Banque Nationale du Canada/Cannacord Coverage for ONC
Two additional analysts upgrades last few weeks.
Jan 29th "Banque Nationale du Canada" raised their recommendation from buy to strong buy this morning.
Jan 4th, 2010
Cannacord - Target $4.50
INITIATING COVERAGE
Oncolytics Biotech (ONC : TSX : $2.62) - Buy - Target: C$4.50 Neil Maruoka
Comment: Harnessing the virus to kill cancer; initiating coverage with a BUY
rating and a C$4.50 target price
We are initiating coverage on Oncolytics with a BUY rating and a C$4.50 target. Oncolytics is a Phase III biotech company developing a novel drug for the treatment of cancer. Reolysin, the company's lead product, is about to enter Phase III and has received a SPA from the FDA. We believe that the SPA from the FDA greatly reduces the regulatory risk associated with Reolysin. An SPA is an agreement between the company and the Agency outlining the Phase III trial design. If the Phase III study reaches its pre-specified endpoints, the SPA suggests that this should be sufficient to support approval. Although there are many other factors in the approval of the drug (most notably, the safety profile), the SPA significantly lowers this major regulatory hurdle. We also believe that this particular SPA demonstrates that the FDA is open to new approaches to trial design. The SPA for Reolysin contains a protocol for an adaptive study, in which the company can use a preliminary data analysis to support the parameters of the second portion of the study. Reolysin is a live virus with the unique ability to replicate in many types of tumour cells. Our review of clinical data generated so far suggests that Reolysin is a promising drug, having produced encouraging data in Phase II studies, as well as compelling results in individual patients. We have valued Oncolytics using a probability-weighted NPV (pNPV) model for the company's lead drug for the treatment of cancer. We have assigned a 45% total chance of success for Reolysin in squamous cell carcinoma of the head and neck (SCCHN), and a 25% chance of success in non-small cell lung cancer (NSCLC). We then discount probability-weighted peak profits by 15% and apply a pharma P/E multiple of 11x to this value. Using this methodology, we arrive at a target price of C$4.50 for Oncolytics, which supports our BUY recommendation.
