Is Vical in Romneyland?

John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The shocker of the 2012 campaign is Mitt Romney's mistaken assumption that he had a small lead to protect rather than a small gap to close.  This false premise caused Romney to close the campaign with the tactics that were designed not to lose rather than to win.

Recent activity in my largest holding, Vical (NASDAQ: VICL) has me wondering if I am also making counter-productive moves that will brand me a financial Romney, burning money on a false premise.

Vical's phase III melanoma immunotherapy, Allovectin 7 is not going to be reporting results by the end of 2012 as company CEO Vijay Samant had been leading investors to expect since the results were pushed back earlier this year. The holdup is too few deaths to calculate overall survival benefits.  Perhaps naiveté has caused me to conclude this indicates Allovectin is working.  But this trial, unlike the phase II has restrictions on inclusion of patients with liver or brain mets, so perhaps the healthier trial population is behind the delay as the control arm receiving Chemotherapy could be living longer.  Vical CEO Samant pushed back against this theory with news that the median age of trial enrollees is 4 years older than phase II and the incidence of stage 4 cancer is 63% vs 48% in the previous trial.  The implication is that trial design improvements allowing for continuing treatment that wasn't allowed in the phase II trial are the key difference.

Delay I can live with, denial on approval prospects for Allovectin 7 would be a crushing blow to my finances and ego.  That's why this assessment of Allovectin 7 from biotech columnist Adam Feuerstein was so upsetting. 

"The latest delay tells you the melanoma assumptions upon which Vical designed the phase III study are worthless. The study is a mess. If allovectin manages to demonstrate a survival benefit (miracles happen occasionally) it will be small and clinically meaningless."

Not a good way to start the day when you own nearly 60,000 shares of the company behind a worthless mess in need of a miracle.  Down goes Vical!  I still want more.  Crazy?  Not really, even a harsh critic like Feuerstein expects Vical to match Chemo.  Assuming he is right, which I do not, Allovectin's unblemished safety and tolerability makes it a better product than Chemo.

Assume you have two products that will give you the same survival time benefit, but one option will make your last days so miserable you will consider death a blessing and the other product is equal to getting an allergy shot, leaving some life for your last days. Which option do you choose?  Me too!

Moreover the Vical process for alerting the immune system to the cancerous invader has been approved and is working in dogs, sold by Merial under brand name of Oncept.  This may be what drew Fidelity, Federated, T-Rowe, Blackrock and many other large institutional investors to buy big on a small stock trading under $5.  Or it could have been the $35 million from Astellas with many millions more to come for the phase III immunotherapy against Cytomegalovirus in bone marrow and organ transplant recipients.  The safety advantage is well illustrated by the ability of immune system compromised patients to tolerate the Vical immunotherapy process.

Since CMV is the leading cause of birth defects and mental retardation, a vaccine against this condition, given to young women along with the HPV vaccine protecting them from cervical cancer has been estimated as a $2 billion annual market.  Vical says there are many big pharma companies interested in a partnership and it makes sense to me that they would be.  Moreover, success in the phase III with transplant patients, matching the phase II results that brought the big Astellas partnership, makes it a no-brainer that the Vical CMV vaccine will work on the immune system of pre-adolescent girls.

Vical has an adjuvant called Vaxfectin that has recently been licensed by Bristol Meyers Squibb (NYSE: BMY) but terms of the deal have not been announced because Vical is negotiating with other companies who also want to use the Vaxfectin adjuvant as a special ingredient in their biotech therapies.  The market currently gives this no value, and doubters like Feuerstein fail to mention the credibility a deal like this gives the Vical intellectual capital, but an adjuvant has the economic aspects of software, once the initial expense of discovery is covered it's all profit.

Vical's thought leadership status in the immunotheapy field is demonstrated by licensing agreements with many of the world's leading research universities, including the University of Washington, where jointly held patents for a Herpes vaccine are about to be turned into a formula for a phase I test.   This is just another nugget to pull another lucrative partnership to Vical.

My expectation for Vical is Allovectin performance that shows major survival benefits to Chemotherapy, but simply equaling Chemo on survival with incredible safety and tolerability benefits that have not been shown by any competing therapy, along with a cost structure that allows for profitable use in the companion animal market, is the margin of safety behind my large investment.


Prumble has a position in Vical. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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