With Today's Licensing Deal, It's Time To Buy Vical Incorporated Before It's Too Late

| About: Vical Incorporated (VICL)

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Today, shares of small cap vaccine maker Vical Incorporated (NASDAQ:VICL) shot higher on the news of a licensing deal with Bristol-Myers Squibb (NYSE:BMY). Shares shot up 14% in pre-market trading and are currently now up only 6% at $4.00 per share. Shares have traded between $2.22 and $4.82 over the last 52 weeks.

Bristol-Myers Squibb obtained the worldwide non-exclusive rights to use Vical's patented platform DNA technology. The deal also includes the use of Vical's Vaxfectin that will also be made for Bristol-Myers Squibb. No financial terms of the deal were disclosed, but it will likely include an upfront payment with additional revenue earned from the Vaxfectin.

The illustration above show's Vical's proprietary plasmid DNA technology. The DNA is injected into tissue and produces encoded protein. This technology from Vical can be used in infectious disease vaccines, cancer vaccines, and cardiovascular disorders. The approval of several vaccine drugs recently, including Dendreon's (NASDAQ:DNDN) Provenge, has brought additional vaccine companies like Vical into the spotlight.

Aside from today's licensing partnership, Vical could see a blockbuster 2012 with the results from its lead drug to come out any time. Allovectin is Vical's melanoma treatment that is currently in a 900 patient Phase III trial. The company's melanoma treatment will compete with Yervoy, a melanoma treatment from Bristol-Myers Squibb. Analysts see Yervoy hitting over $1.5 billion peak sales by 2020. A mouse study has been done showing the benefit of Allovectin versus Yervoy.

The company obtained orphan drug and fast track status for its treatment. Vical has maintained the United States and European Union rights to the drug, which will pay off big for shareholders. Vical has sold the rights to Allovectin in Asia to AnGes. AnGes has paid for several trials for Allovectin and will pay Vical a low double digit royalty once approved.

Allovectin had an 18 month survival rate in a previous study, versus eleven months for the control arm. New results have led the company to believe that the new survival rate could be boosted to 22.5 months based on Phase III trial results. The company is waiting until it hits its "death rate" to release the results of the study.

Other treatments in Vical's pipeline include:

  • TransVax CMV Vaccine - Vical was paid $130 million upfront by Astellas for the worldwide license of the vaccine. Vical will receive milestone payments and also see a double digit royalty on net sales of the treatment.
  • HSV-2 vaccine - will advance to Phase I trials in 2013

Vical does not currently generate any significant revenue. The company had $97 million in cash at the end of the second quarter. The expected cash burn rate for fiscal 2012 is $17-$22 million. Vical remains debt free and has partners who fund many of the company's trials. In the second quarter, Vical saw revenue of $1.6 million, a 100% increase from the $800,000 reported the year before. The significant increase was mainly due to reimbursement payments from Astellas (OTCPK:ALPMF) for trials. Vical reported a net loss of $0.09 per share, an improvement on the prior year's loss of $0.12 per share.

I would also like to recommend Theodore Cohen's recent Seeking Alpha article on Vical. Cohen had an interview with Vical's Chief Executive Officer Vijay B. Samant that highlighted the company's pipeline and raised some interesting questions.

Today's share price jump is only the beginning. In fact, now may be the ultimate time to buy into Vical as analysts may pick up on the Bristol-Myers move and recommend buying or re-analyze earnings estimates. With pending phase three results due by the end of 2012 or early 2013, I would recommend to begin a position now. When the company announces Phase III trial results, expect a big pop in the share price. Yervoy is a potential billion dollar drug for Bristol Myers. If Allovectin can have similar success it will transform this small $350 million company.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in VICL over the next 72 hours. 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.