) --Before I get to your emails and tweets, I want to remind everyone to submit your entries to my

FDA Drug Approval Contest

. Later today, the FDA is expected to announce its approval decision for

Amylin Pharmaceuticals'

( AMLN) diabetes drug Bydureon. This will be followed by 16 more drug approval decisions over the next four months. The contest is a fun exercise to see who among you is the best FDA drug approval prognosticator in the land.

Alex L. emails,

"I am a high school freshmen and I have been learning about stocks and I have been following Vical (VICL) . I don't understand why you are so negative on the stock. The pipeline is good and the Allovectin-7 percentage results that they need to hit are extremely low. Vical also has passed your $300 million market cap criteria, and is partnered with a major drug company. The CEO, who in the past has been extremely conservative and reluctant to give any hope to the drug's success, is now talking like he has a home run. And, while the study for Allovectin-7 is double blinded, Vical knows how many doses they are shipping and how many people are dying. So why are you so gloomy?"

You're correct. I am

predicting the failure of Vical's phase III study

of Allovectin-7 in melanoma later this year. Here's an overview of the Vical bear thesis, which comes from a Vical hedge-fund short seller who I believe has the story right.

Results from previous Allovectin clinical trials overstate tumor response because patients enrolled in the studies were relatively less sick and lacked baseline prognostic factors that correlate with worse outcomes.

A single-arm phase II study of high-dose Allovectin conducted on 127 melanoma patients in 2004 yielded a 12% overall response rate. However, none of the enrolled patients had elevated LDH, which correlates with worst outcomes. A relatively small percentage of patients (23%) were performance status 1, again, which correlates to worst outcomes. Lastly, melanoma patients with distant metastases, including cancer spread to the liver, were excluded. These patients are harder to treat.

Comparable studies of other melanoma drugs, most notably

Bristol-Myers Squibb's

(BMY) - Get Report

recently approved Yervoy, enrolled significantly more patients with prognostic factors such as these that makes tumor response and survival endpoints harder to achieve.

Vical's ongoing phase III study enrolls 375 recurrent melanoma patients and randomizes them 2:1 to treatment with Allovectin or a physician's choice of two chemotherapy drugs -- temozolomide or DTIC. The study's endpoint (per a Special Protocol Assessment with FDA) is durable response rate, defined as tumor response at 24 weeks. Overall survival is the key secondary endpoint.

Vical anticipates a 4% response rate in the temozolomide/DTIC patients and designed the study to be a success if Allovectin can boost the response rate by an absolute 10% difference -- or an assumed 14% response rate.

The assumption of a 4% response rate in the control arm comes from a failed phase III study of


( GNTA) Genasense compared to DTIC. However, patients enrolled in the Genasense/DTIC study were sicker and had more negative baseline prognostic factors. This makes it likely that the control arm in the Allovectin study is going to perform better than Vical expected, as enrollment is being restricted to "less sick" melanoma patients like it was in the phase II study.

If the temozolomide/DTIC arm of the phase III study outperforms, so too must the Allovectin arm, which seems very unlikely given the previous data.

A couple more notes:

The Allovectin study is being run under an SPA that allows for a durable response rate primary endpoint, but since the study started two melanoma drugs (Bristol's Yervoy and



Zelboraf) were both approved based on clinical trials that demonstrated an improvement in overall survival. Even Vical now acknowledges that Allovectin probably must also demonstrate a survival benefit in order to be approved.

Once upon a time, Vical ran a phase III study of Allovectin in combination with DTIC that failed. Granted, this study used a lower dose of Allovectin but still, failure is a failure.

"PHavna84" writes,

"With all the attention given to hepatitis C drug stocks today, I still don't understand the differences with these drugs and what makes one drug better than the other. Can you explain?"

Thanks for the great question. I write about these new hepatitis C drugs all the time but sometimes neglect to explain, for example, why investors today are more deeply in love with the so-called "nucs" than "protease inhibitors." Let me try to explain the differences between these classes of antiviral drugs as simply as possible.

First, let's step back and remind everyone that all of these newly approved and experimental hepatitis C drugs act directly against the hepatitis C virus, meaning they interfere with or block enzymes that the virus requires to copy itself or make a comfortable home in a patient's cells. You'll often hear these drugs referred to as "direct-acting antivirals, or DAAs. All of these drugs are pills.

