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Vical Zooms Into The Herpes Virus Niche

|Includes:MRK, SNY, Vical Incorporated (VICL)

Another milestone happened for Vical Incorporated(NASDAQ: VICL) this month. A few weeks ago, it disclosed to the public the beginning of its Phase ½ trial of Vaxfectin, a formulated therapeutic vaccine for herpes simplex virus (HSV-2). The trial will allow the company to pursue more studies to minimize the rate of HSV-2 in individuals with symptomatic genital herpes. Vice President of Vaccine Research, Larry Smith, emphasized that the therapeutic vaccine could be a good step in the prevention of virus shedding from the vaccine's ability to boost the immune system to keep HSV-2 at minimal levels.

For the past few years, the company has been slowly building its patented DNA delivery technologies for the prevention and treatment of these diseases. In fact, it has also announced the initiation of a Phase 2 trial of ASP0113 (formerly known as TransVax), a drug formulated with proprietary poloxamer-based delivery system and used for the Cytomegalovirus infection (CMV), a type of herpes virus. The company has teamed up with Astellas Pharma Global Development, a subsidiary of Astellas Pharma Inc. (TYO: 4503). It is noted that CMV is a virus that infects more than half of adults in the United States by age 40 and is widespread among developing nations.

Overall, Vical has submitted thirteen investigational new drug applications to proceed with clinical trials and holds four master files for manufacturing recombinant DNA products. As of present, it has completed more than thirty clinical trials conducted in 15 countries.

Patent Product Has Yet to Yield Results

In its third quarter fiscal 2013 results, the company announced that it had generated revenues of $4.6 million for the first nine months of the year. This is lower than the $15.2 million reported revenues in the prior year. Reportedly, revenues from the previous year included the recognition of the $10 million milestone payment from Astellas for progress with ASP0113. As a result, it incurred a net loss of $29 million, or loss per share of $0.33 for the same period. Note that the company also implemented a personnel-related restructuring expenses to the tune of $2.2 million, which also contributed to the company posting a net loss for the period.

Looking at analysts' forecasts, the company is forecast to post a loss per share of $0.41 this year. This translates to a decline of 52 percent compared to the same period last year. However, analysts believe that the company will improve next year with narrowing of its loss per share to $0.32.

While the company is in the red at the moment, the majority of the leading biopharmaceutical companies such as Merck & Co. (NYSE: MRK) and Sanofi SA (NYSE: SNY) are valued at least 30 times earnings. Hence, the current price levels imply that the company would only need to post earnings per share of $0.60 to justify the share price.

Given its aggressive stance on building its patent portfolio, it looks like there is a wide gap between the current price and its future value. As such, the stock looks like a multi-year bagger stock for the patient investor.

Stocks: VICL, MRK, SNY