Oncothyreon CEO on Next-Generation Cancer Vaccines, Two Key Zymonites, and Serious Luck

Biotech companies can be resilient little animals, and one example in Seattle is Oncothyreon (NASDAQ: ONTY). This company looked like a goner a little over a year ago, when it was down to its last few months of cash and its stock was trading for less than a buck.

Somehow, when his back was against the wall, CEO Bob Kirkman found a way to renegogiate a deal with partner Merck KGaA a year ago which brought in $13 million, shifted the expense of manufacturing a cancer vaccine called Stimuvax off his books, and still retained a “double-digit” percentage royalty on sales if it becomes a marketed product.

But that wasn’t all. By April, Seattle-based Dendreon came along and shocked the cancer research world by proving that its immune-boosting treatment could help men with prostate cancer live longer. Investors were suddenly on the prowl for other companies in this long-suffering field, and they started beating a path to Oncothyreon.

Two months later, Merck KGaA showed more confidence in Oncothyreon’s Stimuvax by plowing ahead into a pivotal clinical trial of patients with breast cancer, before waiting for results from another ongoing trial of lung cancer patients. Oncothyreon’s stock gained enough—from 80 cents on January 1 to $5.06 at yesterday’s close—that the company was able to raise another $24 million from investors and start plotting more aggressive moves for the year ahead.

So much has happened over the past year that I figured it was time to stop by Kirkman’s office in Belltown to bring readers up to speed on what to watch for from this company in 2010. This starts off with some technical stuff about how Oncothyreon’s next generation vaccine is different from Stimuvax, and moves into more business strategy questions later on:

Oncothyreon CEO Bob Kirkman

Oncothyreon CEO Bob Kirkman

Xconomy: I’ve noticed that you are advancing your second cancer vaccine candidate into the clinic. But at back in March, I noted that it’s been “Goodbye Cancer Vaccines, Hello Cancer Drugs” at Oncothyreon. Has that balance, or emphasis, changed?

Bob Kirkman: It’s changed, partly because we have more resources now than when we had that discussion before. We’ve had follow-on vaccine in our portfolio for several years, but frankly, didn’t have the resources to take it forward, nor necessarily the strategic reasons to do so. Both of those are different now.

It’s probably worth talking a little about what’s different and why we’re developing it. There are two main differences between BGLP40 and Stimuvax. One relates to the antigen. The antigen in BGLP40 is a 40-amino acid glycosylated peptide. That’s compared to Stimuvax, which has a 25-amino acid peptide which doesn’t have any sugars on it.

The theory is that if we use this glycosylated antigen, we’ll get an antibody response as well as a T-cell response. We know that Stimuvax primarily produces a T-cell response. What’s not really known is whether producing an antibody response as well would be beneficial from a tumor response perspective. This will be one of the first times that question could be directly answered in the clinic.

X: Can you back up a little and explain the differences between these two vaccines a little more?

BK: Both of these vaccines are constructed in the same way. They take an antigen, which is a peptide, and take an adjuvant—which happens to be different between the two vaccines, and I’ll come back to that. They also take three fats, which are the same. You make a liposome, or a fat globule, that presents the antigen, and the adjuvant, to the immune system. That basic construction between Stimuvax and BGLP40 is the same.

So the antigens are different, as we talked about. But the other difference is in the adjuvant. Stimuvax uses MPL, which is a lipid-A adjuvant from GlaxoSmithKline, and really the old [Seattle-based] Corixa. It’s a biologic adjuvant derived from a bacterial source.

BGLP40 uses a totally synthetic form of the same adjuvant. They are both lipid-A adjuvants. In the case of BGLP40, chemists at what was then Biomira learned how to synthesize it. So it’s made from scratch, as opposed to derived from a biologic source.

X: What’s the advantage of going with a synthetic adjuvant?

BK: Manufacturing control. And we own it.

X: So that means you won’t have to pay royalties to anyone?

BK: Exactly.

