Could a Virus Make You Lots of Money?

Could a virus make you lots of money? The folks at Oncolytics Biotech (NASDAQ: ONCY  ) think it could. Recent news from the Calgary-based company could increase the possibility of a virus bringing in big bucks. Let's take a look.

Going viral
Most human cells activate anti-viral responses when viruses attack. However, many tumors do not. The cancerous cells in these tumors don't fight back, resulting in the virus killing the cells.

One of the most common types of viruses is the respiratory enteric orphan virus, known as reovirus. Oncolytics developed and patented its own proprietary form of reovirus -- Reolysin. The company has seen success in several early -tage and mid-stage clinical trials for Reolysin in treating multiple types of cancer.

Last week, Oncolytics announced initial results from its first phase 3 study of Reolysin. This double-blinded randomized study included 167 patients with platinum-refractory, taxane-naive head and neck cancers. One group of patients was given only carboplatin and paclitaxel, while another group was given these drugs plus Reolysin.

Of the group taking Reolysin, 86% of the patients either had no tumor growth or tumor shrinkage around six weeks after initial treatment. That compares to 67% in the control group with no tumor growth or tumor shrinkage -- a statistically significant difference.

While these results were encouraging, the study is still ongoing with two other endpoints yet to be analyzed. Positive findings for these two endpoints -- progression-free survival and overall survival -- could enable Oncolytics to move forward with filing for regulatory approval.

Starve a fever
Shares of Oncolytics Biotech surged by 40% on the initial phase 3 results. Should you jump on board to make money off the company's cancer-killing virus? Before the fever takes hold, please do consider the risks.

There is a long, hard road to trek between preliminary phase 3 study findings and ultimate approval and commercialization of a product. A lot can go wrong. As a case in point, many (including yours truly) thought that Dynavax (NASDAQ: DVAX  ) was likely to obtain a positive recommendation from an FDA advisory panel with its hepatitis B vaccine Heplisav after positive phase 3 results. It didn't happen.

Factor in the financial side, also. A lot of cash will be required to go the distance. Oncolytics reported around $28 million in cash (including cash equivalents and short-term investments) at the end of the third quarter. The company thinks that should take it through 2013.

You can bet on some action being taken next year, though, to raise more money. And that action usually means more share offerings and the corresponding share dilution. Just look at the recent history of Lexicon Pharmaceuticals (NASDAQ: LXRX  ) to see what that means. Its shares fell more than 37% after announcing a secondary offering in October.

Cold cash
Having said all of that, the real possibility exists for Oncolytics to make shareholders a lot of money over time. More positive results with Reolysin could easily drive the stock up considerably higher.

Success could even attract interest from larger players. In 2011, Amgen  (NASDAQ: AMGN  ) bought BioVex for its oncolytic virus program.  Although the company later decided to halt a study of the OncoVEX virus, it demonstrated that there is some interest with the big boys. Eli Lilly (NYSE: LLY  ) , facing loss of revenue because of the expiration of several patents, is one company likely to be looking around for potential future winners.

Interest could be especially high if Reolysin proves effective in treating other types of cancer. With estimates of more than 1.6 million new diagnoses of cancer this year in the U.S. alone, the market for an effective treatment is massive.

While it is definitely a speculative play, Oncolytics could make huge gains for risk-takers. The potential is nothing to sneeze at.

Is Oncolytics potentially a good fit for Eli Lilly? Over the next two years, Lilly will see nearly $0.40 of every $1.00 in sales exposed to generic competition. How does the company plan to respond to this huge patent cliff? Better yet, what does this mean for investors? In a brand new premium report on Eli Lilly, The Motley Fool's top pharmaceuticals analyst delves into everything investors need to know about the stock today. Simply click here now to claim your copy.


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