Progress trumps dollars for biotech startup

The pressure is on OncoGenex to develop a hit drug at this phase of its life.

By Jim J. Jubak Aug 6, 2012 2:58PM
Image: Pills (© Corbis)Let's get the relatively meaningless revenue and earnings numbers out of the way quickly, shall we?

Thursday, OncoGenex Pharmaceuticals (OGXI) reported revenue for the second quarter of $2.4 million, up from $1.9 million in the second quarter of 2011. The biotech startup lost $4.2 million, or 67 cents a share.

None of that is particularly important because OncoGenex is a startup biotechnology company where what counts is progress toward developing new drugs that the company can sell either to consumers (less likely) or to a big drug company (more likely). And whether the company will run out of cash before it runs into a drug. The stock is a member of my Jubak’s Picks portfolio.

On the drug development front, OncoGenex announced that it had moved into a Phase 3 trial to evaluate the potential for its drug custirsen in combination with docetaxel in non-small cell lung cancer. The primary study for custirsen, an evaluation of the drug in patients with castrate-resistant prostate cancer, remains on schedule for completion in the second half of 2012. A third trial, to evaluate the efficacy of custirsen in combination with jevtana, will begin enrollment of patients in the near future, the company said.

OncoGenex's other promising drug for prostate cancer, OGX-427, has just finished a Phase 2 clinical trial. The company presented preliminary results at the American Society of Clinical Oncology annual meeting in June. (Investors in drug companies should mark the ASCO conference on their calendar since it always moves the stocks of companies working on cancer drugs.) OncoGenex expects to enroll patients for a second OGX-427 trial in the treatment of metastatic bladder cancer in the second half of 2012.

I think that gives the stock major data points in the second half of 2012 that will move the price upwards (assuming the results are good, of course.) OncoGenex had a market value Monday of $212 million.

That's not to say that nothing on the balance sheet and income statement matters. Investors would like to know if the company will run out of cash before it reaches its objectives. That would require another round of financing that would dilute the ownership stake of current investors. (OncoGenex's March stock offering certainly hurt the share price.) 

For the quarter, OncoGenex had operating expenses of $8.4 million -- for a $33.6 million annual burn rate. At the end of the quarter, the company had $97.6 million in cash and cash equivalents, up from $64.9 million at the end of December 2011 thanks to milestone payments from the company’s deal with Teva Pharmaceutical Industries (TEVA) and to the proceeds from its March stock offering. 

For the 2012 year, the company expects to need $45 million to $50 million in cash, and to finish the year with $68 million to $73 million. The company told Wall Street that it believes its current capital resources are sufficient to fund operations into 2015.

As of Aug. 6, I'm keeping my target price at $22 a share by February 2013.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did own shares of OncoGenex as of the end of March. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 
Tags: Jim JubakOGXITEVA
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