More Biotech Riches …

By Travis Johnson, Stock Gumshoe, March 31, 2009

I gave you a taste yesterday of the new stock teaser from Hot Stock Confidential.

Now, half of that taste was probably wrong, it turns out — read this comment for a better solution than Dendreon for the “active immunity” cancer fighter, (which, you’ll recall, was clearly a guess on my part). I stand by my pick of Curis for the second stock, and I’m sure I can get into the third stock here, but the first one is probably Micromet, not Dendreon. Oh, well.

But bygones shall be bygones … and we have another teaser to unravel. Here are the clues:

Company C: DNA-based therapy

“This time the technology is deceptively simple to explain…

“Company C has a patented core DNA delivery technology that allows them to directly address specific diseases.

“This technology provides an immediate delivery of proteins such as those created to stimulate an immune response or to suppress a malignant growth.

“Their products cost less to manufacture.

“The treatment is elemental and can be performed on outpatient basis.

“There are no viral components in their treatments that could cause infection, immune responses or permanent changes to targeted cell’s genetic structure….

“This tiny company has collaboration agreements with the likes of Merck, Sanofi-Aventis Group, and Aqua Health Ltd., among others.

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“And one of its products is already in a Phase III clinical trial for patients with metastic melanoma.

“There are also Phase I and II trials for other promising applications for this and other Company C products.

“This company is truly on the verge of breaking out—and, unbelievably, it’s trading under $3 a share!”

OK — so this one, it turns out, is Vical (VICL)

And like most of the market, it is not exactly at its 52-week high — shares are a bit under $2, not just under $3, but they have been in the $2+change area in the past month or so.

And their technology?

“The key discovery leading to our patented core DNA delivery technology was that muscle tissues can take up polynucleotide genetic material, such as DNA or RNA, directly, without the use of viral components or other delivery vehicles, and subsequently express the proteins encoded by the genetic material for periods ranging from weeks to more than a year.”

I know, I know “Duh,” right? Apparently they’re letting people patent just anything lately.

But no, in all seriousness, I don’t really understand much of the science — their website is quite lovely and goes into some detail, so it’s worth a cruise if you’d like to explore the world of DNA delivery technology — they do have partnerships with Aqua Health, Sanofi-Aventis Group and Merck, as teased.

The main product of this technology at the moment appears to be, again, something of a “vaccine” — again, not a preventive one, but an “active immunity” platform. You can see their product pipeline here, there are a few that are actually in clinical trials, including the one teased for metastatic melanoma (Allovectin-7) and others for non-cancer targets, including a flu pandemic vaccine and a therapeutic vaccine for cytomegalovirus. I have no idea what a “cytomegalovirus” is, but it sounds pretty terrifying — didn’t Godzilla beat up one of those once?

They do have “orphan drug status” for that cytomegalovirus therapy, FYI, which always helps (less competition and a quicker turnaround for drugs that tackle rare and sometimes otherwise “unprofitable” diseases). Phase II results from this one are expected to be released by this Summer, probably in June.

So again, the Gumshoe exposes his ignorance of all things biotechnicalific — but I can tell you that this is an interesting company with a pretty cool and patented technology for immunotherapeutics, it’s low-priced, it has several larger collaborative partners, and they don’t appear to be in a cash crunch at the moment — though that might change before too long. They had negative cash flow of about $30 million last year, and that’s pretty close to the same amount of cash as they have at hand now — so one would assume that they either need to partner a couple more of their drugs or raise some money in the next year or so, but that’s just a superficial assumption without looking at the details. They have been cutting costs and trying to be efficient, and they are small and have a fairly low “overhead”, but they still have to make a profit at some point. The hope seems to be that their lead drug, Allovectin, gets approved this year and is big enough to help them break even within a couple years.

There are a few analysts who cover the firm, and they think Vical will continue to lose plenty of money, but that revenue will be climbing this year and next — so, as with so many companies of this size, I guess investors at this point would have to assume either that this technology will continue to develop and spread across many lines of therapeutics, growing their cashflow gradually with more partnerships piled on over time, with probably additional dilutive stock offerings to keep them in business, or that one of their drugs in the clinic — hopefully Allovectin, since its furthest along — becomes a bit of a breakthrough and they quickly jump to profitability or get bought out. At least one analyst thinks they’ll have to raise cash under some duress later this year, diluting shareholders, but that revenue could climb significantly in 2010 and 2011 as approvals lead to sales.

So is it “truly on the verge of breaking out,” as the Hot Stock Confidential folks tease? Well, that’s your call.

If you’ve got a feel for what will likely happen, or any other ken to share on Vical, feel free to shout it out below.



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March 31, 2009 8:58 pm

Nice write up, Travis. My compliments. I enjoyed yesterday’s article as well.

April 5, 2009 9:22 pm

My understanding of DNA vaccines is that they only stimulate one of the two arms of the immune system, namely the antibody response, which tries to clear pathogens only after they have a foothold and are freely circulating. The other arm, namely the “cell-mediated response” is essentially not stimulated. The latter response is good at the earliest stages of infection because it attacks the infected cells at the site of infection itself. This is a long-standing weakness of DNA vaccines as prophylactics, hence the apparent re-packaging of early hopefuls now as therapeutics. However, therapeutics have to pack a pretty hefty punch, because the task is that much larger (the pathogen has already proliferated). Typically, gamma globulin shots are used for this, where you are sending in a ton of antibodies, ready to go. To use a DNA vaccine, ie try to stimulate antibody production after infection, seems to introduce time delays that seem a little iffy.

All in all, looks like a re-packaging job by a fairly old company who long ago dispensed with the scientist who actually invented DNA vaccines.

That’s my take. Paul

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