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Oncothyreon's Stock Tanks on Delay of Cancer Drug Study Results

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Biotech's German-based partner Merck says study data for the cancer vaccine Stimuvax won't be released till 2013 instead of this year. Is the sell-off an overreaction?

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Cancer vaccine developer Oncothyreon (ONTY) shares are tanking on a delay of study results. The sell-off shows how high expectations rose in anticipation of a treatment that the company touted as being highly effective extending the lives of lung cancer patients.

Investors aren't happy about news that late-stage trial results for the cancer vaccine Stimuvax won't be out until next year. Oncothryeon's shares are down 38% to $5.24 in late-morning trading. The stock is still up more than 60% over the past year, however.

So is the sell-off warranted? The fact is that there's not a lot of information today to say that the study is going badly. The company and partner Merck (MRK.F) of Germany have only said that trial results will not be available until early next year rather than the second half of 2012. The companies are testing the vaccine to treat non-small cell lung cancer, the most common form of the disease. Stimuvax is designed to trigger a person's immune system to fight cancer.

The good news is that the trial wasn't stopped due to a lack of effectiveness, says CEO Robert Kirkman.

However, that's little comfort to investors. High expectations were set that this will be a very effective treatment that has a strong chance of winning approval. Had Stimuvax actually failed in the study, the drop in the company's shares would be far greater. In fact, there was some investor sentiment that Stimuvax would work so well that the study would be stopped early.

"All I know is that the trial is continuing," Kirkman said at a Cowen & Co. investor conference in Boston Tuesday morning. That's because the study is being conducted by an independent committee of researchers who don't divulge much information to the companies.

Kirkman reiterated that the vaccine appeared to be effective in early studies. He's made bullish statements on the therapy.

"Assuming the data are positive, I do think this will be a game-changing product for (lung cancer) patients," Kirkman recently told Minyanville.

Cowen analyst Simos Simeonidis says the longer trial doesn't necessarily signal that the vaccine will ultimately be a bust. He believes the stock will recover from today's decline as the company moves closer to the study data release. He recommends buying the stock -- even for investors who don't plan to hang around long enough to see the final trial results.

"We would see today's drop as a significant buying opportunity," the analyst says. "We would expect the stock to recover at least some, if not all, of today's losses as we get closer to release of the final data."

Twitter: @brettchase

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No positions in stocks mentioned.
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