Rodman renshaw report on onty

Oncothyreon Inc. (ONTY)
®
EARNINGS UPDATE Reni Benjamin, Ph.D.
212-430-1743
rbenjamin@rodm.com
LIFE SCIENCES

March 9, 2012 Market Outperform / Speculative Risk
4Q11 UPDATE – ONCOTHYREON DOWN BUT NOT OUT – PX-866 TO DRIVE VALUE IN 2012
4Q11 FINANCIAL RESULTS For 4Q11, Oncothyreon reported a net
MARKET DATA 3/8/2012
loss of $11.5 MM or $(0.27) per diluted share, lower than our net loss
Price $5.20 estimate of $12.4 MM or $(0.30) per share, as a result of the fair value of
Exchange NASDAQ the change in valuation of a warrant liability. At the end of 4Q11, the
Target Price $10.00 company had approximately $66 MM in cash and cash equivalents. The
52 Wk Hi - Low $11.59 - $3.13
total cash position should be sufficient, in our opinion, to fund operations
Market Cap(MM) $222.0
EV(MM) $167.3
through 2013.
Shares Out (MM) 42.7
Public Mkt Float (MM) 25.7 START TRIAL TO PROCEED TO FINAL ANALYSIS Recenlty, during a
Avg. Daily Vol 1,238,149
4Q11 earnings call, Oncothyreon’s partner, Merck KGaA (MRK.DE, Not
Short Interest 13,407,580
Rated), announced that the second interim analysis of the Phase 3
BALANCE SHEET METRICS Stimuvax START trial in Non-small Cell Lung Cancer (NSCLC) was
Cash (MM) $33.2 conducted by an independent Data Monitoring Committee (DMC). The
LTD (MM) $19.2 analysis revealed no issues, and the committee recommended that the
Total Debt/Capital NA trial continue to its final analysis with top-line data now expected in 2013
Cash/Share $1.29 (previously was the end of 2012). The second interim analysis was
Book Value(MM) NA scheduled when 529 or 75% of the events occurred During the 4Q11
Book Value/Share $0.85 call, Oncothyreon’s management emphasized that the outcome of the
EARNINGS DATA ($) second interim analysis was “good” as it also implies that the trial is not
futile.
FY - Dec 2011E 2012E 2013E
Q1 (Mar) (0.24) (0.18) --
Q2 (Jun) (0.91) (0.19) -- PX-866 – IN THE DRIVING SEAT The company provided an update on
Q3 (Sep) 0.22 (0.22) -- the four ongoing Phase 2 trials of PX-866: 1) a Phase 1/2 trial in
Q4 (Dec) (0.27) (0.25) -- combination with docetaxel in patients with NSCLC and head & neck
Full Year EPS (1.12) (0.84) --
cancer, 2) a Phase 1/2 trial in combination with Erbitux in colorectal and
Revenue (MM) 0.2 0.0 --
head & neck cancers, 3) an open-label Phase 2 trial evaluating PX-866
monotherapy in relapsed glioblastoma multiforme (GBM), and 4) a
VALUATION METRICS single-arm, open-label Phase 2 trial evaluating PX-866 monotherapy in
EV/Sales castrate-resistant prostate cancer (CRPC) patients naïve to
chemotherapy. The key events for 2012 include the availability of the
INDICES preliminary data from the GBM trial at the upcoming annual American
DJIA 12,907.9 Society of Clinical Oncology (ASCO) meeting as well as completion of
SP-500 1,365.9 enrollment and preliminary results from the randomized studies by year
NASDAQ 2,637.2 end 2012.
NBI 1,237.9
1 Year Price History INVESTMENT OPINION We are reiterating our Market Outperform
12 rating and 12-month price target of $10 per share for Oncothyreon. Our
10
8
price target is based on a 2015 discounted revenues and earnings per
6
4
share multiples analysis. Although the second interim analysis did not
Q1 Q2 Q3 Q1
2 live up to investor’s expectations, we continue to believe in the Stimuvax
2011 2012
16 story. The recent data highlights the therapeutic value of Stimuvax, and
12
8 also serves to validate Oncothyreon’s MUC1 based vaccine technology
4
0
platform. In addition to Stimuvax and ONT-10, Oncothyreon possesses a
Created by BlueMatrix broad oncology pipeline, which includes PX-866 (an irreversible inhibitor
of PI3K) and ONT-701 (a newly acquired pan Bcl-2 inhibitor).

For definitions and the distribution of analyst ratings, and other disclosures, please refer to pages 14 - 15 of this report.

Oncothyreon Inc. March 9, 2012

INVESTMENT SUMMARY
Oncothyreon, headquartered in Bellevue, WA and founded in 1985, is a biotechnology company focused on the
development of oncology drugs. The company’s lead program is Stimuvax, a therapeutic cancer vaccine targeting the
MUC-1 protein, which is licensed to Merck KGaA (MRK.DE, Not Rated). Importantly, Oncothyreon is entitled to $90 MM
in additional milestones and mid-double digit royalties on sales. Stimuvax is currently being evaluated in two Phase 3
trials for the treatment of non-small cell lung cancer: 1) the 1514-patient START trial and 2) the 420-patient INSPIRE
trial in Asian patients. The first interim look for the START trial occurred at YE10 and the DSMB permitted the trial to
continue per protocol. A second interim look occurred recently in 1Q12 after 529 or 75% of the events occurred, and did
not reveal any safety issues. Oncothyreon’s next most advanced development program is PX-866, an oral, irreversible,
small molecule inhibitor of PI3 kinase, which the company is evaluating in a broad Phase 2 program in oncology.
Oncothyreon is also developing ONT-10, a next generation therapeutic cancer vaccine candidate targeting MUC-1, for
which an IND was filed in 4Q11 and initiation of a Phase 1 trial is slated for 1H12. Finally, in September 2011,
Oncothyreon entered into a licensing agreement with the Sanford-Burnham Medical Research Institute for the preclinical
compound sabutoclax, a pan-inhibitor of Bcl-2, now referred to as ONT-701.

UPDATE ON STIMUVAX
Eagerly Awaited Second Interim Analysis Revealed No Surprises!

