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There's nothing good about a failed Phase III study in biotechnology: It hurts the countless retail investors who have invested their hard-earned money into the future of a product that they may or may not understand. However, this is the nature of the beast, and is one reason that biotech is so appealing to many, as large gains are also possible with a successful study. With that said, the latest biotech failure in Vical (NASDAQ:VICL) was well advised, but where does this leave the rest of the melanoma field?
The Delivery Matters
On July 2, when Vical was trading over $3.30, I warned investors of the dangers present in its Phase III trial of Allovectin (A7). Also, I published an interview with Immunologist Dr. Rahul Jasuja who said that, "Vical has a low probability of success". Dr. Rahul's perspective was clinical, expressing his concern that Allovectin did not stimulate the immune system enough, and that there was not enough cellular uptake in the use of naked DNA. Therefore, Vical's problem was delivery and uptake, but not necessarily the DNA-based immunotherapy itself.
In many ways, Vical's Phase III study somewhat validates the potential of a much smaller, and much more speculative product that is in development: OncoSec's (NASDAQ:ONCS) ImmunoPulse. Personally, I have been very wary of jumping on this company's bandwagon, but the more I look at the data and the more research I perform, the more I also like the company's chances of success. Both companies use DNA therapeutics, but the delivery is much different. To explain, allow me to take you back to the interview with Immunologist Dr. Rahul, as he explains ImmunoPulse and its difference from Allovectin quite nicely:
"OncoSec Medical is developing a product that uses a well-known immunotherapy candidate, IL-12 protein, but it is too toxic to be given systemically. OncoSec delivers IL-12 DNA instead via electroporation. IL-12 DNA delivered locally in this manner for skin cancers is not toxic and its immune-modulatory potential in fighting tumors can be harnessed."
He added, "When I was in academia I worked in a lab where I would collect blood samples from patients who had been given IL-12 systemically and the treatment would have modest efficacy, but was extremely harsh and toxic as it was given systemically--it would make patients weak, tired, sick, and would create the worst flu-like symptoms. So the quality of life is lousy. Thus, the potential to deliver IL-12 locally has major implications if it shows efficacy and safety in current studies. Unlike Vical, OncoSec uses electroporation to deliver a plasmid DNA, IL-12 in this case. The electroporation enhances cellular uptake that can lead to improved efficacy."
I think the key takeaway from Dr. Rahul's message is that these products alone are very effective, but delivering them through the natural barriers of the body, and getting the foreign product to where the immune system identifies it can be the problem. In the end, this fact killed A7's hope, destroyed Vical's stock, but is also encouraging for OncoSec. But going back to my July 2 piece, it wasn't just delivery that I saw as a warning sign.
We Should Have Seen This Coming
In my previous post, I explained that the long wait for the Phase III readout should not be viewed as a positive. Vical's patient population had normal lactate dehydrogenase (LDH) levels, which also means that these were the healthiest of late-stage melanoma patients - the greatest likelihood to survive. By treating this patient group, it was going to be hard for Vical to prove that A7 increased survival; because in the end, the company's early data was not encouraging, especially compared to other products in development.
Vical has not yet released specific trial data, saying it would be presented at a scientific conference, and that data was still to be collected. With that said, below is a chart of the latest known data and how it compares with OncoSec's ImmunoPulse and Amgen's (NASDAQ:AMGN) TVEC.
As you can see, A7 had the lowest response in treating local tumors. Each of these three products are used to target specific tumors, but this chart shows why we should've expected an A7 failure. It shows that, compared to both ImmunoPulse and TVEC, Vical never stood a chance - it simply did not work well enough.
The potential market in treating advanced stages of melanoma could be worth billions. Prior to Vical's announced Phase III failure, Intrinsic Value Asset Management wrote an article that they probably wish could be removed. In the article, the author boasted that A7 could become one of the best-selling cancer drugs of all time, and that Vical could be worth more than $10 billion on the product's success. While the author's brave yet incorrect call reaped a lot of attention, the driving force behind such a call was the market for melanoma, which is a common and deadly form of skin cancer.
Vical is now out as a potential play in the melanoma market. However, investors should note that data has not been presented, and it will be very interesting to see how the company plays out its presentation at the noted scientific conference. Back on January 31 when Celsion Corporation (NASDAQ:CLSN) announced its failed ThermoDox clinical study, the company initially made no excuses. However, a couple of months later, the company then suddenly claimed that additional analysis proved a post-45 minute treatment to be effective. While this is most likely untrue, and is doubtful to materialize, biotechnology companies often find some subgroup within a failed study to spark investors' interest. I am curious to see how Vical responds, whether they simply acknowledge defeat, or if they tout some secondary analysis that produced "meaningful" results. If so, Vical could see a temporary pop - much like Celsion - but in the end I'd say their days are numbered.
As for Amgen, it is a massive $80 billion company. In a recent article, I think Amy Baldwin did a very nice job at highlighting the potential of both Amgen and OncoSec's products. In her piece, she explained how Amgen's recent Phase III data on TVEC, combined with other clinical studies and a potential acquisition of Onyx could make the company a leader in oncology. For a company that seeks growth, I think she's right, and that TVEC is a piece of a larger puzzle that could spark decent gains.
As for OncoSec, it is a small and speculative company, and most of its important clinical data will be announced later this year and early next year. The company has several clinical trials in progress, but advanced melanoma is its most lucrative indication. However, the company also operates while burning very little cash. Vical burned $5.75 million per quarter last year, while OncoSec burn rate of just $1.4 million per quarter.
I find it highly encouraging that Vical not once presenting data as strong as what we've seen with ImmunoPulse. I also find OncoSec's delivery to be noteworthy -- as described by Dr. Rahul-- and the fact that ImmunoPulse has also produced strong reactions in distant tumors. Essentially, this small nanocap stock that I've watched for the last year is looking significantly more attractive. Because after all, the elimination of one potential competitor makes the market that much larger. With that said, I don't think the battle to control this melanoma market is near over, but I do think that Vical's best days have come and gone.
Disclosure: I am long ONCS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.