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OncoGenex Pharmaceuticals, Inc. Message Board

  • duncecap Dec 25, 2009 5:18 PM Flag

    my take on the deal

    I have to admit that I expected the partnering deal to have terms similar to Medivation's. Like many, when the terms were announced I was disapointed. Since Monday, I've spent a bit of time really looking into the details, and I have to say, I'm really impressed with the way this has been structured.

    I think its helpful to compare this deal with Medivations so here goes:

    Upfront fees - MDVN $110M, OGXI $60M. As has been well documented, because of OGXI's commitments to 3rd parties, they will net about $49.5M. What has not been well documented, but was mentioned on the MDVN conference call is that california currently has a freeze on the use of tax loss carryforwards, and much of MDVN's loss carryforwards were used up last year on the Pfizer/Dimebon deal. Assuming 30% is payable in tax, they would net $77M. From what I can tell from OGXI's 2008 10k, they should have sufficient tax loss carryforward to shield their Upfront fees from Teva. Further, as $30m was structured as advance on their funding commitment for OGX-011 development costs, they could likely defer these taxes anyway. Conclusion on upfront fees: OGXI nets $49M, MDVN nets $77M.

    Commitment to development plan: As we know, between now and early 2011 OGXI and Teva will begin three phase 3 trials of OGX-011. MDVN and Estellas will be running 2 phase 3 trials (prostate only). OGXI's funding commitment will be capped at $30M, while MDVN is responsible to pick up 1/3 of the phase three development costs. The key here is how much are the phase 3 likely to cost? Neither company has provided clear guidance on this. The recent bioworld article on OGXI estimated that these trials could cost approx $150M. Looking at what Dendreon has spent on Provenge trials, I think this could be light. Per Dendreon 10-k, $189.6M has been spent from 06-09 and those trials had been going on since 2002. Assuming both the MDV3100 and OGX-011 trials cost $200M, OGX would be on the hook for $30M, while MDVN would be on the hook for $66.67M. Also, the OGXI $30M can be applied to 'indirect costs', which likely means it would be applied against existing salaries, costs which the company would incur anyway.

    So for those of you keeping track, after payments to third parties and accounting for the potential costs of the development plan OGXI has netted $19.5M, while MDVN has netted $10.3M.


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    • This stock is a long term hold. TEVA is going to cover the remainder of the costs of developing the cancer treatment.....

      I'm going to be buying every day 100 to 200 shares up to $25/share....

      The guy that posted that this stock was going below $20/share needs his head examined i think.....

      by next week this stock will be above $25/share and then it will find a stable new baseline above it......

      Happy Holiday to all and happy new year too!!!!

      current position 250 shares @ 21.95 average

    • Thats my take as well regarding DNDN manufacturing issue. DNDN has introduced a novel, state of the art chain of custody and tracking system which was an issue raised a few years back. Interestingly, i think there could be some upside risk protection if DNDN does run into a minor glitch in this area. The last time this happened (as jq elaborated), DNDN kept things under the lid as they did not believe it rose to the level of "material" for public consumption. It became a moot point later when the FDA concluded that a pivotol, confirmatory study was needed.

    • It was a November report. I believe the target price is $8 bucks. Far too high imo, but i do see upside, with relatively lower risk.

    • The risk is much lower for DNDN than OGXI at this point. OGXI can appreciate more than DNDN from now on for sure, which is why I am holding both - never put all eggs in one basket is my investing philosophy. FDA had already inspected DNDN manufacture facility before, raised issues DNDN had wisely taken its time to fix before filing sBLA - they could have filed much earlier if they hadn't spent more time on fixing manufacture issue. If FDA hadn't done so already, I would have agreed with you.

    • you are upset beacuse ISIS dropped to 10?

    • duncecap Dec 29, 2009 11:28 AM Flag

      So after accounting for the contribution to development costs, the upfront fees in the MDV3100 and OGX-011 deals are fairly comparable, the advantage going to 011 if additional indications are pursued.

      For development milestones its important to remember companies usually need these to be high to fund commercialization. Dendreon just raised $425M to fund their commercilization efforts, so I'll use amount for my estimates. If MDV3100 is successful they will receive $335M in dev milestones or $230M after tax, leaving only $17.5M after their 50% contribution to commercialization costs.

      Assuming 50% of OGXI development and commercialization milestones are dev related, OGXI will receive $185 (50% of $370) less 30% isis and 30% tax, they would net $90m as Teva picks up the full tab on commercialization.

