ImmunoCellular: Thoughts On Potential Outcomes For The Phase II Trial Of ICT-107

Investment Viewpoint

ImmunoCellular has extremely important data upcoming on the phase II trial of ICT-107 in newly diagnosed glioblastoma; topline results are anticipated in 4Q, 2013 or 1Q 2014. There are four biotechnology companies - ImmunoCellular Therapeutics (NYSEMKT:IMUC), Northwest Biotherapeutics (NASDAQ:NWBO), Agenus (NASDAQ:AGEN) and Celldex (CLDX) - that currently are in phase IIb and III trials of cancer vaccines for newly diagnosed or recurrent glioblastoma. Earlier phase I and II trials for each company have reported data that have been impressive, but have been largely dismissed by investors because the trials were small and not randomized. Critics also maintain that patients enrolled in these trials may have been healthier patients who were more likely to have positive outcomes than the broad glioblastoma population.

This 124 patient randomized trial will be the first high quality trial conduced in this disease setting with a cancer vaccine and will address the issues laid out by critics in a meaningful way. The phase I data for ICT-107 leads me to believe that there is a therapeutic effect that isn't just due to selection of patients. For example 3 of 16 patients or 19% were alive at five years which compares to about 4% for standard of care. Moreover median overall survival was 38.4 months which compares to 18.1 months which is generally accepted as the probable outcome with standard of care. The claim that patients in the phase I trial were more fully, surgically resected is the most frequent reason cited by critics for why ICT-107 results were so strong.

The most positive trial outcome would be that ICT-107 hits its primary endpoint and shows an 8.0 month increase in median overall survival versus the 18.1 months expected for the control arm; the effect on the stock would be profound. Generally a 4.0 to 5.0 month increase in an aggressive cancer like glioblastoma would be viewed as a major clinical advance. With the mild side effect profile seen with this drug, the clinical benefit would be magnified through greatly improved quality of life. I would not be surprised to see the stock quadruple to $10.00 with such data. In the event that the data is disappointing, there would be a devastating effect on the stock as its whole dendritic cell technology would come under question. I could see the stock below $0.50 in this outcome.

Based on the very strong results seen in phase I, I would be shocked if ICT-107 does not show some therapeutic benefit relative to control. Investors should consider that this may not be a binary event. There is the possibility that this trial could fail to reach its primary endpoint and still allow the company to define a path forward. For example, I think that a 4.0 month increase in median overall survival might be sufficiently encouraging to begin a phase III trial. It might also be possible to define sub-groups who benefit most and could be the basis for a phase III trial, though benefit for the broad population is not shown. Management has discussed such possibilities in each of the last two quarterly conference calls.

I have learned from long experience that predicting trial outcomes is hazardous. My best judgment is that the primary endpoint won't be reached but that the data will still warrant conducting a phase III trial. This is not a judgment based on objective data. I do buy into the thesis that the patients in phase I for ICT-107 were healthier than those who were enrolled in this phase II trial so that results will be less robust. I also think that the primary endpoint calling for an 8.0 months improvement in median overall survival (something like 26 months) is a very high hurdle to jump over.

I think that the initial reaction to an announcement that the trial failed to meet its primary endpoint would cause a swift decline in the stock. There are a substantial number of investors that I call the "Twitter traders" who write and think in terms of 140 characters and will not try to understand the entirety of the data. A major purpose of this note is to prepare readers for this possibility which I view as the most likely outcome; it could result in a major buying opportunity. Remember that my most likely case is that the trial will not reach its primary endpoint, but will show a path forward for doing a phase III trial. Of course, all of this is data dependent. This would be a strong positive for ImmunoCellular and the whole field of cancer vaccines. It would suggest that cancer vaccines are a new and viable option for treating cancer and that IMUC would be at the forefront of this.

I have seen some reports from a few investors who in contrast to the widespread pessimism of Wall Street types believe that the phase II data will be so good that the Company can file for regulatory approval. Current management has downplayed this possibility, but prior management had been more upbeat on the possibility. I hope that the trial does reach its primary endpoint as this would be good for patients and investors. However, in this event I take the point of view that the Company could probably not file for approval and would have to do a phase III trial.

The phase II trial was conducted at two different manufacturing sites and while the process at each was similar, it was different. The FDA in addition to requiring that clinical data be convincing for regulatory approval, requires that the manufacturing process used in clinical trials be the same as that which will be used for commercialization. This is to assure that the products are manufactured in a rigorous way that assures that the product proven effective in clinical trials is the same as that sold commercially. IMUC has not yet settled on the manufacturing process that will be used in phase III. Because of this, I believe that even in the event that the phase II trial meets its endpoint that IMUC will be required to do a new phase III trial in which the manufacturing process is validated.

So what does one do with the stock? In my most likely scenario, I see the trial as not reaching its primary endpoint and resulting in a sell off led by the Twitter traders. I own a small position in the stock on the basis that I think there is much greater chance of the trial reaching its primary endpoint and perhaps quadrupling if my judgment is correct as opposed to complete failure that ends the development of ICT-107 and destroys much of the stock price. I want some exposure to this possibility. I think that the most likely outcome is an in between scenario that points to a path forward, but could have a short-term negative effect due to the Twitter traders. This could be the point at which I might significantly increase my position in the stock. Obviously, this is dependent on the data.

Disclosure: I am long IMUC, NWBO, AGEN. 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.