On March 6, 2012, during the 4Q11 earnings call, Merck KGaA, Oncothyreon’s partner, announced that the second
interim analysis of the Phase 3 Stimuvax START trial in Non-small Cell Lung Cancer (NSCLC) was conducted by an
independent Data Monitoring Committee (DMC). The analysis revealed no issues, and the trial will continue to its final
analysis as planned with top-line data now expected in 2013 (previously was the end of 2012). The second interim
analysis was scheduled when 529 or 75% of the events occurred, and of note, included 156 patients that were enrolled
after the hold on the trial was lifted. During the 4Q11 call, Oncothyreon’s management emphasized that the outcome of
the second interim analysis was “good” as it also implies that the trial is not futile. Recall, the Phase 3 START trial
recruited 1514 stage 3 NSCLC patients who achieved stable disease after at least two cycles of platinum-based radio-
chemotherapy. The START trial is 90% powered to detect a hazard ratio of 0.77 (1-sided p-value 0.025) corresponding
to a 6 month treatment effect with a 20-month overall survival assumed for the control arm. We do not see the outcome
of the second interim look at surprising, as we were expecting this and have previously cautioned investors to exercise
patience and wait until the interim results were announced.

STIMUVAX – A MUC1 CANCER VACCINE
Oncothyreon’s most advanced product candidate is Stimuvax (L-BLP25), which is being developed in partnership Merck
KGaA in Phase 3 trials. Stimuvax is a liposome-based vaccine technology derived from the human mucin 1 (MUC1)
protein and offers an innovative approach to treating NSCLC by targeting this antigen. MUC1 is a transmembrane
glycoprotein abundantly expressed in cancers of epithelial origin (Figure 1) and observed in approximately 75% of all
tumors. Of importance, MUC1 is over-expressed and aberrantly glycosylated in NSCLC tumors. Stimuvax is composed
of a 25 amino acid sequence of MUC1, plus a patented synthetic analog of lipid A, an immunoadjuvant, in a liposomal
formulation. The vaccine is designed to induce a cellular immune response and lead to immune rejection of tumor cells
in the lung that express the aberrantly glycosylated MUC1 antigen. In preclinical studies in mice, treatment with
Stimuvax was characterized by a proliferative T-cell response to the MUC1 antigen and the production of interferon-
gamma, indicative of a T-helper type 1 (Th1) response.

RODMAN & RENSHAW EQUITY RESEARCH 2


Figure 1: Tumor-Associated Mucin is Targeted by Stimuvax

Source: Oncothyreon Reports

Phase 3 START Trial

In January 2007, Oncothyreon and partner Merck KGaA initiated the Phase 3 START (Stimulating Targeted Antigenic
Responses To NSCLC) trial evaluating Stimuvax. The trial is a randomized, double-blind, placebo-controlled study
originally designed to enroll approximately 1300 second-line patients (enrollment completed with 1514 patients) with
unresectable stage 3 NSCLC exhibiting locoregional disease who achieved a response or stable disease after at least
two cycles of platinum-based radio-chemotherapy. Patients received weekly injections of Stimuvax for the first 8 weeks
of the study, followed by injections every 6 weeks thereafter until disease progression. The primary endpoint of the trial
is overall survival with time to symptom progression and time to disease progression as secondary endpoints. Of note,
the trial was granted a Special Protocol Assessment (SPA) by the FDA which could potentially accelerate approval of
Stimuvax should pre-specified clinical trial requirements be met.

In December 2010, the company announced that the first interim look triggered by 353 events was completed and the
Independent DMC recommended that the trial continue. The START trial is 90% powered to detect a hazard ratio of
0.77 (1-sided p-value 0.025) corresponding to a 6 month treatment effect with a 20-month overall survival assumed for
the control arm. Management has not disclosed the alpha spend associated with the first and second interim looks.

Phase 3 INSPIRE Trial

In December 2009, Merck KGaA initiated a second Phase 3 trial evaluating Stimuvax in Asian patients with advanced
NSCLC. The study is a randomized, double-blind, placebo-controlled trial enrolling approximately 420 patients with
unresectable stage 3 NSCLC who have demonstrated either stable disease or an objective response following primary
chemo-radiotherapy. The primary endpoint of the study is overall survival and the trial is enrolling patients in Taiwan,
China, Hong Kong, Singapore, and South Korea. Top-line data for the INSPIRE study is not anticipated until 2014.

Prior FDA Clinical Hold

In March 2010, the FDA placed the IND application for Stimuvax on hold and Merck KGaA/Oncothyreon temporarily
suspended the worldwide clinical trials of Stimuvax. The hold was issued to determine the cause of a single case of
encephalitis in an exploratory Phase 2 trial in multiple myeloma in which Stimuvax was used in combination with
repeated dosing of cyclophosphamide, as opposed to the single dose used in the Phase 3 solid tumor setting. During
the hold, both the Phase 3 NSCLC trials START and INSPIRE, as well as an additional trial in breast cancer called
STRIDE, were suspended. In June 2010, the FDA lifted the clinical hold on Stimuvax and START and INSPIRE were
re-started, along with a Phase 2 trial in NSCLC patients in Asia. However, the hold on the Phase 3 STRIDE trial in
breast cancer was not lifted and Oncothyreon and Merck KGaA decided to close that study. As a result of the hold, 156
patients in the START study may have received a sub-therapeutic dose of Stimuvax because the hold overlapped with
the initial 8 week portion of weekly dosing for these patients.



As a result, the FDA agreed to formally amend the SPA to permit the enrollment of an additional 156 patients to replace
the 156 patients who may have received sub-therapeutic dosing. Investors should be aware that this amendment
reflects a replacement of patients for the intent-to-treat analysis to maintain the prior powering assumptions for the study
and does not reflect an increase in the sample size. Of note, the 156 patients who may have been sub-therapeutically
dosed will remain as subjects in the safety database, but will not be counted towards the efficacy analysis.

