A Look At ImmunoCellular Therapeutics Just Prior To Interim Data

It has been awhile since I covered ImmunoCellular Therapeutics (NYSEMKT:IMUC), a stock that I consider to be one of the more promising biotech stocks in the market. Over the last couple weeks we have seen the share price move higher in anticipation of positive interim results that are to be released sometime in Q1. While I have chosen to let the data speak for itself during the last four months, I would like to refresh investors as to why I am bullish, while also identifying the risks. With this you should hopefully be able to make a wiser investment decision on how to play the stock.


ImmunoCellular Therapeutics is a $130 million company that is currently conducting Phase 2 trials for a candidate to treat glioblastoma multiforme, ICT-107. The disease is among the most deadly of cancers, a disease that has a very grim life expectancy for those diagnosed. For the most part, patients live just one year after diagnosed with the disease. However, ImmunoCellular Therapeutics is considered to be a possible hope for patients.

ImmunoCellular Therapeutics is using an approach that was made famous by Dendreon (NASDAQ:DNDN); it is using the immune system to help fight the cancer. The idea behind this strategy is to target a specific antigen that is expressed on individual cancer cells; Dendreon's Provenge targets one of these antigens while ImmunoCellular Therapeutics is targeting six antigens. Therefore, it is believed that ICT-107 kills the cancer in multiple ways and also stops it from mutating into another form of cancer. Furthermore, the company's strategy of harvesting monocytes and maturing them into dendritic cells at a purity rate around 90% allows for a much more efficient manufacturing process, due to a single blood draw for the production capability of 20 or more shots of vaccine and long term storage capabilities - much different than Dendreon's 10% purity and its complex process.

In the company's Phase 1 trial, its vaccine put to shame the standard of care set by Merck's (NYSE:MRK) Temodar and Genentech's Avastin. The trial tested 16 patients, 8 of which were still alive after four years and 38% of the patients being progression free ((NYSE:PFS)) for 48-66 months. When you consider the seriousness of the disease you can see why investors are so optimistic.


Seeing as how standard of care for this disease is so low in its success, ImmunoCellular Therapeutics has a massive margin for error in its Phase 2 study. There is a huge misconception among investors that the company needs to duplicate its Phase 1 results in order to gain an approval. But truthfully, it doesn't need to achieve anywhere near its Phase 1 results to earn an approval, only a fraction to be a success.

Almost half of the patients treated with ICT-107 were alive after four years. Meanwhile most patients survive one year when treated with the standard of care (SOC). Temodar only extends life by 2.5 months and neither of Avastin's two previous studies showed any proof that the drug increased survival, yet both earned an approval. Therefore, if ICT-107 increases overall survival by just 5 months (an example), it would be 100% better than the best drug for the disease on the market and would most likely bypass Phase 3 studies.

Most analysts predict that peak sales for ICT-107 should be somewhere in the neighborhood of $800 million to $1 billion annually. Given the company's market cap of just $130 million this creates the potential for large gains if data is a success. Not to mention, there are many reasons to be optimistic: The company enrolled patients for the study at an incredible rate (showing an acceptance among physicians), the company has been awarded patents and intellectual property in abundance over the last year, and institutional ownership continues to blossom for the stock, insinuating that investors are acquiring shares prior to data.

In some ways the situation with ImmunoCellular Therapeutics is reminiscent of Sarepta Therapeutics (NASDAQ:SRPT). Sarepta Therapeutics was a small sub- $150-$200 million company last year, but strong Phase 2 data and now the possibility of an accelerated approval has taken its market cap to $730 million. This market capitalization is equal to its peak sales for its drug Eteplirsen. If ImmunoCellular Therapeutics shows a significant benefit over standard of care with its vaccine ICT-107, then we should expect a similar outcome as the market values a candidate with sales potential of $1 billion on a stock with a market capitalization of $130 million.


In my opinion, there are a few negatives to ImmunoCellular Therapeutics. The least significant is the company's financials. The company recently (October) completed a public offering and should have cash in excess of $25 million on its balance sheet. However, it is conducting a large study and costs will be greater; thus more financing will be necessary, although not in the immediate future.

