Today Vical (VICL) reported top-line data from a Phase III trial of Allovectin-7 (A7) in patients with advanced melanoma. As we predicted in this article, the trial failed. A7 not only didn't meet the survival endpoint, but it also missed the primary endpoint of durable response rate. Shares of Vical fell 60% in early trading.
Unfortunately, Vical's CEO Vijay Samant didn't comment on the data on the company's conference call. He focused on the vaccine program and said the Phase III trial data would be published at a scientific conference. They are still analyzing the data.
We believe that although the initial assumptions might appear realistic based on a review of Phase II data coupled with the historical performance of DTIC and TMZ in advanced melanoma patients, final data didn't live up to expectations. Clinical trials are tricky and there are a lot of factors to watch out for. More often than not, the control arm performs better than expected and historical results don't apply. A careful review of the scientific literature reveals that advanced melanoma patients treated with DTIC live longer than the generally assumed 6-10 months and may have a higher RR than 10%. Previous therapy, performance status and stage of disease play a central role in the outcome of clinical trials.
Additionally, we are not particularly fond of their CMV program with Astellas. This program recently went into Phase 3 trials, however, Astellas has dragged their feet on the program. The Phase 2 trial completed in the fall of 2010 and in July 2011, Vical and Astellas signed a licensing agreement for the program. That stated "The companies expect to begin a multinational Phase 3 registration trial of TransVax™ (now renamed ASP0113) in hematopoietic stem cell transplant (HSCT) recipients as well as a Phase 2 trial in solid organ transplant (SOT) recipients in the first half of 2012". As you can see, the program is significantly behind schedule, so their must be some hesitation at Astellas. Analysts at Zack's also view the program as inferior to competition from competing agents at Chimerix (CMRX), Merck (MRK) and Viropharma (VPHM).
Single arm Phase II data are rarely reproduced in Phase III trials. A comparator arm is needed in order to assess the real effect of the drug. Pilot trials in early stage of development are often informative and provide some hints with regard to the activity and safety of an experimental drug. However, speculating on the outcome of a Phase III study on the basis of non-controlled previous data is way too risky and requires some bold assumptions that are frequently proven wrong. As we pointed out, A7 had very limited systemic activity and we still have to see the final data, but we suspect that bulls' arguments about lower dropout rates, patient selection and two cycles of therapy appear to be proven wrong.
Besides speculating on the chances of success of a particular therapy, it's always worth taking a look at its commercial potential. Early melanoma is treated with surgery whereas those patients with more advanced disease not amenable for resection are treated with systemic drugs such as Yervoy or Zelboraf, in part because a significant amount of patients with stage III/IV melanoma have metastases or micrometastases that make these options more appropriate. Being a drug given intratumorally, the potential group of patients that A7 would address would be those with melanoma limited to the skin and lymph nodes. If A7 had been successful and approved for marketing, it would have only addressed a small population of patients. Combination with immune checkpoint inhibitors seemed unlikely and would have needed additional clinical studies. This strategy would have impacted A7's pricing and revenue potential.
Letting emotions drive your investment thesis is not a wise idea. Sometimes investors can become obsessed with a stock and go all in on it. No matter how sure one is about a certain outcome, there can inevitably be something that was missed or wasn't public. Limit your risks and hedge accordingly.