ImmunoCellular CEO Steps Down But Leaves Company Well Positioned

This article is now exclusive for PRO subscribers.

I should start by saying that the news today of Dr. Manish Singh stepping down from ImmunoCellular Therapeutics (NYSEMKT:IMUC) is surprising to me and all who have followed the company. Dr. Singh has been critical to the success of IMUC in terms of building awareness around the company, raising capital and executing on its business plan. During his tenure, since February 2008, the company has gone from a $7 million market capitalization to over $100 million today. However, one needs to make a clear distinction that IMUC's success has been primarily driven by the clinical data and its product concept to target roots of the cancer. As the existing clinical geniuses and inventors at IMUC will continue to lead the execution of their clinical development, the value associated with its product platform and its lead product remains unchanged. And although we have no way of knowing for sure why he left, there is no doubt it is very possible that investors will speculate, regardless of his actual reason.

There are some people who believe that Dr. Singh was the creator of ICT-107. But in reality, the vaccine was developed by Dr. John Yu, a neurosurgeon who will remain as the Chairman of the Board and will take over as the company's interim CEO. As I said, Dr. Singh was the business side of the company, involved with raising capital and executing its business plan. On the other hand, Dr. John Yu, being an internationally renowned neurosurgeon, was the creator of ICT-107 and has also been named as one of America's top doctors, has written numerous articles in prestigious journals, and has spent his entire career focusing on the understanding and treatment of malignant and benign brain and spinal tumors. In addition to Dr. Yu, IMUC has a group of physicians that even large biotechnology companies would envy, which include prominent neurosurgeons, Dr. Keith Black and Dr. Zvi Ram, cancer immunologist Constantine Ioannides, and also oncologist Dr. George Peoples, who is a pioneer in the industry and known as one of the best oncologists in the country. Therefore, the company's all star team of who's who physicians remains intact, providing assurance that nothing has changed in regards to the clinical development and studies of the vaccine.

There is no doubt that speculation will be at an all-time high throughout the trading day on Tuesday, one way or the other. This is a significant development, and at this point there is no way of knowing why Dr. Singh has decided to step down. Some will immediately speculate that Dr. Singh is stepping down because the vaccine doesn't work. However, there has already been well documented proof that the vaccine does work, and it is still way too early to have any indication of the results from its Phase 2 trial. Therefore, there must be some other reason for Dr. Singh stepping down as CEO, although it's impossible to know if his reasons are personal, professional, or even health related. The fact of the matter is that we don't know.

At the end of the day, clinical studies are the only thing that matters. It doesn't matter who is leading the company or who steps down. If the clinical results are good, then ICT-107 will be approved and will save lives. The drug has still shown incredible survival, with 8 of the original 16 patients still alive after four years with treatment, and 6 of the 8 patients are showing no signs of disease progression. In an article I wrote last week, I compared ICT-107 with currently approved treatments for glioblastoma, which include Merck's (NYSE:MRK) Temodar and Genentech's (OTCQX:RHHBY) Avastin, and showed an incredibly wide margin of error on behalf of ICT-107 because it's far superior to current treatments. For this reason, it needs its Phase 2 results to yield only a small percentage of its Phase 1 success results, which will lead to ICT-107 being approved (and will almost certainly bypass Phase 3 testing).

Regardless of who's the CEO of IMUC, the company has a great candidate that is treating a disease in which regulators are desperate to find a more efficient therapy. It has a far superior manufacturing process to Dendreon's (NASDAQ:DNDN) Provenge, costing roughly 10% of Provenge to manufacture and supply the vaccine, and when compared to other new innovative companies such as Verastem (NASDAQ:VSTM) and OncoMed, it is light years ahead of both in the approval process and has legitimate clinical data to back its performance despite being valued much less than either VSTM or OncoMed.

The clinical data, low costs to manufacture ICT-107, and its undervalued price tag are second to none in the biotechnology arena. However, the loss of Dr. Singh could create short-term panic among shareholders. Unfortunately, this is the nature of a clinical stage biotechnology company, we simply don't how it will react to news. There is always some event or headline that causes massive movement in its stock. Earlier this year, it was clinical data, uplisting to the NYSE, being added to the Russell indexes, and the acquisition of intellectual property that drove the stock higher. But today, regardless of the reasons why, investors will speculate as to why Dr. Singh is stepping down, and will think the worst case scenario - that the vaccine doesn't work, despite the fact that it was just showcased on CNN with Dr. Sanjay Gupta, and just began its Phase 2 study, making it impossible to have any clear picture to the success of the vaccine in this larger trial.

For those of you who have never invested in a clinical stage biotechnology company, this should be a good lesson on the volatility that exists, unfortunately perhaps a costly lesson for those of you who were not long-term. The only thing that drives the valuation of a clinical stage biotech company is rumors and speculation. For example, anytime something that could be meaningful to a candidate's chances of approval is announced, the stock will go higher, or vise versa. It doesn't always mean that the market's reaction is correct. In fact, the reaction is often wrong, but this is the nature of a biotechnology stock.

It's short-term, extreme volatility and high risk, high reward, is why I've always said to never invest college funds in a small biotech company, regardless of how promising it may appear, because it only takes a very small $3,000-$5,000 investment to pay off in a big way. Just look at Jazz Pharmaceuticals (NASDAQ:JAZZ) (a stock that I owned) and its performance from $0.60 to $50.00 in just over three years: a $3,000 investment would be worth $250,000. I am not saying that IMUC falls in this category, rather giving a lesson on biotechnology investments, because although JAZZ investors have been heavily rewarded for their patience, they have had to endure many ups and downs before large returns were realized.

A good example of overreacting to headlines, and most likely an inaccurate trend, was with Oncothyreon (ONTY). The stock lost over 40% of its valuation after results from its Phase 3 trial of Stimuvax were postponed until 2013, after being expected in 2012. However, the important fact is that its results weren't actually postponed, but investors expected trial results in 2012. The trial is measuring survivability, and does not conclude until 708 deaths have occurred. Hence, the fact that the results are not expected until 2013 is good for the company, and gives Stimuvax a better chance of approval, with better results. However, investors didn't see this logic, as biotechnology trends usually occur in the blink of an eye before information can be processed, measured, or assessed, and when trading lower stop-loss orders are executed, and investors sell because they can't afford to lose money. This is why only a small amount should be used to invest in this space.

Of course there is a big difference between announcing Phase 3 data and having a CEO resign. The meaning for ONTY was obvious, but with IMUC, it's a definite head-scratcher as to why Dr. Singh would leave such a promising company. This is definitely a development in which I will seek answers and will probe until someone slips and provides some reason as to why Dr. Singh would leave. And although the possible reasons are wide, I do believe that it has nothing to do with the trial of ICT-107, as it's way too early to know the outcome. Thus, as the market reacts and either sells the stock or buys because of changes in the management, the fact remains that this is irrelevant, and is probably unworthy of any movement (either higher or lower) because in less than six months, we should be seeing interim results. And if results are even a fraction of Phase 1 data, then ICT-107 will be on the fast-track to approval and treating patients with this very deadly disease (glioblastoma multiforme), in which prominent physician, Dr. Sanjay Gupta, explained by saying, "Even with the best standard of care, no one beats this. Most patients die within 12 to 15 months of diagnosis." This statement further validates ICT-107, because patients are not only living longer than 12-15 months with ICT-107, but many are beating the disease and going on to live normal healthy lives. This fact, beyond anything else, is what really counts.

Disclosure: I am long IMUC, JAZZ, ONTY.

Additional disclosure: The material in this article is for informational purposes only and should not be used in making any investment decisions.