BOSTON (TheStreet) -- This week's Biotech Stock Mailbag:
I'm not optimistic about Vical (VICL) or its skin cancer immunotherapy Allovectin. I believe failure will be the most likely outcome of the phase III study when results are announced in the third quarter.
Before I explain the fundamental bear thesis on Allovectin, let's look at what the Feuerstein-Ratain Rule says about Vical's future. Remember, the F-R Rule says phase III studies of cancer drugs have a zero percent chance of success (100% failure rate) if the company sponsoring the study has a market cap of $300 million or less, measured four months before the study results are announced.Vical is guiding to Allovectin results in the third quarter, so I'm going to use August 15 -- the midpoint of the third quarter -- as the announcement date. Dial back four months to April 15 and Vical's market value was $380 million. Looking more broadly, Vical's average market cap for April was approximately $340 million. $340-$380 million is greater than $300 million, therefore Vical's Allovectin study is outside the dead zone as defined by the F-R Rule. That's a positive, but... Ziopharm's (ZIOP) F-R Rule market cap was $350 million heading into its phase III study of palifosfamide. That study failed, so if Vical is like Ziopharm (and the two are similar, market cap-wise and both companies went into phase III trials without a partner) then Vical bulls shouldn't be too optimistic. The F-R Rule states companies with market caps in the $300 million to $1 billion range had a 17% success rate with phase III cancer drug trials. I was conversing with some Vical bulls on Twitter last night, during which @GaltGhost tweeted this:
@adamfeuerstein @lottopredictor $VICL I have bet seven figures and possibly my life on A7 success.— J. Galt (@GaltGhost) May 16, 2013I understand optimism and betting to win on a major stock-moving catalyst like phase III trial results, but this is too much. Somebody explain risk management to @GaltGhost and quickly! Alright, why will the Allovectin study fail? Here's the bottom line: Vical enrolled the healthiest melanoma patients ever into the Allovectin study. I know that sounds weird. How can you be healthy with skin cancer? What I mean is that on the melanoma severity scale, the patients in the Allovectin study are much less sick than patients enrolled in other melanoma studies and should be expected to live a long time with their disease.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV