In the last five years, shares of Vical Incorporated (VICL) have traded near flat. This breakeven return properly reflects how investors might classify the company at this point in time, with a little hesitation. The reason for uncertainty has nothing to do with whether or not the company is good or bad, but rather the fact that investors are awaiting important data from its Phase 3 Allovectin trial in the treatment of melanoma. Due to uncertainty, I am looking at the stock, comparing it to the competition, and trying to determine how investors should approach the stock ahead of data.
Here's the question: With a $350 million market cap, will Vical Incorporated become Celldex Therapeutics (CLDX) or Oncothyreon (ONTY)? Prior to Celldex Therapeutics' year of good data it was also a $300 million company, but with the success of late-stage studies it has since become a $900 million company. Oncothyreon was also a $300 million company, but has since become a $130 million company following the failure of its clinical study on Stimuvax.
Unfortunately, there is no way to determine whether or not a late-stage study will be successful prior to data results. Most $300-$400 million companies in clinical studies have positive data for earlier trials, but with Phase 3 studies being larger, randomized, or double-blinded makes positive results much more difficult to predict. Rightfully so, it becomes a gamble of sorts, and because of that gamble either large returns or losses occur pending the outcome.
Vical's Phase 3 trial using Allovectin to treat melanoma is by no means a slam-dunk, nor is it a guaranteed failure. With Allovectin there are many questions ... and answers, meaning it presents the same level of risk/reward as seen with other clinical-stage biotechnology names. Allovectin is a DNA-based immunotherapy that is injected directly into the infected area (lesion/tumor), which then creates an immune response. In theory it looks good, but because late-stage data is unknown, let's see how it stacks up against other companies developing similar therapeutics.
The One, Two, And Three of Melanoma Drug Development
A couple of weeks ago, Amgen (AMGN) released positive data for its Phase 3 study on TVEC in treating unresected stage 3B, 3C or 4 melanoma. Vical bull, Theodore Cohen, published an article reminding investors that Amgen did not reveal a statistical penalty and that only a trend on the overall survival secondary endpoint was presented. Therefore, the space is still wide open. And with many of the bigger names still in clinical trials, many of which use Vical's strategy of injecting a therapeutic into the tumor, it is even more difficult to determine potential success.
Based on what we currently know, I would say that Vical's Allovectin is the second or third place drug in development of three that I consider late-stage and promising. First, Amgen has the most data after announcing additional data with a 16% durable response rate at six months. This shows the length of time that a partial or complete response is observed, as a result of treatment. The 16% in Amgen's trial shows the percentage of patients that saw tumor shrinkage that lasted six months. While this may not sound encouraging, it should be noted that just 2% (durable response rate) was seen in the control group.
Amgen is shown as the clear leader for the mere fact that this study was observed in a Phase 3 trial of more than 400 patients, with two-thirds receiving TVEC injections. While these results bode well for the drug's chances of earning an FDA approval, its peak sales potential of about $800 million won't make or break the investment opportunity in shares of Amgen. The two other companies, which I consider equal, are Vical Incorporated and then OncoSec Medical (OTC:ONCS). The reason the two companies are "equal" to Amgen is because both present different levels of risk. Vical has the much larger market capitalization, larger study, but its results are inferior to OncoSec's early results. While the outcomes of studies often change with size and structure, it is difficult to call OncoSec the better of the two, although significantly more upside is present.
With the above statement in mind, in smaller studies, Vical's Allovectin reflected a durable response rate of 12% (worse than Amgen's TVEC), and OncoSec's ImmunoPulse reached 38% during the six-month period. Therefore, ImmunoPulse has had the better results (of all three), but keep in mind: its study has been the smallest. For those of you who don't know, ImmunoPulse is also injected directly into the tumor, but uses a proven immunotherapy, IL-12, in combination with a device that uses electricity to improve uptake and eliminate harmful side effects. IL-12 has often been considered highly effective, and OncoSec is capitalizing on it. By directing the agent to the tumor it can contain the spread of IL-12 to other areas of the body, hence limiting the side effects (in theory).
