Canaccord Genuity Daily Letter – May 10, 2013
Oncolytics Biotech Inc. (ONC : TSX : C$2.89) - Buy - Target:C$8.00
Q1/13 results: Awaiting further updates on study results; maintain BUY rating and C$8.00 target price
Investment recommendation
Oncolytics has reported Q1 financial results. Net loss for the quarter was $6.6 million or ($0.08) per share, lower than our estimate for a net loss of $9.9 million or ($0.12) per share. The primary driver of this variance was R&D spending in Q1, which, at $5.1 million, was much lower than our estimate of $8.5 million. Based on recent evidence of efficacy for Reolysin, we would be buyers of the stock in anticipation of more impactful data from the head and neck trial and the Phase II study in pancreatic cancer, both expected within the next six months.
Investment highlights Cashed up.
Oncolytics ended the quarter with cash and equivalents of $43.5 million. We believe this represents almost 18 months of cash at projected burn.
Hungry for more randomized data.
Because data from the ongoing H&N study is event-driven, exact timing of final data is uncertain. While we currently anticipate an announcement in H2/13, we suggest investors await firmer guidance to avoid disappointment.
Next steps in a long journey.
We expect that ONC will use recent positive Phase III data and the validation of its thesis to design a pivotal study focusing on the treatment of metastatic lesions.
Valuation
We value Oncolytics using a probability-weighted NPV model of lead drug Reolysin in key indications including head and neck cancer. Based on this analysis, we arrive at a 12-month target price of C$8.00, which supports our BUY recommendation.
