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This column was originally published on

RealMoney

on June 13 at 1:04 p.m. EDT

.

I do not see a viable future business for

Antigenics

(AGEN) - Get Report

with its current late-stage product pipeline. Yet the stock continues to trade in the $6-$7 range with a market cap just under $290 million; both the stock price and market cap are at risk, because prospects for an approvable lead product candidate appear slim.

The company's Oncophage product is in phase III clinical trials for metastatic melanoma and renal cell carcinoma. Antigenics does not expect to submit a biologics license application, or BLA, to the Food and Drug Administration for the melanoma indication. Even if Antigenics does submit a BLA for the renal cell carcinoma indication, I do not believe the product can be competitive.

As a result, my target price for the stock is $3 as news is released in the September-October time frame about the company's phase III clinical trial and manufacturing practices.

Here then, is the rationale for why I think this stock remains overvalued, despite its already steep percentage decline year to date and low absolute price (remember, "cheap" stocks can get cheaper):

Antigenics' lead product candidates are based on the autologous cancer vaccine business model -- the "non-drugable" business model -- which does not utilize standard biologics manufacturing and is fraught with more risk than potential reward. Autologous cancer vaccines involve removing cells from the patient, altering the cells or extracting cellular components to create the vaccine, then returning them to the patient -- an individualized product.

While this sounds like a great idea, it may not be, for several reasons -- not the least of which is that product processing logistics are challenging, margins lower and distribution channels nonstandard. As a result, securing a commercialization alliance with a major pharma company, a move that is usually accomplished by phase II clinical trials for other therapeutics, is difficult.

In pharma/biotech, manufacturing is scaled up for commercial production to a highly automated process that can be closely monitored to produce a standardized product that enables the company to use existing distribution channels. What Antigenics offers in its lead product candidate, Oncophage, is more like a service than an off-the-shelf product. Antigenics' second product is also a personalized vaccine, HSC-858. The production process for this type of product does not lend itself to creating the same cost efficiencies as standard biologics manufacturing of today's protein therapeutics, monoclonal antibodies or conventional vaccines.

Many companies began developing vaccines in the early-to-mid 1990s using cells collected from cancer patients. These patient-specific or autologous cell-based vaccines were less costly to develop and had shorter development lead times. Antigenics produces its Oncophage vaccine by harvesting tumor cells from the patient and then shipping the cells to Antigenics' facility. Using the company's proprietary process, Antigenics isolates the heat shock protein gp96 and its associated peptides. After extraction, purification and sterilization via filtration, the autologous product is put in a vial, frozen and return-shipped for administration by injection to the patient.

On Sept. 2, 2003, a clinical hold was placed on Antigenics' phase III clinical trials of Oncophage in both renal cell carcinoma and metastatic melanoma. The hold was placed because of inadequate data to support specifications for product purity, identity, potency and pH, or the degree of acidity or alkalinity of a solution.

Antigenics responded on Oct. 22, 2003, and the FDA lifted the hold on Nov. 24, 2003. But the company did not conclude discussions regarding the FDA's response to the validation package for the qualified potency assays that was submitted during 2004 until the first quarter of 2005. Assay validation is used to establish the robustness and reproducibility of the assays and to demonstrate that the potency assays work consistently under various conditions. This is part of the FDA's standard requirements for acceptance of manufacturing under good manufacturing practices (GMP).

According to its 10-K filing for 2004, Antigenics plans to continue its development of Oncophage as a therapy for renal cell carcinoma; however, the company does not believe its phase III clinical study of Oncophage in metastatic melanoma will qualify for submission to support regulatory registration. Antigenics states that the vaccine could not be produced for about 30% of the patients in its phase III study.

In Antigenics' first-quarter conference call, the company stated that it plans to test vaccine vials from its phase III part I renal cell carcinoma trial retrospectively to determine whether it can prove that the vaccines were in fact well-characterized -- a general regulatory requirement that means the product components and their amounts are known -- during the trial. After meetings with the FDA during 2004, Antigenics was informed that submission of data from its phase III part I renal cell carcinoma trial would be insufficient to support a BLA and the company initiated a phase III part II clinical trial in renal cell carcinoma in February 2005.

Currently, Antigenics expects that the final analysis of its phase III part I clinical trial in renal cell carcinoma could be triggered in August or September 2005, and that within six weeks the company would be able to make public disclosures. After the final data analysis, Antigenics' management stated that it will decide whether or not to file with regulatory authorities in the U.S., Canada and Europe for Oncophage treatment of post-operative renal cell carcinoma patients (adjuvant therapy indication).

Antigenics ended the first quarter with $114 million in cash and cash equivalents after its private placement in January 2005. Management stated that launch plans are under way for Oncophage. If the company does file for an Oncophage biologics license in the U.S., Canada and/or Europe, the best chances for product acceptance will be in Europe, where regulations regarding the use of personalized therapies differ substantially from those in the U.S.

Should Antigenics pursue a regulatory filing in Europe, Oncophage may be challenging another autologous cancer vaccine, Reniale, which LipoNova GmbH anticipates launching in early 2006 for renal cell carcinoma. In addition to facing competition, Antigenics will face a fragmented market compared with that of the U.S., along with more restrictive reimbursement pressures in Europe that often require substantial discounting.

As originally published, this story contained an error. Please see

Corrections and Clarifications.

Pamela Bassett is a biopharmaceutical analyst and president of BioTrend. Bassett has published extensively on emerging technologies and strategy in biopharmaceuticals. Bassett was formerly director of business development for Enzon; prior to that, she provided advisory services to telecom, software and biotech companies on new product and emerging market development. Bassett received her master's degree in business administration from Wharton Graduate School, University of Pennsylvania; completed a residency in Anesthesiology at the Medical College of Pennsylvania and Hospital; received her doctorate degree of dental medicine from Tufts University School of Dental Medicine; and earned a bachelor's degree in biology from Oakland University. At the time of publication, she had no positions in stocks mentioned in this report, although holdings can change at any time. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While Bassett cannot provide investment advice or recommendations, she appreciates your feedback;

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