Encouraging Results from a Phase 2B Trial

Oncothyreon reported results in April 2006 from a Phase 2 study evaluating Stimuvax as a treatment for NSCLC. In this
study, conducted in Canada and the UK, 171 patients with stage IIIB or IV NSCLC who had stable disease were
randomized to receive treatment with either subcutaneous Stimuvax 1000μg plus best supportive care (BSC) or BSC
alone. Study endpoints were safety and survival, as monitored at 3-month intervals for 12 months, with quality of life
and immune response as secondary endpoints. The results demonstrated a median overall survival of 17.4 months for
patients treated with Stimuvax plus BSC versus 13.3 months for patients treated with BSC alone, with a 2-year survival
rate of 43% for the Stimuvax arm versus 29% for the BSC arm (Figure 2). While the data were very promising, the
treatment effect for Stimuvax did not reach statistical significance (p=0.066). However, the study was putatively
adversely affected by variability in patient stratification. In addition, the control arm performed much better than would
ordinarily be expected, with a median survival time of 13 months observed in the study versus an expected 7 months
typically observed on BSC. The variance also can be partly explained by the higher than anticipated percentage of
stage IIIB locoregional (LR) and therefore less advanced patients enrolled. Among patients with Stage IIIB NSCLC LR
disease, a median survival of 30.3 months was observed in Stimuvax-treated patients, with an observed 2-year survival
rate of 60% for patients treated with Stimuvax versus 37% for patients in the BSC arm (p = 0.069).

Figure 2: Stimuvax is Most Effective in Stage IIIB Locoregional Patients
Cohort Stimuvax + BSC (n=88) BSC (n=83)
Overall:
Number of patients 88 83
Median overall survival time 17.4 months 13 months
2-yr survival rate 43.2% 28.9%

Stage IIIB Locoregional:
Number of patients 17 8
Median overall survival time 30.6 months 13.3 months
3-yr survival rate 49% 27%
Source: Rodman & Renshaw Research and Oncothyreon Reports

Although the difference was not statistically significant in this subset analysis, in our opinion these results were very
encouraging, and compare favorably to results from currently marketed therapies such as OSI Pharmaceuticals’ (OSIP,
Not Rated) Tarceva, which confers an improvement in survival of only 2 months. Additionally, more patients in the
Stimuvax arm demonstrated either a clinically meaningful improvement or had stable disease as compared with patients
in the BSC arm. These results prompted Oncothyreon and partner Merck KGaA to pursue further evaluation of
Stimuvax in Phase 3 trials.

ASH 2011: Stimuvax Induces Immune Response In Multiple Myeloma Patients

Phase 2 Stimuvax Trial in Multiple Myeloma
At the 2011 American Society of Hematology meeting, Oncothyreon’s partner Merck KGaA presented data from a
Phase 2 study of Stimuvax in patients with untreated asymptomatic multiple myeloma (MM) or with MM in a stable
response phase following anti-tumor therapy. The primary objective of the Phase 2 study was to examine the immune
response to Stimuvax. Patients were given Stimuvax weekly for 8 weeks, and then given a maintenance vaccination
every 6 weeks until disease progression. Patients were randomized to receive a single dose of cyclophosphamide 3
st
days prior to the 1 injection of Stimuvax (group A, n=17), or to receive multiple low dose cyclophosphamide treatments
throughout the Stimuvax treatment period (group B, n=17). The treatment duration was 54 weeks for group A vs. 87
weeks for group B.



The first immune responses were detected ≤9 weeks into the study, and MUC1 immune response/augmentation was
observed in 47% of patients in both group A and B. It is noteworthy that immune responses were similar between single
vs. multiple cyclophosphamide dosages. In vitro analysis of peripheral blood mononuclear cells (PBMC) revealed that
the majority of patients displayed a cytokine profile consistent with a type 1 immune response to MUC1 peptides.

Stimuvax Treatment Generates Long-Term Stabilization of Disease
Objective clinical responses were not observed according to Blade Criteria, which requires a ≥50% reduction in serum
myeloma (M) protein and ≥90% reduction of urine M protein on at least two tests for a minimum of 6 weeks. However, a
reduction in M protein concentration, when compared to pretreatment levels, was observed in 13 of the 29 evaluable
patients across both group A and B. A drop in M protein was observed in 9 out of 12 patients that did not receive prior
treatment, as compared to a decrease in M protein in 4 of 17 patients that received prior treatment. Overall, the
decrease in M protein concentration indicates that Stimuvax may have a potential clinical benefit in a subset of patients,
and the data also indicates that patients without prior treatment are most likely to respond to Stimuvax.

UPDATE ON NEXT GENERATION STIMUVAX - ONT-10

ONT-10 Moving Towards Phase 1 Trial
In 4Q11, Oncothyreon announced the submission of an Investigational New Drug (IND) application for ONT-10. ONT-
10, a follow-up to Stimuvax, is a fully synthetic liposomal glycolipopeptide cancer vaccine designed to treat cancers
over-expressing MUC1.
ONT-10 consists of a 43 amino acid glycoprotein sequence of MUC-1, combined with a synthetic form of PET (penta
erythritol)-lipid A, a toll like receptor 4 agonist designed to produce both a cellular and humoral response, and therefore
elicit a multi-dimensional attack on cancer cells. Following a successful review of the IND, Oncothyreon plans initiate an
ONT-10 Phase 1 trial in 1H12. Oncothyreon currently retains all the rights related to ONT-10, and Oncothyreon has
indicated an intention to seek partners for this program. Of note, Merck KGaA has a right of first negotiation with regard
to a future licensing agreement for ONT-10. Oncothyreon is developing a follow on therapeutic vaccine, ONT-10, a fully
synthetic MUC1-based liposomal glycolipopeptide cancer vaccine for the treatment of cancer. ONT-10 is composed of a
43 amino acid glyocoprotein sequence of the cancer-associated protein MUC-1. The ONT-10 adjuvant is a fully
synthetic form of PET (penta erythritol)-lipid A differing from the Stimuvax adjuvant in that PET-lipid A is designed to
produce both a cellular and humoral response and thus elicit a multi-pronged attack on cancer cells (Figure 3).

Figure 3: ONT-10 Stimulates Both Arms of the Immune System

Source: Oncothyreon

Because ONT-10 contains fragments derived from the peptide and the carbohydrate, it can stimulate the immune
system to attack multiple parts of the mucin protein, thus potentially stimulating a more robust immune response against
mucin.



