Vical... Roaring To Life

| About: Vical Incorporated (VICL)

Biotech has been strong all year, with stocks such as Medivation (NASDAQ:MDVN), Regeneron (NASDAQ:REGN), and Vertex (NASDAQ:VRTX) showing stunning returns to those who had the intestinal fortitude to stay the course. Now Vical (NASDAQ:VICL) has roared to life (see Technical Analysis below), closing at $4.43 on Friday, September 21, 2012, up from just below $2.80 last May. What's behind the move?

Based on my read of the Internet blogs, message board comments, and Wall Street analyst reports, there is no question investors of all stripes anticipate positive results from the company's pivotal Phase 3 Allovectin trial for metastatic melanoma. The trial, for which many thought the database would have been locked by now, continues, with the only ongoing action being that of data adjudication. (The last patients were treated in February 2012.) Missing is the achievement of the target number of 'death events' to formally bring the trial to a close.

We might get some idea as to why it has taken so long to achieve this critical number by looking at the results of the Phase 2 Allovectin trial data below (courtesy Vical Incorporated).

The median overall survival was 18.8 months. Unfortunately, more than 60% of the subjects did not complete more than one treatment cycle. This was because of the need to adhere strictly to the Response Evaluation Criteria in Solid Tumors, or RECIST, criteria, which were designed for chemotherapies, not immunotherapies such as Allovectin. One particular limitation here is that if a patient receiving the treatment develops a new lesion, however small it may be, that patient must leave the trial, even if the patient is benefitting from the therapy.

That said, 11.8% of the patients treated with Allovectin achieved an objective response. (Again, more than 60% of those in the Allovectin arm did not complete more than one treatment cycle.) But what is even more impressive to my mind is the fact that at the time these data were published, the median survival could not be determined for the responders. Put another way, less than half of the responders had died at the time the study follow-up was ended (80 months from trial inception).

The major reason, no doubt, the database for the Phase 3 study has not been locked has to do with the fact that the study is using healthier patients, something I discussed earlier. So, where do we stand? The first question scientists at Vical are asking is: "Are patients in the control arm living longer?" This was discussed in a recent presentation by Vical's president and CEO, Mr. Vijay Samant (figures courtesy Vical Incorporated).

With the use of dacarbazine (DTIC) or temozolomide (TMZ) in the control arm, a review of all available data shows patients given this treatment have a median overall survival in the range 6-11 months. Given that the Allovectin Phase 3 trial is using healthier patients and any therapies given patients in the control cohort post-progression from the trial have no expected synergies, the median overall survival in the control arm could certainly be greater than 11 months.

The next question to be asked is: "Are patients in the treatment arm living longer?"

Recall that the original assumption, based on the Phase 2 trial, was that the median overall survival for Allovectin survivors was 18.8 months. But if we consider only the healthier patients, that number now climbs to 22.5 months. And if we add in the factor related to having modifies the RECIST criteria-meaning patients in the treatment arm are getting more Allovectin-and consider the possible synergy with Allovectin of other therapies given patients in the treatment arm post-progression, then the median overall survival could be greater than 22.5 months.

The bottom line (literally!) is:

1. With respect to the Primary Endpoint of Response Rate, the Data Audit, which began 2 years after the last enrollment, is complete, and Data Adjudication is underway.

2. With respect to the Secondary Endpoint of Survival, we await the Target Death Events needed to determine the Survival Results.

As for now, this is the timeline going forward:

According to Mr. Samant's most recent comments to Wall Street, Vical still expects to announce results for both endpoints at the same time, in late 2012.

Given the above, one only can conclude the renewed interest in Vical and the strength we see in the issue is driven in large part by the Street's anticipation of positive results from the Phase 3 Allovectin trial. Canaccord Genuity, for example, recently initiated its coverage on Vical with a Buy rating and a price target of $7. I would expect others to follow in its footsteps or raise their targets if they already cover the company.

Technical Analysis

The Daily chart, courtesy, shows the stock moving aggressively higher since early August. In fact, the Relative Strength shows the stock to be in overbought territory while the MACD is positive. A small gap exists just below $3.90, but only time will tell whether or not it represents a breakaway gap.

Turning to the Weekly technical data, the stock broke out to the upside of what appears to have been a long-term flag pattern developing since early 2011. Relative Strength is approaching oversold territory while the MACD continues to be positive.

Disclosure: I am long VICL. 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.

Additional disclosure: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. It is up to investors to make the correct decision after necessary research. Investing includes risks, including loss of principal.

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