Oncothyreon Sells Off Stimuvax, Cuts Jobs, Facilities To Preserve Cash

12/18/08Follow @xconomy

Seattle-based Oncothyreon (NASDAQ: ONTY) made a series of strategic moves today to preserve its remaining cash, and find a way to survive on its own as a developer of cancer drugs. Some investors liked the decision, as shares more than doubled from 73 cents to $1.70 in after-hours trading.

First, the company said it agreed to sell the manufacturing rights to Stimuvax to its partner, Germany-based Merck KGaA for $13 million. Under this deal, Merck will take over responsibility and expense of running Oncothyreon’s drug manufacturing plant in Edmonton, Canada, and plans to offer jobs to “the majority of” the 52 employees there, the company said in a statement.

Oncothyreon (pronounced on-koh-THEAR-ee-on) also announced other cash-conservation moves. Eight employees in Canada will lose their jobs, and three senior executives are also heading for the exits at the end of the year—chief financial officer Edward Taylor, chief scientific officer Lynn Kirkpatrick, and Rao Koganty, the head of synthetic biologics. The company is also shutting down a facility in Tucson, and consolidating all operations in Seattle, where it will have about 25 employees. The new mission will be to focus on conventional small-molecule cancer drugs in the early stage of development—a big shift from the Stimuvax work, which concentrated on stimulating the immune system to fight cancer as if it were a virus.

“This brings Oncothyreon a much needed infusion of cash at a difficult time,” said CEO Bob Kirkman on a conference call with analysts this afternoon.

After crunching the numbers on these moves, Oncothyreon said it expects to finish the year with about $17 million in cash and investments in the bank. By shifting the manufacturing costs for Stimuvax to its partner, it expects to spend less money in 2009, burning through about $12 million of cash. That means the company can now expect to be able to fund its operations into the first quarter of 2010. That’s a much brighter financial picture than the one the company painted at the end of September, when it said it had just enough to run into the first quarter of 2009.

Oncothyreon clearly had some pretty limited options. Kirkman tried to raise capital this fall from investors, but his stock price of less than a dollar gave him little room to maneuver. One analyst on today’s call, Simos Simeonidis from Rodman & Renshaw, congratulated Kirkman for closing the deal with Merck KGaA because it brings cash into the company without diluting the value of existing shares. “It’s really hard to bring in non-dilutive capital in this environment,” Simeonidis said.

The Stimuvax product, originally developed when the company was called Biomira, is in the final stage of clinical trials for non-small cell lung cancer. By shifting the manufacturing expense burden for this product to Merck KGaA, Oncothyreon had to accept a smaller royalty rate than the one it had previously worked out, Kirkman said. The new royalty is still in the “double-digit” percentage range of product sales, and will give the company a chance to reap some of the rewards if Stimuvax ever becomes a marketed product.

Oncothyreon will now turn its attention to a pair of conventional small-molecule drugs in development for cancer, PX-478 and PX-866. The first is in an early-stage clinical trial, as a drug designed to block a protein target called HIF-1 alpha, which is thought to nourish tumors with blood vessels, protect them from triggering normal cell-death processes, and help them use glucose for energy. The second is a blocker of PI3 kinase, a popular target among cancer companies like Seattle-based Calistoga Pharmaceuticals. The Oncothyreon drug, PX-866, is also in an early-stage clinical trial in cancer patients.

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