"OncoGenex (NASDAQ:OGXI) is a development-stage biopharmaceutical company focused on new cancer therapies to address treatment resistance in cancer patients," says biotech expert John McCamant.

In his The Medical Technology Stock Letter, he explains, "The firm’s market cap is just under $225, which is extremely low for a cancer compound this far along in development." Here's his in-depth analysis.

"The company completed a reverse merger with Sonus Pharmaceuticals in August 2008 that resulted in OGXI becoming a publicly-traded company.

"Its lead product, OGX-011, has the potential to address very large market opportunities, including prostate and breast cancer.

"OGX-011 has completed five Phase 2 trials in prostate, breast and non-small cell lung cancer (NSCLC), generating positive data to date, and is poised to enter two Phase 3 studies in first and second-line hormone refractory prostate cancer (HRPC).

"This lead drug candidate was in-licensed from ISIS who retains roughly 30% of OGX-011’s economics.

"The company’s current valuation of $215 million is providing a unique opportunity for a company with a drug development candidate that has delivered impressive randomized Phase 2 data showing a survival benefit in a major cancer market.

"We expect a partnership by year end which would allow the company to quickly start their Phase 3 trials for OGX-011 as they have already obtained special protocol agreements (SPAs) for both trials from the FDA.

"OGX-011 reduces the production of the protein clusterin which is believed to help cancer cells survive when treated with chemotherapy and is known to be present in a large number of tumor types.

"Data from the Phase 2 program have shown that adding OGX-011 to chemotherapy provides a survival advantage vs. chemotherapy alone in 1st-line HRPC treatment, provides better pain palliation in 2nd-line HRPC therapy, and appears to benefit NSCLC patients.

"We estimate the potential opportunity in the HRPC market alone could exceed $1 billion in sales if the drug were ultimately approved for both first- and second-line treatment and that additional indications may provide an even larger market opportunity.

"The most important data produced to date for OGX-011 is the randomized survival data obtained from the first-line HRPC trial. The trial showed that median overall survival was 23.8 months in patients receiving OGXI-011+ docetaxel/prednisone vs. 16.9 months for patients receiving docetaxel/prednisone alone.

"We believe, given the randomized structure of the study and the strength of the data, that the likelihood of success of OGX-011 is higher than a typical drug entering Phase 3.

"In addition, OGX-011 appears to have impacted pain palliation. In previous studies, only 22%-35% patients receiving first-line docetaxel therapy reported a reduction in pain.

"By comparison, 61% of patients receiving OGX-011+docetaxel reported durable pain responses in a second-line setting. Pain palliation is the primary end-point agreed to by the FDA for OGXI’s pivotal Phase 3 trial.

"Overall, given the strength of the data from the Phase 2 study, we believe the likelihood of success is relatively high compared with an average cancer drug entering Phase 3.

"We believe that the current valuation of OGXI is based solely on the probability of OGX-011 being approved for HRPC. However, OGXI has also produced attractive results in a Phase 2 trial in NSCLC, another large indication that could open up an additional multi-billion dollar market to OGX-011.

"Additionally, OGXI has four compounds in the pipeline that could increase in value as they move through clinical development.

"The most advanced of the four compounds is HsP27, is a heat shock protein, that has generated impressive Phase 1 data. HsP27 may have utility in prostate, breast, lung, ovarian, bladder, pancreas, and multiple myeloma.

"As a result, we believe investors could benefit from upside above our forecasts given the potential to expand OGX-011 into additional indications and the opportunities that may develop as the pipeline matures.

"OGXI has repeatedly stated it intends to license OGX-011 to a larger pharmaceutical company for commercialization before initiating the Phase 3 program as they currently don’t have a large enough cash position to do it alone.

"This makes good sense for OGX-011 shareholders as raising the required capital would extensively dilute current shareholders and partnering lowers the risks for the commercialization path for the company.

"A major partnership that provides OGXI with substantial upfront and milestone payments ($200+ million), and a royalty on future sales would be a big win for shareholders.

"We believe that a partnership would be a significant catalyst for the stock as it would validate the drug development candidate and eliminate the funding concern for the Phase 3 development program.

"Once the company has finalized a partnership, we believe it will move quickly to begin enrolling patients in its Phase 3 trials. Management has negotiated Special Protocol Assessments (SPAs) from the FDA for both of the planned Phase 3 trials.

"We expect OGXI to ink an attractive partnership for OGX-011 by year-end which would allow them to start Phase 3 as soon as 1Q2010.  Both of these events should serve to drive OGXI’s share price higher. OGXI is a buy; our 18 month target for the stock is $75."