Adding Local And Distant Response to the Equation
In addition to seeing how patients respond at six months, the other factors are local and distant responses for the drugs. This is important and possibly a favorable comparison seeing as how all three drugs are injected directly into the tumor. The local and distant responses will measure the effect of the drugs on lesions that are both treated (local) and untreated (distant). The relevance is that tumors often can be eliminated or treated locally, but then grow back in distant areas, which prevents a therapeutic from being effective.
What's encouraging for Allovectin is that it and TVEC compare very similarly in terms of response. TVEC has a much better local response, indicating that it may be more stimulating to the immune system, but then both are very similar in indirectly treating distant tumors. ImmunoPulse's study was much smaller, just 24 patients, but was very promising nonetheless, and was due in part to the fact that ImmunoPulse is using such an effective immunotherapy (IL-12). Looking ahead for Allovectin, the key is to determine if the outcome can hold and remain consistent with the results from TVEC. For OncoSec, it has a much larger amount of wiggle room. It is a nano-cap stock, so it doesn't need to maintain data, but rather stay relative with the others in the space.
The Vical Waiting Game
Currently, investors are in a "wait-and-see" period, and are trying tirelessly to assess the known data for any hint of the trial's outcome. Back in November the company provided an "update," saying both that the data monitoring committee found the trial safe and that the targeted number of confirmed deaths had not yet been reached. Hence, this is a study that cannot complete until these "events" occur, which will then trigger survival and response data. Originally, these "events" were expected sometime in late 2012, but now with the date being pushed back to mid-2013 some believe it is an indication that results are better than expected.
While data may be better than expected, the lag time in reporting data could be from a number of different factors, including patient dropouts and patient start dates. With that said, there is no way to draw a conclusion based on this known information, as Oncothyreon had to reach a certain number of events, extended the release of data, and then still failed in clinical trials.
Vical's Current Investment Outlook
Hopefully, Vical Corporation is next in line to present data in the melanoma sweepstakes. My assumption is that nearly all of the company's valuation is tied into the results from this study. Vical does have an encouraging preclinical pipeline and numerous corporate and government collaborations, but has greatly diluted shares - last year it burnt $5.75 million per quarter. Now, the company has an accumulated deficit of $347 million (often hidden in the balance sheet), and desperately needs a successful study in order to maintain investor support and to begin the rapid development of its pipeline.
Another Investment Option
In my opinion, without us knowing the exact date of Vical's Phase 3 data, and with the company being so dependent upon the results from the study, I do think OncoSec is the better choice. I know it's a small company and I thoroughly understand the risks that are associated with this nano-cap, but so far to-date, there hasn't been any negative results from any of the company's studies.
In the last month alone the stock has gained 21%, and has a long history of trading higher into the announcements of data. While we do not know whether OncoSec will be successful in a large Phase 3 study, it is highly likely that the company will see continued success in its smaller Phase 2 study. The company is not linked to any one particular catalyst, although this year's metastatic melanoma data at ASCO will be closely monitored. The company also has catalysts including data, enrollment and new trials in metastatic melanoma, Merkel cell carcinoma, and in cutaneous T cell lymphoma with either ImmunoPulse or its other approach NeoPulse. Like I said, I am not making a "positive prediction" on Phase 3 results, but rather continued success in Phase 2, and if so, continued gains as seen in the past. Furthermore, the company does have enough cash to complete its melanoma study and to operate throughout this year, and because of all these factors I believe it presents a much greater risk/reward ratio as compared to the $340 million company Vical and its one-trial announcement.
If you choose to invest in Vical right now then you accept all of the risks associated with other biotechs just prior to data. It is possible that Vical becomes the next Celldex, Sarepta Therapeutics, or ACADIA Pharmaceuticals. However, an Oncothyreon is also possible. My suggestion when approaching any major data announcement is to either wait or to limit the risk with a very small position. Vical is simply not one of those slam-dunk companies with flawless data. There are many questions, many of which can be seen above, and should be approached with caution.