Oncothyreon Stock Plummets as Side Effect Emerges in Cancer Patient, Trials Halted

3/23/10Follow @xconomy

[Updated: 6 pm Eastern] Bad news out of Seattle-based Oncothyreon (NASDAQ: ONTY) today. The company’s partner, the Merck Serono unit of Germany-based Merck KGaA, has halted clinical trials of an immune-boosting treatment for cancer after it saw an unexpected inflammation of the brain in a patient who joined an exploratory trial. Shares of Oncothyreon fell 29 percent on the news.

The FDA has placed the development program for the BLP25 liposomal vaccine (Stimuvax) on a clinical hold, which means all clinical trials of the experimental drug are on hold until researchers can determine whether it’s safe to start them up again. The suspension affects two lung cancer trials known as Start and Inspire, as well as a breast cancer study called Stride. Those are large, pivotal trials that enroll a combined 2,600 patients.

The patient in question developed encephalitis, or inflammation of the brain, in an exploratory trial of Oncothyreon’s vaccine, the company said. The study was investigating the vaccine’s mechanism of action and how it works in combination with cyclophosmide chemotherapy. The patient has multiple myeloma, a cancer of the bone marrow.

“Patient safety is of paramount importance to Merck Serono and to Oncothyreon,” said Oncothyreon CEO Bob Kirkman, in a statement. “We understand that Merck Serono is working closely with the FDA, other regulatory agencies and the patient’s physicians to evaluate the implications of this adverse reaction and to determine an appropriate course of action.”

The clinical hold is big setback for Oncothyreon, which has been on a roll the past year because of renewed enthusiasm for Stimuvax. The company renegotiated a partnership in December 2008 to shift all the development costs to Merck KGaA, while retaining a double-digit percentage royalty on sales if it becomes a marketed product. Then the big partner showed confidence in the program by starting a new 900-patient breast cancer study last June, followed by a 420-patient trial in December. Oncothyreon has also benefitted from renewed interest in treatments that stimulate the immune system to fight cancer, following the success of Seattle-based Dendreon’s treatment for prostate cancer.

While most investors are putting value on Oncothyreon for its stake in Stimuvax, it has other programs as well. The company has two cancer drugs in development, including one that is poised for mid-stage clinical trials this year, and a next-generation cancer vaccine in the works, which I discussed with Kirkman in a December interview.

Shares of Oncothyreon fell 27 percent to $3.49 at the close of trading today. Because so much of the company’s value is tied up in Stimuvax, there are going to be a lot of questions about this serious adverse event.

As is often the case with a report of a serious adverse event in a clinical trial, Oncothyreon’s conference call today raised more questions than it answered. Merck KGaA, along with the FDA and independent experts, don’t know what might have caused the patient to develop the case of encephalititis and are looking into that question, Kirkman said today on the conference call.

The trial was designed to help Merck KGaA better understand the best dose and schedule for a combination treatment with Stimuvax, Kirkman said. The exploratory trial of multiple myeloma patients was set up to answer whether Stimuvax might be more effective if given with a new dosing schedule of Stimuvax. The idea is that cyclophosphamide, a chemotherapy drug, might be able to suppress T-regulatory cells that are known to inhibit immune reactions, Kirkman said. That way, Stimuvax, which is designed to stimulate the immune system to fight cancer cells, might become more effective with T-regulatory cells out of the way, he said.

Trials of Stimuvax to date have used a single dose of cyclophosphamide in advance to clear T-regulatory cells, Kirkman said. The exploratory trial essentially asked whether more cyclophosphamide is better. Patients in that study got the chemo drug twice in an 8-week period, and then every six weeks thereafter during the trial, Kirkman said.

This is the first time Merck KGaA or Oncothyreon have seen a case of encephalitis in years of clinical trials of Stimuvax, Kirkman said. The drug, to this point has mainly been associated with some minor swelling around injection sites, and some minor flu-like symptoms, Kirkman said. The company said it has tested “several hundred” patients over the years, following some of them as long as eight years, without ever seeing a case of a patient who got autoimmune disease after taking the drug, in which the immune system starts fighting healthy tissue. It’s unknown how long the investigation into the adverse event will take to reach a conclusion, or how much of a disruption this will cause to the ongoing clinical trials, he said.

Merck KGaA has emphasized that Stimuvax is one of its most important cancer drugs in development behind the hit it already markets in Europe, cetuximab (Erbitux). So this is a story that we’ll definitely hear more about in coming weeks or months.

“Merck KGaA is working diligently to resolve the issue,” Kirkman said, adding that Oncothyreon will notify shareholders when it knows more.

[Update: 6 pm Eastern, with analyst comments.] Analyst Simos Simeonidis of Rodman & Renshaw, a longtime Oncothyreon bull, mapped out four possible scenarios for what might happen next, in a note to clients today. Here’s a quick summary of what he outlined, before today’s conference call:

1. The doomsday scenario (10 percent probability): Merck KGaA quits developing Stimuvax, hands the program back to Oncothyreon, and Oncothyreon scraps the drug.

2. The major-blow-to-Oncothyreon scenario (20 percent probability): Merck KGaA stops developing Stimuvax, gives it back to Oncothyreon, but Oncothyreon continues developing it alone, or with another partner.

3. The delay-but-not-so-bad scenario (35 percent chance, which represents a 3 to 9-month delay): The companies determine the encephalitis case was patient-specific and/or related to the repeated use of cyclophosphamide, which does not impact the ongoing trials that used a single dose of cyclophosphamide. This enables the ongoing trials to resume, albeit with a three to nine month delay.

4. The most benign scenario (35 percent chance, representing less than a 3-month delay): The companies look at the specific patient profile and reach essentially the same conclusion as above, but fast enough so that it represents a delay of three months.

While there are a couple of optimistic scenarios there, there are still a lot of unknows. Simeonidis said he’s currently reviewing whether to change his rating on the stock. “Given the uncertainty around the Stimuvax program by the temporary suspension of the trials announced today, we are placing our rating on Oncothyreon Under Review until we have more visibility on the impact and timing for a resolution of this issue,” he said.

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