      So far the OGX-011 deal is looking comparable or better for upfront and dev milestones..

      Royalties next...

      • 1 Reply to duncecap
      • duncecap Dec 29, 2009 11:46 AM Flag

        In the last two posts I concluded that the upfront fees were comparable to the MDV3100 deal when you take into account the responsibility to fund clinical trials, and I was able to conclude that development milestones were significant when you take into account responsibility to fund commercialization. Now onto royalties.

        In my previous post I assumed 50% of the $370m in milestones were development related while 50% was sales related.
        MDVN is to receive 50% of profit in the US and double digit royalties in ex-US. OGXI is to receive mid-teen to mid-twenties royalties, so after 4-8% third party payments I've assumed 11-17% net. I have no idea what the profit margins are, but I've assumed a healthy 50% profit margin for MDV3100 and that 50% of sales are in the US.

        We know docextaxel is a $1.5-2B drug while Avastin is about $6B, so I've pegged the MDV3100 potential at $1B/yr, while OGX-011 is at $2B/yr reflecting the additional potential from lung.

        Using these assumptions MDVN would receive $125M in the US ($500 x .5 x .5) and $50M oversees ($500M x 10%) + 320M in sales milestones. Total $175M/yr + 320M milestones gross.

        Assuming 11-17% OGXI would clear $220-340M after third party payments + $170M in sales milestones assuming payments are at the top of the 4-8% range and 50% of the $370m in milestones are sales relates.

        Obviously, you have to make a lot of assumptions to do an analysis like this, and you could argue any number of the assumptions I've used. That being said, its hard to argue that the economics of this deal doesn't look good to OGXI investors in the long term.

    • DNDN currently has a MC of over 3.4 B. While the share price could very well approach 40 or higher on FDA approval IMO the road to approval has a few potential potholes. Manufacturing remains a big issue and while the FDA may no longer doubt that the drug has some effect on prolonging survival they could spend some time examining the manufacturing process especially as this type of drug processing has never been seen before. I think OGXI has a better chance of a 50% increase in share price by May and has fewer hindrances.

      Regarding ALXA, paradigm were you referring to the wedbush report released 3 months ago with a target of $12?

    • Thanks, I got it.

      MITI had very few trials finished, almost all data from two of them pretty much presented at ASH a few weeks ago, very impressive. These 3 are a little bit different from the companies you used to invest - these are technology platform driven biotechs. MITI and IMGN are next generation antibodies, INCY is one of the most advanced small molecule inhibitor companies. These 3 had large gains since I bought them, I am not sure right now is the right time to enter. I had been paring down my holdings a little bit. I am taking the long view for rest of my holdings here. These 3 are on top of my list that could become big like DNDN, HGSI, VRTX.

    • I agree...DNDN likely approval with potential pps range of $38 - 42. More fuel to pps if ROW with good terms unfolds. Sub $25 would be nice for adds, but i suspect a lot of others buying it up well before it got there.

      Spent several weeks a while back looking at MITI very closely. Liked it a lot and almost added, but just was not satified with the level of transparency for some of the clinical data for some of the past trials. Its my pet peeve as i have to understand the details to adequately measure risk. Fortuntatley they have so many trials going on, it helps mitigate risk

      I shoot over the report....still got ya in my email address book somewhere.

    • I think this stock has wonderful potential.

      But boy, have I been burned with one-trick pony stocks, especially low float stocks. But before I am accused of being a disguised short, I own this stock, have an order to buy more (at a lower price), but admittedly will not hold this stock long. I guess this qualifies me as a nervous long.

      Here's why.

      I think the reports and test results for OGX-011 will be positive. In fact I think they will be hugely positive. And with that announcement, I would expect a secondary offering and possibly, consequent dilution. However, I think Teva's involvement will prevent OGXI's secondary from be overly dilutive. However, the potential of the drug to be a block buster may easily overcome the dilutive effect of the offering.

      As a result, investing in these stocks is tricky in the short term. Long term, though, this stock should be just fine.

      Good luck to all longs.

      • 1 Reply to ehschunk
      • Can you explain why you believe Onco would need to go out and raise capital. From my perspective....they have a fairly low burn rate to start off with (3-5 million per qtr) and now have about 55 million in cash after the latest infustion by Teva. Developmental clinical costs for OGX-011 are picked up by Teva.

        Are you seeing or hearing of something else?

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