MARKET POTENTIAL FOR STIMUVAX
We have created a market model to project future sales of Stimuvax for the treatment of NSCLC in the US and the EU
(Figure 4). Additional indications that Merck KGaA might pursue beyond NSCLC represent upside not included in our
model. With the potential for BLA and MAA filings for Stimuvax by Merck KGaA in 2013 and FDA and EMA approvals
by 2H13 and 1H14, respectively, our model assumes US and EU launches in 2H13 and 1H14, respectively. Of note, we
nd rd
believe that Stimuvax could significantly penetrate the 2 and 3 -line NSCLC settings, with some off-label penetration
st
possible in the 1 -line setting. In the US, we have modeled a net royalty rate of 12% to Oncothyreon which takes into
account a mid-single digit royalty payable by Oncothyreon to the original licensor of the MUC1 antigen, the patent for
which expires in 2018. The royalty rate is higher in the US to compensate for Oncothyreon’s relinquishing of the
company’s prior co-promotion interest in US and Canadian sales. In the EU, we have modeled a slightly lower royalty
rate of 9%. We believe that an annual cost of therapy could be priced at $50K in the US and somewhat lower, $35K, in
the EU. Of note, potential for additional revenues for patients receiving Stimuvax beyond the first year of therapy, which
would generate approximately $25K per patient, represents additional upside not included in our market model. To
account for additional commercial risk from potential competitors, we risk-adjust the total US and EU royalty revenues by
85%. Based on our model, we forecast risk-adjusted royalties to Oncothyreon of approximately $16.1 MM in the year of
launch, ramping up to $125.4 MM by 2015. Of note, we do not include the potential for Japanese sales in our market
model as the INSPIRE trial is only expected to readout top-line data in 2014.

Figure 4: Market Model for Stimuvax
2013 2014 2015
Non-Small Cell Lung Cancer (NSCLC), US
Prevalence 160,351 161,954 163,574
1st-Line Patients 112,246 113,368 114,502
2nd and 3rd-Line Patients 39,286 39,679 40,076
Penetration
1st-Line Patients 1% 6% 8%
2nd and 3rd-Line Patients 3% 8% 18%
Patient Numbers
1st-Line Patients 1,122 6,802 9,160
2nd and 3rd-Line Patients 982 3,174 7,214
Potential Number of NSCLC Patients on Stimuvax 2,105 9,976 16,374
Annual Cost of Therapy $ 50,000 $ 50,000 $ 50,000
Merck KGaA Stimuvax Sales in NSCLC, US $ 105,230 $ 498,818 $ 818,688
Royalties from Merck KGaA on Net Sales $ 12,628 $ 59,858 $ 98,243
Non-Small Cell Lung Cancer (NSCLC), EU
Prevalence 153,147 154,678 156,225
1st-Line Patients 107,203 108,275 109,358
2nd and 3rd-Line Patients 37,521 37,896 38,275
Penetration
1st-Line Patients 1% 6% 8%
2nd and 3rd-Line Patients 3% 8% 18%
Patient Numbers
1st-Line Patients 1,072 6,496 8,749
2nd and 3rd-Line Patients 938 3,032 6,890
Potential Number of NSCLC Patients on Stimuvax 2,010 9,528 15,638
Annual Cost of Therapy $ 35,000 $ 35,000 $ 35,000
Merck KGaA Stimuvax Sales in NSCLC, EU $ 70,352 $ 333,486 $ 547,334
Royalties from Merck KGaA on Net Sales, EU $ 6,332 $ 30,014 $ 49,260

Total Stimuvax Revenues to Merck KGaA $ 175,582 $ 832,304 $ 1,366,022
Total Royalties from Merck KGaA to ONTY $ 18,959 $ 89,872 $ 147,503
Total Risk-Adjusted Royalties from Merck KGaA to ONTY $ 16,115 $ 76,391 $ 125,377

