A few weeks ago I published part 1 of "ICT-107: Into Perspective'" and had every intention of posting the second part in the days that followed. However, what I didn't account for was ImmunoCellular Therapeutics' (IMUC) CEO Dr. Manish Singh abruptly stepping down from his role. As a result, I have allowed some time for investors to reflect, speculate, and draw their own conclusions regarding the sudden departure of Dr. Singh and what it means for the future of this company. With that being said, a very promising vaccine with incredible data and a far superior manufacturing process with significant commercial opportunity still remains, and is now presenting substantial upside due to its current valuation.
In part 1 of my "ICT-107 Into Perspective" series, I looked at one of the most highly controversial aspects of any biotechnology company: its chances of approval (in regards to ICT-107). I explained how low the bar has been set, and explained that ICT-107 would have to experience one of the all-time worst in terms of meltdowns if it were to not gain approval. The reason is due to standard of care (SOC) being so mediocre, with current glioblastoma multiforme treatments in some ways showing no proof of measurable survival benefit. Yet despite the questionable benefit in currently approved treatments these drugs such as Temodar and Avastin are still being approved to treat glioblastoma multiforme due to a lack of better options and a desperation among regulators to find a drug that treats the disease, which is one of the most deadly forms of cancer.
As I explained in Part 1, IMUC is matching SOC survival (based on 100 patients) with only 16 patients, thus, suggesting that a larger trial will at least provide some clinical benefit (which is all that's needed for ICT-107 to be approved). And if interim results show a clinical benefit, even a couple months of an advantage over SOC, then the trial would almost certainly be stopped and ICT-107 would head straight to a meeting with the FDA. Therefore, in this article (Part 2), I will be looking at ImmunoCellular Therapeutics's ICT-107, and what would occur following its approval, its current valuation, along with manufacturing and potential sales, with the goal of utilizing some common sense (along with facts) to put things into perspective.
ICT-107 Sales Potential
Analysts project annual sales for ICT-107 to be around $500 million (read Zack's June 2012 IMUC research report which includes a $7 price target). However, ICT-107's pricing power and addressable market suggests sales potential that far exceeds $500 million. Look at other GBM drugs for comparison. Temodar, which is the only drug approved to treat newly diagnosed GBM, generates over $1 billion in sales annually. The chemotherapy agent only improves median overall survival by 2.5 months, whereas ICT-107 has been shown to improve survival by about 2 years (albeit in a single-center, uncontrolled, Phase 1 study). Avastin, which is approved for patients with recurrent GBM, earned over a mind-boggling $7 billion. However, Avastin is indicated for multiple cancers (e.g., colorectal, lung and renal), which aids in the large revenue. ICT-107 targets antigens that are expressed on several cancers other than GBM, such as melanoma and breast. So if the use for ICT-107 is expanded to other cancer indications then IMUC should return much larger sales than $500 million per year.
In a Phase 1 study with ICT-107 in newly diagnosed GBM patients, the median overall survival was 38.4 months. So, on average, patients lived slightly longer than three years, receiving about 11 doses of ICT-107 during that time period. At the moment, we don't know what the price for ICT-107 will be, but can look to other cancer treatments and account for what is normal in terms of pricing. Based on the price of other cancer immunotherapies (e.g., Dendreon's (DNDN) Provenge and Bristol-Myers Squibb's (BMY) Yervoy), ICT-107 should be priced somewhere between $10,000 and $20,000 per dose, and the addressable market for ICT-107 should be between 6,000 and 8,000 patients per year in the US (ICT-107's market share of patients who qualify). The treatment plan for administering ICT-107 could change, but at this time it will most likely follow a format similar to eight treatments in year one, four treatments in year two, two treatments in year three, and one treatment in year four, with each patient receiving between 10 and 16 total vaccinations. Therefore, if we take the median from the addressable market (7,000), estimated price per dose ($15,000), and number of total treatments per patient (13), then ICT-107 should reach peak sales of nearly $1.40 billion (maybe slightly more or less) and should exceed $500 million in sales within the second year following approval (in the U.S. alone). Also, we must keep in mind that most patients treated with ICT-107 will be first and second year after diagnosed, as the number of patients who live to see three or more years will decline; thus, potential revenue could be even higher with each patient receiving more vaccinations. And also, if approved, ICT-107 will most likely be tested on a number of different cancers with its multiple antigen targeted approach, and if approved could grow far beyond $1.4 billion in sales.
