roche's November 19th PDUFA of Avastin has the chance to provide a nice catalyst to OXGN given the similarities between the Avastin P3 trial and the most recent fosbretabulin trial.
- Considering the strong balance sheet, I believe that the current EV of about $5 million undervalues fosbretabulin's potential, leading me to place a buy recommendation on the stock.
I have long avoided even considering any sort of investment in Oxigene (NASDAQ:OXGN ) due to what seemed to be constant cash issues and a pipeline with assets that never seemed to be making significant process towards potential FDA approval. Through due diligence, tracking news flow the past few months, and listening to the Q3 earnings and corporate update call, I believe that this company presents an attractive risk/reward at the current depressed price associated with an almost 31% decline in stock price in a little over a week. I will highlight (mainly through looking at the company's lead drug candidate that treats ovarian cancer) why I believe that the current enterprise value of less than $5 million placed on the company by the market significantly undervalues the company's potential.
Introduction to Fosbretabulin
Fosbretabulin (Zybrestat), the company's lead product candidate, is a vascular disruption agent (VDA) that the company has been evaluating for the treatment of cancer. The company has previously seen poor results from a phase 2 trial for this drug in the treatment of non-small cell lung cancer (NSCLC) back in 2011. Recent results released this year in relationship to the drug treating patients with ovarian cancer have shown a lot of promise. The company initially announced in May of this year that fosbretabulin in combination with Roche's (OTCQX:RHHBY ) Avastin (bevacizumab) met the primary endpoint (a statistically significant progression-free survival increase) in a 107-patient phase 2 study for ovarian cancer conducted by the Gynecologic Oncology Group through the Cancer Therapy Evaluation Program of the National Cancer Institute. The company recently presented a full review of the data at the International Gynecologic Cancer Society meeting in Australia. Seeking Alpha's Trevor Lowenthal gave an overview of the full data review in his piece here. To quickly summarize, patients being treated with the combination of Fosbretabulin and Avastin showed a progression-free survival (PFS) of 7.3 versus the comparison group of patients just taking Avastin having a PFS of only 4.8. This was significant (p = 0.049) at the 0.05 level that is used in clinical studies.
The Platinum-Resistant Patient Subgroup
The major aspect I want to discuss in relationship to fosbretabulin is the subgroup breakdown of the data recently provided by the company. The subgroup of 27 patients defined as platinum resistant due to the cancer worsening less than six months after platinum-based chemotherapy saw a PFS of 7.6 months when taking the combined treatment while patients taking just Avastin showed only a PFS of 3.4, which was a statistically significant difference given a p-value of just 0.01. This is especially important as this suggests that the fosbretabulin-Avastin combination is an effective treatment for the harder-to-treat forms of ovarian cancer that come back soon after chemotherapy. This possibility was further supported by the fact that the response rate of the platinum-resistant patients taking just Avastin was 12.5% while the response rate for those with the combo treatment was 40%. Oxigene CEO Dai Chaplin highlighted in the company's November 12th corporate update that the company will concentrate on treating this subgroup as it continues progressing with using fosbretabulin to treat ovarian cancer patients. While initial analysis of 33 patients did not show a statistically significant difference between the combination treatment group and the Avastin group in relationship to overall survival (OS), the principal investigator noted that is still a bit early to make a definite conclusion in regards to this. A key factor to consider here is that many of the patients in the platinum-resistant subgroup were not added to the study until the second half. This to me emphasizes the lack of importance of the preliminary OS numbers given that many of the platinum-resistant group will be included in some of the latest available data. I believe that, if the OS is statistically significant after all the data is collected, this would a significant positive for the company and its lead drug as it would differentiate fosbretabulin from many other cancer treatments. This opportunity does not appear to priced in the stock at current levels given the very small enterprise value.
Roche's November 19th Avastin Meeting
Roche has its PDUFA on November 19th for using Avastin and chemotherapy to treat platinum-resistant patients with ovarian cancer. Genentech Chief Medical Officer highlighted the importance of this subgroup by noting that "the majority of women with ovarian cancer will become resistant to platinum therapy and a quarter of women will have platinum-resistant disease at the time of a first recurrence." This is extremely important for Oxigene as Avastin also showed a statistically significant PFS between its two groups (Avastin-chemotherapy versus just chemotherapy), but did not demonstrate a statistically significant OS in its phase 3 study. An approval of Avastin will signal that the FDA is willing to approve a treatment just based on the PFS difference in absence of the statistically significant OS. The FDA has placed the fast-track designation on its review of Avastin, meaning that it believes that Avastin is intended "for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition." The European Union already approved the use of the Avastin-chemotherapy combo treatment for ovarian cancer patients back in August. Should Roche not receive
approval next week for the Avastin-chemo combo from the FDA, things could certainly be more difficult for OXGN as it may need to consider other combinations. TheStreet's Adam Feuerstein suggested the company may want to put its efforts into the combination of GlaxoSmithKline's (NYSE:GSK ) Votrient with fosbretabulin in this scenario.