X: Is there a difference in speed of manufacturing, or consistency of the adjuvant?

BK: I’m talking about consistency. It’s a chemical synthetic process as opposed to something from a biologic source.

X: So you think you have a better adjuvant?

BK: Potentially. We don’t know it’s better, but we own it, and that helps. From a scientific perspective, the question we’re asking with BGLP40 is really whether there’s an advantage to a vaccine that elicits both an antibody and a T-cell response against the target. It’s an unknown question.

The other scientific thing we want to know is about our adjuvant. It hasn’t been tested in man yet, and this will be the first time. We think what we’ll learn from that could enable that adjuvant to be the subject of a licensing program, in and of itself, for other vaccines.

X: Like flu, or any other kind of vaccine?

BK: Yes. Some other vaccine. Either for infectious disease or oncology. That’s both a scientific and clinical question, and a business issue.

We’ve tried to license it in the past, but it’s not been far enough along in the clinic for it to generate real value for us. We’d like to build that value.

X: Is there any significance to the difference in amino acid length between the vaccines? Does that have anything to do with provoking both the T-cell and B-cell responses?

BK: No. We believe that’s related to the fact that there are sugars present on the BGLP40 antigen and there are not sugars on the Stimuvax peptide.

The natural targeted protein, MUC-1, is glycosylated. It has sugar on it. It turns out you can get a perfectly good T-cell response without the sugars. That’s what Stimuvax does. Clearly, Stimuvax has been demonstrated to have a T-cell response, and based on the Phase II trial, it looks like it works. We’re not saying Stimuvax isn’t adequate. That’s not the message we’re trying to send. We think Stimuvax does work. The question is whether this is better. If so, it also provides an obvious product life-cycle management tool for Stimuvax.

X: Now you’re saying Stimuvax works. But isn’t there a history where it went into a pivotal trial and didn’t work, but it did in a subgroup?

BK: It wasn’t a pivotal trial. It was a randomized Phase II trial which enrolled patients with both Stage IIIb and Stage IV non-small cell lung cancer. It is true that in the overall trial, there was a little over a 4-month survival advantage for the Stimuvax group which wasn’t statistically significant. It’s also true that in the pre-stratified group of Stage IIIb patients, there was a 17-month survival advantage. That wasn’t a pre-specified endpoint of the trial, but the group was stratified in advance. The randomization for that worked. You’re right, it was an exploratory analysis of a Phase II trial, but there wasn’t a lot of data mining required to get to that result.

X: That’s what gave rise to the START trial, right?

BK: Yes, those are the data that led our partner, Merck KGaA, to initiate the START trial. It’s designed to look at just patients with Stage III disease.

X: When do you expect data on that one?

BK: Merck has said all along that the trial would conclude sometime in 2011. There are two interim looks in that trial. The first of which occurs when 50 percent of the expected deaths in the trial have occurred. It’s really hard to predict exactly when that’s likely to occur. If the trial’s going to end in 2011, a reasonable guess would be that has to happen sometime before the end of 2010. It’s likely we’ll get the first interim look at that trial sometime before the end of next year.

X: And in parallel, they also have a pivotal trial going on for patients with breast cancer, and for lung cancer patients in Asia, right?

BK: There are two other Phase III trials now ongoing. There is the Asian lung cancer trial that just started, called INSPIRE, and then there’s a trial in breast cancer that’s being given to patients with hormonally sensitive, advanced breast cancer. So it’s patients with metastatic or recurrent disease that would normally be treated with hormonal therapy like tamoxifen or an aromatase inhibitor. They’ll get the hormonal therapy, plus or minus Stimuvax. That trial started a few months ago.

X: I’d like to take a step back again. You raised a lot of money, $24 million, you’ve got more resources. Can you help me understand how you and the board are thinking about where you’re going to take this in the year ahead now that you have more options? I didn’t think you were going to survive a year ago.