Sources: Rodman & Renshaw Research



UPDATE ON PX-866 PI3-KINASE INHIBITOR PROGRAM

PX-866 – IN THE DRIVING SEAT

The company provided an update on the four ongoing Phase 2 trials of PX-866: 1) a Phase 1/2 trial in combination with
docetaxel in patients with NSCLC and head & neck cancer, 2) a Phase 1/2 trial in combination with Erbitux in colorectal
and head & neck cancers, 3) an open-label Phase 2 trial evaluating PX-866 monotherapy in relapsed glioblastoma
multiforme (GBM), and 4) a single-arm, open-label Phase 2 trial evaluating PX-866 monotherapy in castrate-resistant
prostate cancer (CRPC) patients naïve to chemotherapy. The key events for 2012 include the availability of the
preliminary data from the GBM trial at the upcoming annual American Society of Clinical Oncology (ASCO) meeting as
well as completion of enrollment and preliminary results from the randomized studies by year end 2012.
.
PX-866 DATA HIGHLIGHTED AT AACR-NCI-EORTC – A PIPELINE EMERGES
PX-866 + Docetaxel Shows Long Lasting Responses – Patients Still Being Treated
Recently, Oncothyreon presented data at AACR-NCI-EORTC International Conference on Molecular Targets and
Cancer Therapeutics from the Phase 1/2 combination trial of PX-866 and docetaxel. The Phase 1 portion of the trial
enrolled 43 patients with advanced cancer. Patients were treated at 3 different doses of daily PX-866 in combination
2
with 1 dose of docetaxel (75 mg/m every 3 weeks). The Phase 1 treatment schedule did not produce any dose limiting
toxicities, and the recommended daily dose of PX-866 in combination with docetaxel was determined to be 8 mg.
The combination therapy resulted in mainly Grade 1/2 adverse advents, but 4 patients reported treatment-related
serious adverse events. Of 28 patients eligible for response analysis, the best response was stable disease (n=21,
75%). Of note, 8 patients have received at least 7 treatment cycles and 20 patients currently remain in the trial. Also
noteworthy, the data indicated a trend towards clinical benefit in patients who contained a mutated PIK3CA gene.
In October 2011, Oncothyreon initiated the Phase 2 portion of the PX-866 trial in combination with docetaxel in patients
with advanced cancers. Based on the Phase 1 data, the recommended daily dose of PX-866 in combination with
docetaxel was determined to be 8 mg. Oncothyreon has indicated that the combination of PX-866 / docetaxel was well
tolerated and associated with disease control, with more complete data to be released at an upcoming scientific
meeting. The Phase 2 portion of the trial will be an open-label, randomized trial of anti-tumor activity and safety of the
recommend dose of PX-866 and docetaxel compared to docetaxel alone. The Phase 2 trial will examine two groups of
nd rd
patients for a total of 170 patients. Group 1 will consist of 2 or 3 line NSCLC patients. Group 2 will consist of patients
who have failed previous therapy for metastatic squamous cell carcinoma of the head and neck. Oncothyreon plans to
enroll 88 patients in Group 1 and 82 patients in Group 2. The primary endpoint of the Phase 2 portion of the trial is
progression free survival, and the secondary endpoints will examine objective response rate and overall survival.
PX-866 + Cetuximab Data Just as Compelling
Also at the AACR-NCI-EORTC meeting, Oncothyreon presented data from the Phase 1 portion of the Phase 1/2 trial of
PX-866 in combination with cetuximab (an EGFR inhibitor) in patients with either incurable metastatic colorectal
carcinoma or incurable squamous cell carcinoma of the head and neck. The trial enrolled 11 patients and treated
patients at 2 different doses of PX-866 in combination with a standard weekly dose of cetuximab. The Phase 1
treatment schedule did not produce any dose limiting toxicities, and the recommended daily dose of PX-866 in
combination with cetuximab was determined to be 8 mg. The combination therapy resulted in mainly Grade 1/2 adverse
advents, however, 2 patients reported treatment-related serious adverse events. Of the patients evaluated for response,
4 patients had a partial response (50%), 3 patients had stable disease (38%), and 1 patient had progressive disease
(13%), which corresponds to a disease control rate of 88%. Of note, 5 of the evaluated patients had prior treatment with
an EGFR inhibitor, of which, 1 patient had a partial response, 3 patients had stable disease, and 1 patient had
progressive disease, corresponding to a disease control rate of 80%. The trial has now moved to the Phase 2 portion,
and will examine the antitumor activity and safety of PX-866 in combination with cetuximab versus cetuximab alone.
The Phase 2 portion will evaluate PX-866 at the dose determined in Phase 1 (8 mg), in combination with Erbitux, versus
Erbitux alone, in colorectal and head & neck cancer patient’s naïve to Erbitux. The trial will randomize and evaluate up
to 160 patients in two 72-patient groups, 36 in each of the PX-866 plus Erbitux and 36 in the Erbitux-alone arms. The
first group of patients will enroll patients with metastatic colorectal cancer who have a history of progression or
recurrence following treatment with irinotecan and oxaliplatin containing regimens or who are intolerant to irinotecan,
and patients with KRAS mutations will be excluded. The second group will consist of patients with progressive,
recurrent or metastatic SCCHN. The primary endpoint of the Phase 2 part of the trial is ORR based on RECIST criteria
and secondary endpoints include PFS and OS, duration of response and disease control rate.



Phase 2 Trials in Collaboration with National Cancer Institute of Canada

In collaboration with the National Cancer Institute of Canada Clinical Trials Group, Oncothyreon initiated a third Phase 2
trial evaluating PX-866 monotherapy in relapsed glioblastoma in 1Q11. The study is an open-label, single-arm trial
evaluating a daily 8 mg oral dose of PX-866 in approximately 30 patients. The primary endpoint is to measure the
objective response and early progression rates as assessed by CT scan or MRI. Secondary endpoints include safety
and tolerability and determining the relationship between response and molecular markers in archival tissue from
glioblastoma patients. According to management, preliminary results and an abstract have been submitted for
presentation at the 2012 ASCO meeting.

A fourth, single-arm, open-label Phase 2 trial, in collaboration with the National Cancer Institute of Canada Clinical Trials
Group, began enrollment in 3Q11, and will evaluate PX-866 monotherapy in approximately 50 castrate-resistant
prostate cancer naïve to chemotherapy. The primary endpoint of the study is efficacy based on the degree of stable
disease observed following 12 weeks of PX-866 therapy. Secondary endpoints include safety, PSA response and
response rate, objective response rate, change in circulating tumor cell counts, and the exploration of biomarkers
predictive of response by analysis of archival prostate tumor tissue. According to clinicaltrials.gov, the study could
report preliminary results in 2H13.

PX-866 – A Future Revenue Generator

With the Stimuvax program being carried forward by Merck KGaA, Oncothyreon is focused internally on developing the
small molecule oncology drug candidate PX-866, an irreversible inhibitor of one of the most interesting and important
targets in cancer, PI3 kinase (PI3K). The PX-866 program is fully owned by Oncothyreon and positive data from this
program could make it an attractive candidate for a future partnership, given the demonstrated interest from Big Pharma
and Big Biotech in PI3K as a target.

The phosphatidylinositol-3 kinase PI3K/PTEN/Akt pathway is an important survival signaling pathway that is activated in
many types of human cancer. Oncothyreon’s candidate PI3K inhibitor PX-866 induces prolonged inhibition of tumor
PI3K signaling following both oral and intravenous administration and has been shown to have good in vivo anti-tumor
activity in ovarian cancer, lung cancer, and intracranial glioblastoma tumor models in animals. PX-866 is an irreversible
inhibitor with nanomolar potency that produces prolonged inhibition of the target and leads to suppression of
downstream proteins in several key cellular pathways (Figure 5), with the potential to translate into significant
pharmacokinetic and pharmacodynamic advantages in the clinic. Importantly, our analysis of R&D databases shows
that majority of other PI3K inhibitors in clinical development are reversible inhibitors, which would necessitate large
doses and more frequent administration as compared to PX-866.

