Will Inovio's Deal With Roche Lead To A Cancer Blockbuster?

| About: Inovio Pharmaceuticals, (INO)


Inovio announced changes in its prostate cancer collaboration with Roche.

A Roche checkpoint modulator will likely to be added to Inovio's DNA vaccine.

Milestone payments should ease Inovio investors' painfully long wait for results.

DNA vaccine creator Inovio (NYSEMKT:INO) has had a volatile stock price during the last year. The 52-week high was $15.80 on February 24, 2014 and the 52-week low was $4.88 on August 20, 2013. Volatility is not unusual for development stage biotechnology companies that have a ways to go before getting FDA approval to commercialize their products.

I believe the key takeaway from Inovio's August 11, 2014 analyst call discussing Q2 results was its announcement of a reconfiguration of its deal with Roche (OTCQX:RHHBY). The announcement that a Phase III trial is planned for VGX-3100 for cervical precancers was to be expected sooner or later given the robust positive Phase II data.

Roche and Inovio had announced they would develop INO-5150, a vaccine for prostate cancer, back on September 10, 2013. The agreement, giving Roche exclusive rights, allowed for milestone payments of up to $412.5 million, including the initial payment of $10 million. "In addition, Inovio is entitled to receive up to double-digit tiered royalties on product sales."

INO-5150 has only been tested so far in animal studies. It targets two antigens associated with prostate cancer, PSMA (prostate-specific membrane antigen) and PSA (prostate-specific antigen). The animal studies showed the vaccine invoked "strong and robust T-cell immune responses."

It should be noted that back on April 4, 2008 Inovio reported positive Phase I/II (human) results from a different vaccine targeting prostate cancer, but did not follow up on those results. That vaccine had targeted CD4 and CD8. While that specific vaccine no longer appears to be under development, Inovio continues to work on CD4/CD8 targets as shown by its January 23, 2014 IL-33 immune activator study press release; that study was pre-clinical, using mice. Apparently by 2011 it had become apparent that INO-5150 was a better candidate for development.

The new prostate cancer trial design

Dr. J. Joseph Kim, CEO of Inovio noted several changes to the planned development by Roche on August 20th. Previously the first human trial was to target prostate cancer in chemotherapy naïve patients. The new plan is to treat castrate-resistant prostate cancer (in which anti-testosterone agents have lost effectiveness). But Roche also continues to look at possibly trying treatments on other populations.

The initial trial will be delayed until 2015, but will be a larger Phase 1a/1b program. Dr. Kim believes that the larger trial may shorten the overall timeline to commercialization. New prostate cancer antigens may be targeted; these were already discovered under a Roche-Inovio research collaboration. In addition this early trial will examine more parameters than had previously been planned.

The trial will likely be a combination trial with checkpoint modulators from Roche's pipeline, a new class of anti-cancer drugs that prevent cancers from informing the immune system that they are not really cancers. One drug in this class, Yervoy (Bristol-Myers Squibb's (NYSE:BMY) trademark for Ipilimumab), has been successfully commercially marketed, and many other CPMs are under development.

The study will also have multiple arms, likely to quickly assess which combinations of antigens and CPMs are most effective and have good safety profiles.

Dr. Kim described the collaboration as "an aggressive program to advance a powerful prostate cancer treatment."

The combination of an immune therapy and a CPM is widely thought to be the next big thing in cancer therapy, but as always in the complex world of human biology, getting the specifics down may take considerable effort.

But it will take a long time

Prostate cancer, especially advanced prostate cancer, has turned out to be a difficult target for the biotechnology industry. Dendreon's (NASDAQ:DNDN) Provenge immunotherapy has provided some relief for some patients, but has failed to gain enough traction in the commercial market to make Dendreon profitable. For castrate-resistant cancer, giving a few months of extra life to the median patient is still about the best that can be done. That leaves prostate cancer as a big commercial opportunity for a highly-effective therapy. A therapy that could achieve something like a 25% cure rate and a median life extension of two years would certainly become a blockbuster.

The clinical process for INO-5150 will be long. Advanced prostate cancer trials involve waiting for patients to die, so that the active arm can show, hopefully, a longer life expectancy than the placebo arm. In Dendreon's trial, for instance, median survival for the placebo arm was under 22 months. Given that patients cannot typically be enrolled instantaneously, and time is required between trials for analysis and FDA approval of study design, it would be very difficult to submit Phase III results in less than 6 years. However, if a large Phase II study were sufficiently successful, that data might be submitted for commercial approval parallel to a follow-up study equivalent to a Phase III trial, given the deadly nature of advanced prostate cancer and the unmet medical need.

Investors may not have to wait quite so long to see a return on an investment made now. Strong Phase II results, or even strong Phase I results, often cause a jump in a company's stock price and market capitalization.

In the meantime there are the milestone payments to Inovio from Roche, presuming the indicators remain good. Inovio ended Q2 with almost $109 million in cash. That should be sufficient for its development programs for a few years, excepting the VGX-3100 program for HPV-induced cervical precancers. Dr. Kim estimated that program would cost around $100 million. Currently, Inovio plans to advance that program independently, but would have to raise funds for it, which would likely mean dilution for currents stockholders. If the vaccine is commercialized without a partner, the $100 million will be money well spent.

I believe INO-5150 could have a major positive impact for Inovio stockholders, but not until 4 to 7 years from now, quite a long time horizon even for those of us who are long-term investors. I think in the shorter run, the VGX-3100 program will be more important. Milestone payments from INO-5150 and other partnerships will help. But the real value of Inovio is the DNA vaccine platform itself. As this platform continues to be proven and perfected, despite short-term volatility, the value of INO should increase.

Disclosure: The author is long INO. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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