BK: The ability to raise some money this year has clearly put us in a stronger position than we were a year ago. The combination of the restructuring we did in December, selling the Edmonton facility to Merck KGaA, and then raising $24 million in cash above and beyond what we got from the Merck KGaA deal (about $13 million), really puts us in a position where we can get some of these important milestones without necessarily having to do additional fundraising.

We’re going to get data from Stimuvax as soon as the end of 2010 and on into 2011. We can get to those data points without really having to worry about it. You’re right, a year ago that was absolutely not a true statement. I think that’s reflected now in how people view us. They recognize we can do that now.

We’re going to take our resources, and we’re not going to spend so much that we can’t get to our milestones, but we are actively going to do some development. One of those things, which we’ve been talking about, is going ahead with BGLP40. The strategic thinking is clear that if Stimuvax succeeds, this will be a very valuable property. It will take a relatively small investment to create that value. We will be spending 2010 finishing the preclinical development of that so that we can go into the clinic with it in 2011.

We’re also going to be actively going forward with our small molecules. This is already public, but we’ve made a commitment that we’re going to take PX-866, our PI3 kinase inhibitor, into Phase II in 2010. We expect to start at least two Phase II trials of that drug by the end of 2010. We haven’t yet discussed what those trials will be. But that will be the major focus of our activity in 2010. The PI3 kinase is clearly a hot topic in oncology. We think we have an interesting and unique compound in that field. PX-866 is the only irreversible inhibitor of the PI3 kinase that we’re aware of in clinical trials. We think that will give the molecule a significant pharmacodynamic and pharmacokinetic advantage over the competition.

X: I remember you have talked about doing a partnership with that drug before. Why not do that this year? Was it a matter of actually having resources to develop it yourself?

BK: What we always wanted to do was take one of our two actively developed small molecules into Phase II and to partner. If we were going to have two in Phase II, we’d have to partner to do that. I’m committed to the notion that if you’re going to take a molecule into Phase II, you had better run a pretty broad Phase II development program and really learn how to use your molecule. That’s what Phase II is all about. You can’t do that in a single Phase II trial. We can’t meet our strategic goal of having sufficient resources to get to the Stimuvax endpoint AND do adequate Phase II development programs for two small molecules with existing resources. That just doesn’t work.

One solution to that is if you do have two to go into Phase II, and you partner one or the other. We never said which one it would be.

X: So what about the HIF-1 alpha drug, your other small molecule?

BK: We haven’t finished Phase I. And we haven’t made a decision about it. That’s exactly my point. If it turns out at the end of Phase I trial, that we need to go ahead with another trial, then we’ll partner that one, or PX-866.

X: So given your finite resources, you have committed to take one drug into Phase II, and that’s going to be PX-866?

BK: We’ve committed to take forward PX-866.

X: When you say a broad program, what do you mean by that? Is it a couple of different indications, or are those randomized trials to give you a real answer?

BK: We haven’t disclosed that. I can’t answer that.

X: It sounds like you’re trying to get your ducks in a row before the big event of 2010, which will be the interim analysis of the START trial. If that comes a year from now, you’ve got BGLP40 poised to enter the clinic, and your Phase II of PX-866 would be well underway.

BK: That’s a correct view of what we’re trying to do. The goal all along—and I’ve said it since the day I joined this company—the goal was to have an oncology therapeutics development company that had multiple products in development so we had more than one opportunity for success and that we had mitigated our risk. That was the strategy from September 2006. That’s why we brought in the small molecule pipeline and pushed that forward. That’s what we wanted. It’s why we’re moving forward with BGLP40. And it’s what we intend to do. To look for interesting early-stage molecules, take them through early-stage clinical development, and then partner for later-stage clinical development and commercialization. That’s the model. So far, we’ve been able to execute on that.

X: Not only do you have more capital around here, you have some more human capital around here. I’ve noticed there’s a mini-migration of people from [Seattle-based] ZymoGenetics (NASDAQ: ZGEN). I see Doug Williams (CEO of ZymoGenetics) has joined your board. Any significance we should take from that, other than the fact that they got out of cancer research? What does it mean to your ability to push things forward?