Importance of Non-Chemotherapy Treatment Option
In the Q3 call, management was very excited about the prospects of a treatment option not involving chemotherapy. Chemotherapy can lead to a clear reduction in quality of life due to all of its debilitating side effects, including intense fatigue, hair loss, infection, nausea, and many others listed here. CEO Dai Chaplin used the phrase "paradigm shift" to emphasize the importance of moving away from chemotherapy a total of six times just in the half-hour Q3 conference call. Fosbretabulin's main side effect that has been identified is hypertension. Pending the results of the Avastin PDUFA for ovarian cancer as well as final OS data from the fosbretabulin trial, meeting with the FDA in regards to proper design of a phase 3 trial for the non-chemo approach will be key. The company may be able to run a non-inferiority trial given the favorable side-effect profile of the fosbretabulin-Avastin combo versus current treatment involving chemo. Non-inferiority studies can be expensive as significant sample sizes are needed to give the study a high level of power. Intention-to-treat and per-protocol analysis are also required to ensure the trial lacks bias. Running phase 3 trials in general is very expensive, and the company emphasized in the recent corporate update that it will look to identify a collaboration or partnership for this after meeting with the FDA.
The Rest of the Pipeline
While I believe that Oxigene is undervalued purely based on the prospects of fosbretabulin in relationship to ovarian cancer, the company has other promising aspects of its pipeline. The company recently initiated a phase 2 study in relationship to using fosbretabulin to treat gastrointestinal neuroendocrine tumors (press release here and analysis here ). The company's other asset in the clinic is OXi4503, which is a VDA being developed for the treatment of leukemia. They are continuing to work on enrolling patients for a phase 1 study at the University of Florida and will be presenting at the American Society of Hematology meeting in December in regards to combining the drug with other oncology assets. Additionally, the company is involved in a preclinical research collaboration with Baylor University concentrating on the development of new cathepsin L inhibitors.
The company is very well capitalized given a recent $16 million at-the-market registered direct offering in May and a $12 million offering in February. While I am typically very negative about multiple offerings in a row diluting shareholders, I think this provides the company with substantial cash reserves that will allow the it to make significant pipeline progress and also reduces the risk of any dilution in the near future for those looking to initiate a long position at this time. The company ended the third quarter with $32.9 million in cash, which the company expects to be enough to fund operations through 2016. Cash burn has run around $3.5 million a quarter. The company expects this cash balance to help fund the Baylor preclinical research collaboration, the phase 1 OXi4503 study, the fosbretabulin gastrointestinal neuroendocrine tumors phase 2 study, and a phase 1 B2 study the company is running for ovarian cancer in the UK. The company's planned allocation of current cash to upcoming early-stage studies emphasizes the likelihood the company will establish a partnership or collaboration to help run the phase 3 fosbretabulin study. I believe that is a significant positive if it comes to fruition as a partner would be a great resource to help the company correctly complete what has the potential to be a bit of a difficult study.
Oxigene is no doubt a very risky investment. A negative response by the FDA to Roche's Avastin will make the pathway to approval for fosbretabulin in the treatment of ovarian cancer murky. Also, the company has stated that it does not have funds to run a phase 3 trial for fosbretabulin in ovarian cancer and would need to go to the capital markets to raise funds should it not be able to identify an appropriate partnership. Any negative results in regards to ongoing trials for fosbretabulin or OXi4503 will definitely cause downward pressure on the stock. This micro cap stock has the tendency to be very volatile so it is important to be comfortable with this before considering picking up a position in the stock
The recent 30%+ selloff in Oxigene in a little over a week is overdone considering that the company has almost $33 million in cash. The current enterprise value of under $5 million significantly undervalues the potential of fosbretabulin in treating ovarian cancer as well as the upside from the company's other pipeline assets. The Avastin PDUFA on November 19th serves as a potential catalyst as an approval of the drug would provide clarity on the path Oxigene has remaining to reach approval. Along with the catalysts associated with organizing a phase 3 fosbretabulin trial (including the chance of a partner), the company has upcoming catalysts involved with its early stage trials. Given the limited downside with the substantial cash reserves coupled with the pipeline potential, I believe OXGN currently presents and attractive risk/reward and recommend the stock as a buy at the current price of $1.75.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.