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In its press release Wednesday morning, November 7, 2012, Vical Incorporated (NASDAQ:VICL) announced that a comprehensive sweep of all active clinical sites in its Phase 3 Allovectin melanoma trial - done to eliminate any time lag in death event reporting - confirmed the target number of events had not been reached. While the corporation would not reveal the target number of death events, the release did indicate a moving average study of the monthly event rate which caused management to revise its projection for reaching the target number to mid-2013. The stock immediately sold off more than 10%, helped more than likely by the market's current focus on the US 'fiscal cliff' and renewed concerns over the European debt crisis. (See below for a Technical Analysis.)

If one thinks about the Phase 2 Allovectin study, which I previously discussed here, the delay should not come as a surprise. Consider the Kaplan-Meyer curves below (courtesy Vical Incorporated).

(click to enlarge)
The median overall survival was 18.8 months. Importantly, more than 60% of the subjects did not complete more than one treatment cycle, due to strict adherence to Response Evaluation Criteria in Solid Tumors, or RECIST, 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.

One of the major reasons, no doubt, the database for the Phase 3 study has not been locked has to do with the fact the study is using healthier, albeit older, patients. This can be seen in the slide below:

(click to enlarge)
Note, again, the relaxation in RECIST, allowing a patient's doctor to continue treatment if the patient is responding, even if a new lesion appears. Even though the narrowing of the treatment population may eventually translate into a limitation on those eligible for the treatment, Vical estimates that at least 30% of the some 30,000 new metastatic melanoma patients who present with the disease each year will be candidates for Allovectin treatment, providing a significant patient population for their product. Moreover - and this is important - recent mouse studies combining Allovectin with the mouse equivalent of Bristol-Myers' (NYSE:BMY) Yervoy demonstrated the two treatments are synergistic. According to Vical's president Vijay Samant, the presumption is that if this synergy is proven effective in clinical trials, Allovectin would be administered first to take maximum advantage of the patient's immune system. The concern would be that if Yervoy is administered first, it might compromise the patient's immune system to the point where Allovectin might not provide a significant, if any benefit.

The Phase 3 Allovectin trial enrolled January 2007-February 2010 with 390 patients: 260 in the treatment arm, and 130 in the placebo arm. Final treatments on the study were completed in February 2012. As Samant noted in the Wednesday conference call, BMY's Yervoy trial was not unblinded until 3 years after the last patient was enrolled. So, even unblinding VICL's trial in mid-2013 is aggressive (assuming the number of death events does indeed occur by then).

Given the delay in unblinding the study, Samant also noted the corporation was extending the schedule for independent adjudication of data for the primary endpoint (response rate at 24 weeks or more after randomization). This is being done to allow as thorough a review as possible. "The databases for both endpoints will remain blinded until the target number of death events is reached and results for both endpoints will be released simultaneously."

I have received a number in inquiries regarding why, with all of the safety boards conducted, the trial has not been stopped by now, especially given the Phase 2 results. The fact is, the safety board monitoring the Allovectin Phase 3 trial had access only to safety data, not efficacy data. They completed five interim safety analyses with no issues. As again reported Wednesday morning, they earlier had completed the final safety review and reported "no basis for any concern." Put another way, the board did not have the ability to halt the trial except for serious safety issues.

Unblinding a trial early is fraught with risks. We saw what can happen in that regard earlier this year when Johnson and Johnson (NYSE:JNJ) chose to unblind its pivotal pre-chemo Phase 3 trial for the company's prostate cancer drug Zytiga before the requisite number of death events had occurred. The study, known as COU-AA-302, was stopped early because independent monitors said the drug was clearly effective. But the decision to stop the trial early was questioned by many because the drug had not demonstrated a statistically significant survival advantage. Writing in Xconomy, Peter Droppert observed, "Unblinding a study introduces biases, which essentially turns a well-controlled randomized study into an observational one." According to Droppert, "…the early interim analysis of the COU-AA-302 trial is an opportunity missed to show an unequivocal survival advantage for abiraterone in the pre-chemo setting."

In thinking about the subject of early trial termination and whether or not it is unethical to continue giving patients a placebo-based treatment when faced with evidence a drug works, Droppert went on to say: "There is also the wider issue of evidence-based medicine and how you change the standard of care. Statistical boundaries are set in order to guide decision making, and in the totality of the circumstances, there may be enough data to suggest that abiraterone is effective in the pre-chemo setting, but why not wait a few more months for more definitive evidence?"

This is the very situation in which VICL finds itself today on the pivotal Phase 3 trial of Allovectin.

At this point, there is nothing one can do but wait for the Allovectin trial to run its course. This is a terrible business, that of conducting blinded FDA trials involving patients with terminal diseases, and then, having to wait for the requisite number of death events to occur. That patients even are willing to enter into such trials speaks not only to their desperation, but also, to their willingness to further the advance of science and medicine. Regardless of your position on VICL - long or short - there can be no lack of appreciation for what the patients in this and other pivotal studies go through.

Technical Analysis

The daily chart, courtesy StockChart.com, shows the stock breaking the 200-day moving average and dipping below $3.00 before rebounding and closing at $3.16 on the day. The Relative Strength is in oversold territory, and the MACD is negative.

Turning to the weekly technical data, the stock dipped briefly below the 200-week moving average at $3.14. The Relative Strength is heading down, and the MACD is negative. One senses the formation of a flag pattern defined by the highs and lows experienced since early 2011, with prices necking down to some undetermined point (now, perhaps, mid-2013) when the Phase 3 trial will be unblinded.

Source: Vical's Allovectin: Update On The Phase III Trial

Additional disclosure: I am long VICL and will not alter my position within 72 hours of the time of publication of this article. 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.