BK: That was not a planned event. They made a decision to exit from cancer research at a time when we needed some additional people, and that just happened to work out. Doug is somebody that several members of our board have known for a long time, and we’re happy that Doug has agreed to come on board with us. But there shouldn’t be any more read into it. It happened to happen that way.

X: I’m actually thinking just as much about the impact of Scott Peterson and Diana Hausman. They are here full-time.

BK: Scott was part of the decision to exit oncology research at Zymo, and came very highly recommended to us, by Doug, actually. We’re delighted to have him. He’s a great employee. Also, knowing that we wanted to go into later-stage clinical development with some of these small-molecules, we wanted to bring somebody in-house to run that. We had been doing clinical development entirely on an outsourced basis. That’s just not feasible with what we have in mind for Phase II. So we were glad to get Diana.

X: How many people do you have, 16?

BK: Today, that’s probably right. We need to replace some people who chose not to come up here from the Tucson facility that we closed.

X: Do you have any guidance for 2010on what your strategy is on partnering for PX-866?

BK: No, I don’t.

X: Do you want to take it all the way through Phase II before you open it up for talks?

BK: I’m more opportunistic than that. We will actively develop the compound. If there’s a partnership that lets us develop that compound better, then that’s what we’ll do. But we have the ability to take that molecule through Phase II ourselves, and that’s what we’re planning to do.

X: Did you get any more interest around ASCO when [South San Francisco-based] Exelixis did their huge deal with Sanofi-Aventis? Did that change the value of this asset?

BK: It put a marker out there for what PI3 kinase programs can be worth. There have been two pretty good sized deals. That one, and the Roche/Genentech purchase of Piramed the year before were both for substantial amounts of money. It should be a signal to folks about what the potential of this program is.

X: Did anything bad happen to you this year?

BK: (laughs, pause).

X: Well, what are you worrying about these days?

BK: We worry about the same thing everybody in this business worries about. That’s whether the clinical data you get in later-stage trials doesn’t replicate what you see in early-stage trials. It’s the big worry for everybody. It comes with the territory. All you can do is look at your data and make the best choices you can based on what you’ve seen. You worry about that, and will something happen in the external world that makes it impossible for you to get resources to develop your products.

I’d certainly like to take credit for everything that happened in 2009, but obviously we were the recipient of some serious luck this year. The markets changed around, and the good news wit [Dendreon’s sipuleucel-T (Provenge)] had a dramatic effect on the perception of the therapeutic vaccine space. There’s no question that has changed the perception. Obviously, there’s a big event coming for that product in May. I have no control over that one, but the outcome will clearly have an effect.

A year ago, I was completely dependent on the external world in terms of my ability to get resources for the company. Now I am not. I now know that I have the resources to get to the major event for our lead program. That’s a dramatically better place to be than we were a year ago.

X: I think of you guys as exemplifying something that happened here in Seattle this year, among the public companies. There were a number of companies last fall, running low on cash, heading into this horrific downturn, backs against the wall, needed to do a deal, needed to raise money, needed to do something to ensure the company’s financial future. You guys did it. And there were several others. Dendreon would have been in the same boat if its drug had busted, Seattle Genetics raised a lot of money, OncoGenex in Bothell had some good data and got a big boost. When you look around Seattle biotech, is it in a stronger position?

BK: I think Seattle biotech is definitely in a stronger position than it was a year ago. The public companies have done reasonably well this year. There continues to be an interesting private company sector in the city. Compared to maybe San Diego, this has been a good year for us in Seattle. It’s great. It’s good for the city. It makes it easier on everybody. It’s easier to recruit people into the city when there’s a strong base of biotech here. It’s easier to get people to visit, whether it’s bankers, or analysts, or any other people we depend on.

X: Are you finding it easier to recruit?

BK: It’s certainly easier for us. It’s a lot easier to recruit when people can look at your cash position and prospects in the next year or two and see some stability and some positive upside.

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