Figure 5: PX-866 Inhibits PI3K


In preclinical studies examining human xenografts in mice, PX-866 inhibited growth of ovarian tumors as a single agent,
and showed increased activity in lung cancer when administered in combination with Iressa. Additionally, Phase 1
pharmacodynamic data indicated that PX-866 lowers PBMC p-mTOR (phosphorylated mTOR) in a dose dependent
manner as shown by data from patients in the 1 mg/day (cycles 1 & 2) and the 2 mg/day (cycle 1 only) dose cohorts
(Figure 6). Of note, mTor is a downstream protein in the PI3-kinase pathway, and these data demonstrate that PX-866
is inhibiting the phosphorylation of mTOR at the 2 mg dose. These data, albeit early, appear to indicate that the drug is
having the expected pharmacodynamic effects.



Figure 6: PX-866 Lowers PBMC p-mTOR from Patients in a Dose Dependent Fashion

Source: Poster presented at AACR, Nov, 2008.

Oncothyreon Licenses Sabutoclax – an Anti-Bcl-2 Compound
1
Sabutoclax is a pan-inhibitor of Bcl-2 and is thought to function by sensitizing tumor cells to apoptosis . Sabutoclax is
currently in preclinical development with Oncothyreon, and is now being referred to as ONT-701. Under the terms of the
sabutoclax license agreement, Oncothyreon made an upfront payment of $1.5 MM to Sanford-Burnham. Oncothyreon
may be required to pay an additional $26 MM upon certain clinical milestones and up to $25 MM based on certain net
sales targets in addition to low to mid single digit royalty on net sales. The management reported that the IND for ONT-
701 is expected to be filed in 2013.

ONCOTHYREON’S THERAPEUTIC PIPELINE PORTFOLIO
DRUG PHASE(S) INDICATIONS RIGHTS
Stimuvax 3 NSCLC Oncothyreon / Merck KGaA
Head & Neck, NSCLC, Prostate Cancer,
PX-866 2 Oncothyreon
Glioblastoma
Oncothyreon / Merck KGaA has right of first
ONT-10 1 NSCLC
negotiation
Oncothyreon / Sanford-Burnham Medical
ONT-701 Preclinical Under Review
Research Institute
Source: Oncothyreon

INVESTMENT PROS AND CONS
The major investment pros and cons, as we see them, are summarized in the following table:

POSITIVES NEGATIVES
Stimuvax is being evaluated in two Phase 3 trials in NSCLC
and has already been partnered with Merck KGaA, eliminating
Despite promising Phase 2 data, Stimuvax has not
clinical development costs from Oncothyreon’s budget while
demonstrated an overall survival benefit in a Phase 3 trial
retaining significant upside by virtue of high-single digit
royalties in the EU and mid-teens royalties in the US
Stimuvax addresses a significant unmet need in NSCLC as Company will likely require additional capital to fund
well as a substantial market opportunity operations beyond 2H13
The next most advanced program PX-866, targets a central
molecule implicated in cancer, PI3K, and is being broadly PX-866 will have to be tested in a large Phase 3 program and
evaluated in Phase 2 trials in head & neck, NSCLC, prostate will probably need a partner before entering Phase 3
cancer, glioblastoma
Source: Rodman & Renshaw Research

1
Dash R et. al. Apogossypol derivative BI-97C1 (Sabutoclax) targeting Mcl-1 sensitizes prostate cancer cells to mda-7/IL-24-mediated toxicity. Proc
Natl Acad Sci U S A. 2011 May 24;108(21):8785-90. Epub 2011 May 9.



INVESTMENT OPINION
We are reiterating our Market Outperform rating and 12-month price target of $10 per share for Oncothyreon. Our price
target is based on a 2015 discounted revenues and earnings per share multiples analysis. Although the second interim
analysis did not live up to investor’s expectations, we continue to believe in the Stimuvax story. The recent data
highlights the therapeutic value of Stimuvax, and also serves to validate Oncothyreon’s MUC1 based vaccine
technology platform. In addition to Stimuvax and ONT-10, Oncothyreon possesses a broad oncology pipeline, which
includes PX-866 (an irreversible inhibitor of PI3K) and ONT-701 (a newly acquired pan Bcl-2 inhibitor).

EXPECTED NEWSWORTHY EVENTS/MILESTONES FOR 2012 / 2013

Stimuvax
 Potential for Merck KGaA to report outcome of second interim look for Phase 3 START trial (1Q12)
- Potential for Merck KGaA to report top-line data from Phase 3 START trial (2013)
- Potential for Merck KGaA to file BLA and MAA for Stimuvax (2013)
- Potential for FDA to approve Stimuvax (2H13/2014)
- Potential for EMA to approve Stimuvax (2H13/2014)

PX-866
- Potential to report preliminary data from Phase 2 trial in relapsed glioblastoma by NCI of Canada (2Q12)
- Potential to report data from Phase 1/2 trial in combination with docetaxel in NSCLC and head & neck cancer
(4Q12)
- Potential to report data from Phase 1/2 trial in combination with Erbitux in colorectal and head & neck cancer
(4Q12)

ONT-10
- Potential to initiate Phase 1 trial (1H12)

ONT-701
- Potential to submit IND application (2013)

FINANCIALS
REVENUES

The potential for marketing and approval of Stimuvax represents the principal near-term revenue driver for Oncothyreon.
In spite of today’s announcement of second interim analysis by Merck KGaA that lowered expectations of investors, we
continue to maintain our projections for future Stimuvax sales and royalties. We believe that the BLA and MAA filings for
Stimuvax should occur in 2013 with a potential market launch in the US in late 2013 and the EU in 2014. In the US, we
have modeled a net royalty rate of 12% to Oncothyreon which takes into account a mid-single digit royalty payable by
Oncothyreon to the original licensor of the MUC1 antigen, the patent for which expires in 2018. The royalty rate is
higher in the US to compensate for Oncothyreon’s relinquishing of the company’s prior co-promotion interest in US and
Canadian sales. In the EU, we have modeled a slightly lower royalty rate of 9%. In addition to royalty income, we
model regulatory and commercial milestones for Stimuvax. Of note, the company has guided for splitting the additional
$90 MM in milestones from Merck KGaA roughly 1/3 for regulatory filing, 1/3 approval and 1/3 for sales-based
st nd
milestones, which are then split by 1 and 2 indication as well as by region. Additionally, the value of the milestones
st nd
for the 1 indication is greater than the 2 indication. Based on this guidance, in 2013 we are assuming $9 MM each for
BLA and MAA filing for NSCLC and in 2013 we are assuming $9 MM for FDA approval and $9 MM for EMA approval in
2014. We model additional sales-based milestones in 2014 and 2015 for the NSCLC indication. The potential to
partner PX-866 could generate additional licensing revenue and represent upside not reflected in our model. Based on
the above assumptions and the 2011 performance, our revenue estimates for 2012-2015 are $0.0 MM, $43.1 MM, $91.4
MM and $137.4 MM, respectively.