It's not precisely known how interferon and ribavirin, the previous standard therapy for hepatitis C, work against the virus but it's believed the two drugs do help stimulate the body's immune system to recognize and attack the virus. In other words, the drugs work indirectly, at least partly. Interferon needs to be injected once a week.

The first new DAAs for hepatitis C are

Vertex Pharmaceuticals'

(VRTX) - Get Report

Incivek and


(MRK) - Get Report

Victrellis. Both of these drugs are "protease inhibitors," which means they block the enzyme protease that the virus needs to make copies.

Protease inhibitors, or PIs, are very potent drugs, meaning they work quickly to tamp down a lot of virus. In studies, many patients taking a PI are able to reduce their viral load, or the amount of virus in their system, to undetectable levels within a month or less.

PIs have drawbacks, however. These drugs have a low barrier to viral resistance, which means the hepatitis C virus can mutate or change so that a PI is no longer effective. In studies, patients may initially respond very well to a PI but after awhile, mutated virus left in the body starts to replicate and the patient's viral load rebounds.

For this reason, PIs cannot be used alone to treat hepatitis C. Instead, they must be given with other antiviral drugs. Both Incivek and Victrelis, for instance, must be administered in combination with interferon and ribavirin. The big upside with the triple combination is a dramatic improvement in cure rates (up to 80% from 40-50%) and shorter treatment duration (six months instead of one year.)

PIs tend to cause more side effects, partly due to the way they react with other drugs. Incivek's most common side effect, for example, is a serious rash.

The first generation of PIs also work mainly in patients with the genotype 1 form of hepatitis C, which represents about 70% of cases in the U.S. and is generally more difficult to treat. Newer PIs, including a drug developed by

Achillion Pharmaceuticals

(ACHN) - Get Report

, are designed to be "pan-genotypic," meaning they will work in patients with other hepatitis C genotypes (Type 2, Type 3, etc.) that are more common in other parts of the world. The newer PIs are also a more convenient once-daily dosage.

Nucleoside (or nucleotide) polymerase inhibitors -- "nucs" for short -- is the other major hepatitis C drug class you'll hear most about and is the current class of drugs getting the most attention from Wall Street.


(gobbled up by

Gilead Sciences

(GILD) - Get Report

for $11 billion),


( INHX) (soon to be acquired by Bristol-Myers Squibb for $2.5 billion) and

Idenix Pharmaceuticals


(still independent but for how long?) are all developing nucs.

Two basic defining characteristics of nucs make them ideal drugs for hepatitis C. First, nucs are prodrugs, which means they're inactive until the body (in this case, the liver) metabolizes the drug into an active form. Having a drug that concentrates and activates in the liver is ideal for viral liver disease like hepatitis C.

Second, nucs, unlike PIs, have a high barrier to viral resistance, meaning the virus has a difficult time mutating or changing into forms that can fight off the drug. Nucs probably can't effectively cure hepatitis C on their own (at least not the current nucs) but Gilead's PSI-7977 (obtained from Pharmasset) may only need to be combined with ribavirin for a short time to be highly effective in treating genotype 2/3 patients -- and perhaps genotype 1 patients as well.

Drawbacks to nucs are that these drugs are generally less potent than PIs (although again, PSI-7977 surprised a lot of people by having PI-like potency) and the risk of serious side effects. Recently, Pharmasset had to shelve another of its nucs due to unacceptable liver toxicity.

Researchers -- and investors -- are so excited about nucs (more so than PIs) these days because the nucs' high barrier to viral resistance means combinations of all-oral drugs can be designed that exclude the need for weekly injections of interferon.

An all-oral therapy against hepatitis C is the golden ticket that every drug company involved in the field is shooting for. At this point, nucs more so than PIs, appear to have the edge as the backbone of future all-oral regimens, and that explains the billions of dollars spent recently to acquire nucs.

Two updates on old friends of the Mailbag who may be nearing their respective ends:

Generex Biotechnology


disclosed in a regulatory filing Tuesday night that it took out second mortgages on company-owned property to raise money to remain in business. I've seen a lot of crazy financing schemes in my days covering biotech, but I've never seen a company resort to real-estate loans (with a 10% annual interest rate, mind you) to keep the lights on.

Genta's latest attempt to push through another reverse stock split was denied by the Financial Industry Regulatory Authority. Genta's last financing in September was contingent on a reverse stock split taking place before Feb. 15, which now appears impossible. Genta has over 1.5 billion shares outstanding (and rising rapidly) and the stock trades for 0.0019 per share as of Wednesday.

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

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