Small-Cap Research April 12, 2017 John D. Vandermosten, CFA 312-265-9588 / jvandermosten@zacks.com scr.zacks.com 10 S. Riverside Plaza, Suite 1600, Chicago, IL 60606 Oncolytics Biotech Inc. REOLYSIN Clinical Development Plan Based on our DCF model and a 15% discount rate, Oncolytics is valued at approximately $2.00 per share. Our model applies a 40% probability of approval for second line metastatic breast cancer based on interpolation of historical success ratios. Our valuation includes contributions from the US, EU and Japan. Current Price (4/11/2017) $0.59 Valuation $2.00 (ONCYF - OTCQX) OUTLOOK Oncolytics develops oncolytic viruses as cancer therapeutics primarily employing the reovirus in its clinical work. The company is currently focused on breast and pancreatic indications where its sole product, REOLYSIN, functions as an immuno-oncology agent. The company s two key indications in breast and pancreatic cancer use REOLYSIN in conjunction with chemotherapy. Oncolytics will present data from its Phase II trial to the EMA and FDA in the second quarter targeting a conditional marketing authorization and breakthrough designation. A Phase III trial is being designed and is expected to begin in 2H:17. The duration of the trial is expected to be 2.5 to 3 years and it is targeted to enroll from 300 to 330 patients. Assuming a 2022 launch of REOLYSIN, we believe the company s shares represent attractive value. Our target price of $2.00 per share is based solely on success in high mutation breast cancer. SUMMARY DATA 52-Week High 0.65 52-Week Low 0.14 One-Year Return (%) 59.1 Beta Average Daily Volume (sh) 158,261 Shares Outstanding (mil) 121.3 Market Capitalization ($mil) 69.6 Short Interest Ratio (days) 2.67 Institutional Ownership (%) Insider Ownership (%) 0.4 Annual Cash Dividend $0.00 Dividend Yield (%) 0.00 5-Yr. Historical Growth Rates Sales (%) Earnings Per Share (%) Dividend (%) P/E using TTM EPS P/E using 2017 Estimate P/E using 2018 Estimate Risk Level Type of Stock Industry ZACKS ESTIMATES Above Average Small-Growth Med-Biomed/Gene Revenue (In millions of CAD) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2016 $0.0 A $0.0 A $0.0 A $0.0 E $0.0 E 2017 $0.0 E $0.0 E $0.0 E $0.0 E $0.0 E 2018 $0.0 E 2019 $0.0 E Earnings per Share Q1 Q2 Q3 Q4 Year 2016 -$0.03 A -$0.02 A -$0.03 A -$0.04 A -$0.13 A 2017 -$0.03 E -$0.03 E -$0.03 E -$0.03 E -$0.11 E 2018 -$0.12 E 2019 -$0.12 E Zacks Rank
What s New On April 12, 2017, Oncolytics Biotech, Inc. (OTCQX: ONCYF) provided an outline of their path forward for developing REOLYSIN, their proprietary oncolytic virus used in the treatment of several cancers. The company s primary goal is to obtain regulatory approval for REOLYSIN in metastatic breast cancer based on the data presented at the American Academy of Cancer Research (AACR) Annual Meeting in early April. Oncolytics will also develop REOLYSIN for other indications and in combination with other agents, such as checkpoint inhibitors and immunomodulatory imide drugs (IMiDs). REOLYSIN is currently being used in an open-label, Phase Ib trial in combination with checkpoint inhibitor, pembrolizumab (Keytruda). This study (REO 024) is a dose-limiting toxicity study in patients with advanced metastatic pancreatic adenocarcinoma who failed first line treatment. Safety data from this trial is expected in 2017. REOLYSIN is also being used in conjunction with Celgene s (NASDAQ: CELG) IMiDs: pomalidomide (Imnovid) and lenalidomide (Revlimid). This is being done in the MUK eleven clinical trial which was launched March 2017. The dose escalation trial will be used as a rescue treatment in relapsing myeloma patients and will recruit 44 participants in the United Kingdom. In the recent Phase II trial (IND 213) presentation at AACR, the Canadian Cancer Trials Group presented overall survival data for patients on REOLYSIN and paclitaxel vs. paclitaxel alone for metastatic breast cancer. As a reminder, the trial results showed that there was a statistically significant improvement in median OS from 10.4 months on the control arm to 17.4 months on the test arm at a p-value of 10%. Efficacy was even greater in the p53 subset of patients. This subgroup of mutated p53 tumors made up 82% of the trial population and had a median OS of 20.9 months versus 10.4 months in patients treated only with paclitaxel. P-value for this group was 3%. Oncolytics will present this data to regulators to obtain advice and support for a regulatory pathway. The subsequent trial is expected to employ overall survival as a primary endpoint and seek other exploratory endpoints that will identify important surrogate markers. Fast track and accelerated approval may be possible; however, our valuation target does not rely on this eventuality. Please refer to our initiation for an in-depth explanation of REOLYSIN s mechanism of action. We maintain our $2.00 1 price target based on our estimates for a 2022 launch of lead compound REOLYSIN either alone or with a partner. Several pillars support our favorable view of Oncolytics, including statistically significant results that show a seven month or greater benefit from the use of REOLYSIN combination therapy in metastatic breast cancer, and an indication that can address a large population with an unmet need. A strong pipeline with other cancer indications is also a plus as is a favorable environment for biologics exclusivity and low manufacturing costs compared to others in the class. These factors support strong market acceptance for this virus-based, global immuno-stimulator which we value at $2.00 per share. 1 Note that price targets are denominated in US Dollars while financial statement data is in Canadian Dollars Zacks Investment Research Page 2 scr.zacks.com
PROJECTED FINANCIALS Oncolytics Biotech, Inc. - Income Statement Oncolytics Biotech Inc. 2016 A Q1 E Q2 E Q3 E Q4 E 2017 E 2018 E 2019 E Total Revenues $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 R&D $9.8 $2.2 $2.3 $2.3 $2.3 $9.1 $10.0 $11.0 Operating $5.5 $1.5 $1.6 $1.6 $1.6 $6.3 $7.0 $7.2 Other expenses $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Operating Income ($15.3) ( $3.7) ($3.9) ( $3.9) ( $3.9) ( $15.4) ( $17.0) ($18.2) Op erating M arg in - - - - - - - # DIV /0! Interest Expense $0.2 $0.0 $0.0 $0.0 $0.0 $0.1 $0.1 Total Other Income $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Pre-Tax Income ($15.1) ($3.7) ($3.9) ($3.9) ($3.9) ($15.3) ($16.9) ($18.2) Taxes & Other ($0.0) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Tax R ate $0.0 0 % 0% 0 % 0 % 0% 0% 0 % Net Income ($15.1) ($3.7) ($3.9) ($3.9) ($3.9) ($15.3) ($16.9) ($18.2) Reported EPS ($0.13) ( $0.03) ( $0.03) ($0.03) ( $0.03) ( $0.11) ($0.12) ($0.12) Y OY Gro wth - - - - - - - - Shares Outstanding $119.9 121.3 132.1 142.9 143.0 134.8 144.3 149.0 S o urce: Co mpany Filing // Zacks Investment R esearch, Inc. Estimates
HISTORICAL STOCK PRICE Oncolytics Biotech, Inc. One Year Price Chart 2 2 Price chart is for ONC as traded on TSE due to limited data availability for ONCYF. Share value is measured in Canadian Dollars. Zacks Investment Research Page 4 scr.zacks.com
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