EXPENSES

COGS

As all manufacturing process development costs have been borne by Merck KGaA since December 18, 2008,
Oncothyreon has no further obligations to produce Stimuvax and no COGS are expected upon commercial launch.

R&D

In 4Q11, the company reported R&D expenses of $4.1 MM, lower than our estimate of $6.4 MM. We believe that
Oncothyreon will continue to advance PX-866 through Phase 2 and potentially Phase 3 trials, as well as further develop
ONT-10, using potential future royalty income generated from sales of Stimuvax. Going forward, our 2012 R&D
estimate is $24.7 MM.

SG&A

In 4Q11, the company reported SG&A expenses of $2.4 MM, significantly higher than our estimate of $1.0 MM. Based
on the guidance, our 2012 SG&A estimate is $9.9 MM.

NET INCOME (LOSS) AND EPS

For 4Q11, Oncothyreon reported a net loss of $11.5 MM or $(0.27) per diluted share, lower than our net loss estimate of
$12.4 MM or $(0.30) per share, as a result of change in valuation of a warrant liability. Based on the above assumptions
and future revenues and expenses, our 2012 net income (loss) estimate is $(36.2) MM or $(0.83) per share.

CASH

At the end of 4Q11, the company had approximately $66.4 MM in cash and cash equivalents, sufficient, in our opinion,
to fund operations into 2013. As per the 4Q11 conference call, management expects the 2012 cash burn to be in the
range of $30-$33 MM.

INVESTMENT RISKS
As with most investments in development-stage biopharmaceutical companies, especially in the small to mid-cap space,
investing in Oncothyreon shares involves significant clinical, regulatory, and commercial risks. We therefore
recommend Oncothyreon shares to risk-tolerant and experienced biotech and healthcare investors, as we believe that
the risk/reward offered by this stock would be more appropriate for that type of investor. Risks that are specific to
Oncothyreon include:

Clinical Risk: Although the Phase 2 trial evaluating Stimuvax showed promising results, the data were not statistically
significant and the Phase START trial could still fail. Additionally, while PX-866 has only recently entered Phase 2
evaluation and the data may not be sufficiently compelling to merit advancement into Phase 3 studies.

Regulatory Risk: The company’s clinical trial results may not be sufficiently compellingly to convince regulatory
agencies of clinical benefit relative to the side effect profile, leading to request for additional studies and/or non-approval
of the company’s products.

Commercialization Risk: The company’s products may not obtain the market penetration and sales forecasted by our
estimates or those of the company given the established marketplace for existing competitive products.

Financial Risk: The company may have insufficient funds to complete the development and commercialization strategy
of its pipeline products. With approximately $66.4 MM in cash, in our opinion Oncothyreon has sufficient resources to
fund operations through 2013. The company will likely need to seek additional dilutive financing via the capital markets.

Market Risk: Small-cap biotechnology stocks are inherently volatile and often illiquid. They are not appropriate for
investors with a low-risk profile.



ONCOTHYREON HISTORICAL INCOME STATEMENTS, FINANCIAL PROJECTIONS
Figures in thousands $ except per share data
2010 1Q11 2Q11 3Q11 4Q11 2011 2012 2013 2014 2015
Revenues
Licensing, Royalties and Other Revenue - - - - - - - 16,115 76,391 125,377
Licensing Revenue from Collaborative Agreements 18 145 - - 145 27,000 15,000 12,000
Total Revenues 18 145 - - - 145 - 43,115 91,391 137,377
Expenses
Cost of Sales - - - - - - - - - -
Research and Development 11,241 4,188 4,193 5,383 4,151 17,915 24,756 32,419 42,145 52,681
General, Administrative and Other 7,799 1,829 1,633 1,060 2,407 6,929 9,871 11,077 16,616 24,924
Depreciation/Amortization 462 - - 448 448 448 448
Total Operating expenses 19,502 6,017 5,826 6,443 6,558 24,699 35,075 43,944 59,209 78,053
Other Expenses
Interest Expense - (99) (175) (179) (178) (631) 1,321 1,321 881 -
Change in Fair Value of Warrant Liability (3,030) (1,458) (28,023) 16,633 (4,783) (17,631) - - - -
Investment and Other Income/expense (636) 313 51 (74) 15 305 (150) (53) (92) (184)
Total Expenses 15,836 (7,261) (33,973) 9,937 (11,504) (42,656) 36,246 45,212 59,997 77,869

Earnings before Taxes (15,818) (7,116) (33,973) 9,937 (11,504) (42,656) (36,246) (2,097) 31,394 59,508
Provision for Income Tax (200) - - - - - - - 6,279 11,902
Net Income (Loss) (15,618) (7,116) (33,973) 9,937 (11,504) (42,656) (36,246) (2,097) 25,115 47,607

Basic EPS (0.58) (0.24) (0.91) 0.24 (0.27) (1.12) (0.84) (0.05) 0.57 1.07
Diluted EPS (0.58) (0.24) (0.91) 0.22 (0.27) (1.12) (0.84) (0.05) 0.53 1.00

Basic shares 26,889 30,089 37,434 41,929 43,154 38,198 43,404 43,804 44,204 44,604
Diluted shares 26,889 30,089 37,434 44,850 43,154 38,198 43,404 43,804 47,125 47,525

