Here’s one that could be well worth a look right now.
Oncobiologics Inc (NASDAQ:ONS) was trading for just $0.85 a share at the close of play on September 7. On September 8, the company hit intraday highs of around $2.20 a piece before settling to close out in and around $1.90.
The first couple of days of this week have seen Oncobiologics settle into a short period of consolidation and the company currently goes for about $1.77 a piece. That’s about 20% off highs but it’s still a more than 108% premium on last week’s pricing.
Given the recent action, we thing that the current pullback is just that – a temporary correction – and that, in turn, might represent a nice opportunity to jump into the run at a discount and ride it out as it matures towards further strength.
So what’s driving the action?
This is a biotech company that is focused on the development of what are called biosimilars. A biosimilar is a biologic medical product which is almost an identical copy of an original product that is manufactured by a different company. It’s similar in concept to a generic drug in that a company can try and bring a biosimilar to market after the initial patent and marketing protection for primary asset runs out.
With that said, however, the process of developing a biosimilar is much more complicated than that associated with a generic development program. Biologic drugs are much more complex in their composition than synthetic chemical drugs and this makes it more difficult to replicate them in the lab.
Anyway, that’s what Oncobiologics is trying to do and – right now – it’s trying to bring two lead biosimilars to market: one called ONS-3010, which is a Humira biosimilar, and one called ONS-1045, an Avastin biosimilar.
These are big markets. Humira generated $16 billion during 2016 for its developer AbbVie Inc (NYSE:ABBV) and Avastin generated $6.75 billion for Roche Holding Ltd. (VTX:ROG) during the same year.
If Oncobiologics can get one of these assets to market then, it would only need to attract a tiny portion of its target market to generate revenues far in excess of its current $43 million market capitalization.
Which brings us to the latest news.
The company just announced a strategic partnership with a company called GMS Tenshi Holdings that will see the latter pick up up to $25 million of Oncobiologics’ Series A Convertible Preferred Stock and also warrants to acquire up to an additional 16.75 million shares of its common stock with an aggregate purchase price of about $15 million.
So Oncobiologics gets the money and also picks up a partner that’s going to help it bring its two lead biosimilars to market. GMS Tenshi picks up rights to ONS-3010 and ONS-1045 in emerging markets, excluding China, India, and Mexico.
This is a pretty strong deal on both sides of the equation and – perhaps most importantly outside of the reduced degree of near term dilution that comes with the preferred shares issue – it serves as strong validation for Oncobiologics’ biosimilar platform.
So what’s next?
ONS-3010 is the lead program right now and the company is going to use the funds raised on the back of this partnership to initiate a phase III study. The pivotal program should, assuming it completes successfully, be enough to underpin a registration application with the FDA in the US. We have data in hand from a phase I study that pointed towards similar pharmacokinetics between the investigative asset and Humira, and the phase III will represent an immediate advance on this data (i.e., there’s no need for a phase II study, which reduces the potential for dilution).
The study is set to commence during 2018 and we expect Oncobiologics to appreciate in value between now and completion as traders load up speculative positions in anticipation of a positive outcome.
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Charts courtesy of National Human Genome Research Institute (NHGRI) via Flickr
Disclosure: We have no position in ONS and have not been compensated for this article.