Vical Investors Brace For Upcoming Ph III Data Catalyst

| About: Vical Incorporated (VICL)

Vical (NASDAQ: VICL) is set to report Phase III melanoma data for the cancer immunotherapy Allovectin® (velimogene aliplasmid) before the end of Q3 2013. This will be, by far, the biggest moment in the company's history as the data will make or break the clinical feasibility of the DNA plasmid technology that the company's pipeline is based on. Given that Allovectin succeeds in the Phase III stage 3 and 4 melanoma patient trial, it's expected that the company will see substantial appreciation as more investors develop interest in the technology itself. Conversely, it will be hard to keep investors' faith in the immunotherapy platform if the Phase III results are poor.

Vical has 86.4 M shares outstanding, and should have about $70 M of cash at the end of Q2 ($78 M at the end of Q1 with a quarterly cash burn rate of ~$8 M), or ~$.80 per share in cash. In the event that Allovectin posts positive results in Phase III, we can expect that the company will be able to raise additional capital at a higher valuation. Essentially, the upside to the stock depends on having the company hit its endpoints in the Phase III study: the response rate at 24 weeks, and overall survival. In particular, the strength of the overall survival benefit will be the major focus of Vical's investors due to its higher importance towards the later path to approval. This implies that the market's reaction to Vical's Phase III results will be primarily based on the overall survival endpoint. A good result should naturally result in substantial appreciation in VICL due to heightened perceptions of the rest of the company's pipeline.

Vical may also see appreciation from the future success of TransVax - a therapeutic vaccine for CMV that is partnered with Astellas under a double-digit royalty agreement. Astellas advanced TransVax into a Phase III in June of this year, but the results aren't expected until 2016. The 500 patient trial is expected to take some time (~2 years) to complete enrollment, and the primary endpoint is one-year survival post-transplant. Due to this, investors will have to be patient with the TransVax program, although the high costs of clinical development are being handled by Astellas.

Vical is also expecting to start a Phase I/II study for an HSV-2 therapeutic vaccine (Vaxfectin) before the end of 2013. Again, if Allovectin is successful, it seems that investors would establish a better valuation for this early-stage program since it's based on the same DNA vaccine technology that Allovectin is.

In conclusion, the expected Allovectin Phase III results should arrive before the end of the third quarter (Q3) of this year - or within the next two months. This is a huge milestone for Vical and its shareholders, with considerable upside (perhaps +200-300%) given that the data is solid. If the data is poor, Vical is likely to drop significantly (-70% or more).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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