Rodman & Renshaw, LLC Ren Benjamin, Ph.D.
212-430-1743

Source: Oncothyreon Reports and Rodman and Renshaw Research



ONCOTHYREON HISTORICAL BALANCE SHEET STATEMENTS
($ in million, except per-share amounts) 1Q11 2Q11 3Q11 4Q11
Cash and Cash Equivalents 11,008 51,036 11,000 66,407
Short-term Investments 17,990 15,796 48,616 -
Accounts Receivables 363 209 567 -
Government Grants Receivable - - - -
Notes Receivable - - - -
Prepaid Expenses 460 566 748 -
Total Current Assets 29,821 67,607 60,931 66,407
Long-term Investments 2,555 -
Plant and equipment, net 1,888 1,788 1,687 -
Lease deposits - - - -
Other Assets 306 287 269 -
Goodwill 2,117 2,117 2,117 -
Total Assets 34,132 71,799 67,559 71,351
Accounts Payable 939 639 465 -
Accrued Liabilities 865 1,102 943 -
Accrued compnesation 412 583 817 -
Current portion of notes payable 758 1,132 1,590 -
Current portion of deferred revenue - - - -
Current liabilities 2,974 3,456 3,815 -
Notes Payable 4,139 3,785 3,347 -
Deferred Revenue - - - -
Preferred Stock Redeemable 30 30 30 -
Deferred rent 400 412 618 -
Warrant Liability 14,441 42,464 23,988 -
Long term liabilities - - - 33,236
Total liabilities 21,984 50,147 31,798 -
Shareholders' Equity
Common Stock-par Value 353,851 353,851 353,851 -
Additional Paid in Capital 17,784 61,301 65,369 -
Accumulated Deficit (354,371) (388,344) (378,407) -
Accumulated Other Comprehensive Loss (5,116) (5,156) (5,052) -
Total Stockholders' Equity 12,148 21,652 35,761 33,433
Total Liabilities & Equity 34,132 71,799 67,559 33,433
* To be completed upon release of 10-K



RODMAN & RENSHAW RATING SYSTEM: Rodman & Renshaw employs a three tier rating system for evaluating both the potential
return and risk associated with owning common equity shares of rated firms. The expected return of any given equity is measured on a
RELATIVE basis of other companies in the same sector, as defined by First Call. The price objective is calculated to estimate the potential
movement in price a given equity could achieve given certain targets are met over a defined time horizon. Price objectives are subject to
exogenous factors including industry events and market volatility. The risk assessment evaluates the company specific risk and accounts
for the following factors, maturity of market, maturity of technology, maturity of firm, cash utilization, and valuation considerations.
Potential factors contributing to risk: relatively undefined market, new technologies, immature firm, high cash burn rates, intrinsic value
weighted toward future earnings or events.

RETURN ASSESSMENT
q
Market Outperform (Buy): The common stock of the company is expected to outperform a passive index comprised of all the
common stock of companies within the same sector, as defined by First Call.
q
Market Perform (Hold): The common stock of the company is expected to mimic the performance of a passive index comprised
of all the common stock of companies within the same sector, as defined by First Call.
q
Market Underperform (Sell): The common stock of the company is expected to underperform a passive index comprised of all
the common stock of companies within the same sector, as defined by First Call.
RISK ASSESSMENT
q
Speculative - The common stock risk level is significantly greater than market risk. The stock price of these equities is
exceptionally volatile.
q
Aggressive - The common stock risk level is materially higher than market level risk. The stock price is typically more volatile
than the general market.
q
Moderate - The common stock is moderately risky, or equivalent to stock market risk. The stock price volatility is typically in-line
with movements in the general market.

Rating and Price Target History for: Oncothyreon Inc. (ONTY) as of 03-08-2012

03/18/09 04/17/09 08/03/09 03/23/10 05/21/10 03/21/11 04/25/11
MO:$4 MO:$6 MO:$8 UR:$8 MO:$8 UR:NA MO:$10

12

9

6

3

0
Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1
2009 2010 2011 2012

Created by BlueMatrix

RATING SUMMARY
Distribution of Ratings Table
IB Serv./Past 12 Mos
Rating Count Percent Count Percent
Market Outperform(MO) 95 60.50% 15 15.79%
Market Perform(MP) 31 19.70% 3 9.68%
Market Underperform(MU) 6 3.80% 0 0.00%
Under Review(UR) 25 15.90% 4 16.00%
Total 157 100% 22 100%

Investment Banking Services include, but are not limited to, acting as a manager/co-manager in the underwriting or placement of
securities, acting as financial advisor, and/or providing corporate finance or capital markets-related services to a company or one of its


affiliates or subsidiaries within the past 12 months.

ADDITIONAL DISCLOSURES
Rodman & Renshaw, LLC. (the "Firm") is a member of FINRA and SIPC and a registered U.S. Broker-Dealer.

ANALYST CERTIFICATION
I, Reni Benjamin, Ph.D., hereby certify that the views expressed in this research report accurately reflect my personal views about the
subject company(ies) and its (their) securities.
None of the research analysts or the research analyst's household has a financial interest in the securities of Oncothyreon Inc. (including,
without limitation, any option, right, warrant, future, long or short position).

As of Jan 31 2012 neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of Oncothyreon
Inc..

Neither the research analyst nor the Firm has any material conflict of interest with Oncothyreon Inc., of which the research analyst knows
or has reason to know at the time of publication of this research report.
The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specific
investment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, a
substantial portion of which is derived from investment banking services.
The Firm or its affiliates did not receive compensation from Oncothyreon Inc. for any investment banking services within twelve months
before, but intends to seek compensation from the companies mentioned in this report for investment banking services within three
months, following publication of the research report.

Neither the research analyst nor any member of the research analyst's household nor the Firm serves as an officer, director or advisory
board member of Oncothyreon Inc..

The Firm does make a market in Oncothyreon Inc. securities as of the date of this research report.

Any opinions expressed herein are statements of our judgment as of the date of publication and are subject to change without notice.
Reproduction without written permission is prohibited. The closing prices of securities mentioned in this report are as of Mar 08 2012.
Additional information is available to clients upon written request. For complete research report on Oncothyreon Inc., please call (212)
356-0500.
Readers are advised that this analysis report is issued solely for informational purposes and is not to be construed as an offer to sell or
the solicitation of an offer to buy. The information contained herein is based on sources which we believe to be reliable but is not
guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. Past performance
is no guarantee of future results.


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