Lastly, the company's Phase 1 trial was small, only 16 patients. Furthermore, the design of the study is different and is being conducted at numerous sites. While this is the obvious concern, there are two positives that arise from this negative: The margin of error is so great that ICT-107 needs but a small survival advantage to be a success, and there is no way that the company cherry picked patients because, in order to be diagnosed with glioblastoma multiforme, the cancer has to be at its most severe point. Therefore, the data does represent success on the right patient population. With that being said, it will be interesting to see how the drug fares in its study with 278 patients in 25 centers, which (might I add) is over-enrolled compared to original forecasts.

A Good Potential Play on Data

If you decide to invest in ImmunoCellular Therapeutics right now, then you are doing so with the understanding that this is a volatile stock (just look at last two weeks) and that its value will be forever changed one way or the other after reporting data. Perhaps another good way to play the stock on the positives of data is to invest in a company that is directly tied to it, one that is poised to benefit greatly with positive data, but will not lose anything if data is negative.

NeoStem (NBS) is a cell therapy company that manufactures ICT-107. The company operates a large manufacturing business called PCT that is doubling in size year-over-year. Last year I spoke with the CEO of NeoStem about potential revenue in the cell manufacturing space, and she used a "10% of all product revenue" as a rule-of-thumb. Therefore, if a product has peak sales potential of $1 billion then the manufacturer of the product would receive roughly $100 million.

There are some NeoStem investors who are worried that once ICT-107 is approved ImmunoCellular Therapeutics will decide to manufacture its own product. This fear is a result of Dendreon's actions, a company that used NeoStem to manufacture Provenge in clinical trials, but then decided to manufacture the vaccine itself after its approval. However, there are two reasons that this will not occur with ImmunoCellular Therapeutics: ImmunoCellular does not have as much cash and it's very expensive and difficult to create such facilities.

I think there will be a lot of companies that learn from Dendreon's mistakes in this regard. If the company had not built three facilities to manufacture its product then perhaps it would have more operating efficiency. A company such as NeoStem has large manufacturing capabilities to develop many drugs. Meanwhile a company such as Dendreon is using the expensive facilities to manufacture just one drug. ImmunoCellular Therapeutics fits into the same category - it only has one product.

It doesn't make sense that ImmunoCellular would decide to self-manufacture ICT-107 as its only product. And let's not forget, Dendreon was a $3.5 billion company after its approval. ImmunoCellular Therapeutics doesn't have the ability to raise the same level of cash to build a $50 million manufacturing facility with high-paid professionals because the company's value is less. ImmunoCellular, if data is positive, will be worried about a product launch, hiring a sales team, or finding a partner. Hence, positive data will be viewed as a huge positive, not only for ImmunoCellular but also NeoStem. ICT-107 is not Provenge - its manufacturing process is much cheaper and it will pay dividends to the fundamentals of NeoStem.


In my opinion ICT-107 will be successful in its Phase 2 trial. Far too often companies will take certain measures to help assure that early stage data is positive, such as one group having a worst progression of the disease. The phase 2 trial design is basically the gold standard of designs and will produce irrefutable data. And keep in mind that with glioblastoma multiforme there are no "good" cases, making its Phase 1 study fairly accurate. When you consider that the standard of care is almost nonexistent in efficacy you realize the company has a great shot at success, although not 100%.

Although I expect a positive study you cannot make a definitive case for a company that has only tested its drug on 16 patients. At first glance the stock looks incredibly cheap, with peak sales over $1 billion and strong data. But when you consider that it has been granted a $130 million market cap based on 16 patients, then you realize that the stock may be fairly valued based on known data. Either way, regardless of the outcome, ImmunoCellular Therapeutics will be one of the most closely watched companies of the next two months. It is very possible that it sees a large rally into data, and if data is positive then watch for three things: A massive increase in valuation, newfound level of interest among investors for immunotherapy, and significant interest from large pharma. Bottom line: Right now the stock looks very promising in seeing great gains in 2013, but be sure to properly asses and value the risks associated with the announcement of company-changing data.

Disclosure: I am long IMUC, DNDN, SRPT, NBS. 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.

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