Aside from having exceptional revenue producing potential, IMUC also has lowered manufacturing expenses, which will result in ICT-107 being more profitable. The best way to explain the benefits of ICT-107's manufacturing process is to compare it with Dendreon's Provenge.
To manufacture Provenge patients must undergo a blood draw to harvest monocytes, which are shipped overnight to Dendreon's manufacturing facilities where they are matured into antigen presenting cells (APCs). The APCs are then activated and shipped overnight back to the patients. This whole process produces one dose of Provenge, which is injected back into the patient intravenously. Prostate cancer patients must undergo the entire process three times. As you might guess, Provenge's costs are considerably higher than typical drugs due to overnight shipping, manufacturing, storing, and other logistical costs. It has often been discussed that Provenge's sales must exceed $500 million annually to return a profit (which may change after closing its NJ facility).
Earlier this year, I spoke with IMUC's previous CEO, Dr. Manish Singh, and we discussed ICT-107's manufacturing process. Dr. Singh acknowledged that DNDN was instrumental in opening the doors for small companies like IMUC to develop next-generation cancer immunotherapies by building on DNDN's success. But he also recognized the manufacturing limitations that DNDN has faced with Provenge and highlighted IMUC's ability to overcome some of these difficulties.
"With regard to cost of goods, our cost to manufacture one shot of [ICT-107] vaccine will be under $1,000, while their [DNDN's] cost is 15-20 times higher at this point."
How is the cost to manufacture ICT-107 so much cheaper? Like Provenge, patients treated with ICT-107 must have their blood drawn to harvest monocytes, which are then transferred overnight to IMUC's manufacturing location. But this is where things become different. The monocytes are matured into dendritic cells (DCS) at a very high purity - as much as 90%. DCs are much more potent at activating the immune system to attack tumor cells. And because ICT-107 is higher in purity, and more potent, only one manufacturing run is need to produce 20 or more doses. This means that patients only do one blood draw, monocytes are only shipped once for manufacturing, and then returned to patients for use. Unlike Provenge, the doses can be stored in liquid nitrogen, so they can be used over the lifetime of the patient. ICT-107 is also administered by intradermal injection, which is much more convenient for both patients and physicians, rather than IV infusion. As a result of these previously mentioned advancements, the margins for ICT-107 are much more comparable to antibodies, such as Avastin.
The first question investors may ask is "if the manufacturing process can be made so cheap then why didn't Dendreon mature its monocytes to be more potent or realize its high expenses?" I believe the answer lies in the fact that Provenge was the first immunotherapy, and often the first of a new breed in biotechnology is plagued with several mistakes, or areas of its development that can be made better. Companies such as IMUC, among many others, have the luxury of learning from the success and failures of Provenge, and can attempt to find a more efficient process to go along with a better vaccine. Provenge is still an innovating vaccine, but it was the first, and other companies have the luxury of identifying Provenge's strengths and then attempting to correct its weaknesses. And I am certain, that Dendreon knows and wishes that it would have harvested monocytes with a higher purity, which would have limited Provenge's costs and Dendreon would most likely be viewed as an entirely different company today.
Analyst sales forecasts appear to be overly conservative. It's not unreasonable to assume that ICT-107 would eventually be marketed outside the US (although further down the road) if it received FDA approval, or that it could be approved for the treatment of several cancers. Some investors might also be ignoring the manufacturing improvements that IMUC has made and how profitable ICT-107 can be if approved. A little common sense tells me that IMUC shares are incredible cheap (as one of the best kept secrets in the industry), and with a market cap of just $100 million it's presenting incredible upside. Sure, it is just a Phase 2 product, but thanks to new legislation and the desperate need for an effective treatment, if interim data is strong in Q1 of next year (only four months away), then it could be on a fast track to approval and appreciate with a market cap to reflect its true sales potential. And considering its results (and likely results from interim data), there is little risk and a high reward, as preclinical companies Verastem (VSTM) trade with a market cap of $180 million (being several years behind IMUC in approval process), and OncoMed, another preclinical company, recently filed for a $115 million IPO, which means its market cap will be more than double of VSTM. Meanwhile, IMUC is further along in the approval process and is, in my opinion, the most transcendent technology in biotechnology, with proven clinical results and an efficient manufacturing process that could result in an FDA approval in the near future, if interim data from Phase 2 are even a fraction of its Phase 1 results.
Disclosure: I am long IMUC.