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:

I 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.

Vical's phase III study excludes melanoma patients with cancer that spread to their brain or liver, requires patients have normal LDH, good performance status and be chemotherapy naive. Melanoma patients with these baseline characteristics are relatively healthy.

This low-bar inclusion criteria for the Allovectin study, more than anything, explains why Vical has been forced to delay results. Once upon a time, Vical was supposed to have data from this study in mid-2011, then it was delayed into 2012 and now 2013. The assumptions made by Vical to design the study were wrong.

Vical bulls say: The unexpected longevity of the study means Allovectin works! The drug must be helping melanoma patients live a really long time.

No, what's happening is that all the patients in the study -- the Allovectin and the control arm patients -- are living a really long time. And when all patients live longer, it becomes exceedingly difficult for a drug to demonstrate a statistically significant improvement in overall survival.

I'm not going to dive back into the Allovectin phase II study results here but I've discussed them in the past. I don't see anything in the phase II data -- or Vical's previous phase III study with a lower dose of Allovectin that failed -- that gives me confidence in the ongoing trial.

Vical bulls disagree, of course. PropThink's Dee Kotak is a Vical bull so check out his argument for why the Allovectin study will succeed.

Two additional points:

1. If Vical manages to beat the odds and announce a positive survival benefit from the Allovectin study, the first question I'd ask is about subsequent therapy. Two melanoma drugs with proven survival benefits -- Roche's ( RHHBY) Zelboraf and Bristol-Myers Squibb's ( BMY) Yervoy -- have both been approved during the conduct of the Allovectin study. It's likely that a good number of patients in Vical's study received treatment with Zelboraf or Yervoy after Allovectin. That's problematic if treatment with either Zelboraf or Yervoy isn't balanced across both arms of the study.

2. The buzz in melanoma therapy today and at the upcoming American Society of Clinical Oncology (ASCO) annual meeting is about new PD-1 and PDL-1 drugs from Bristol-Myers, Roche and Merck. What are melanoma experts and institutional healthcare investors saying about Allovectin? Crickets....Silence and dis-interest is not what you want heading into pivotal trial results.

Moving on.

In early March, I wrote a column calling Sangamo BioSciences' ( SGMO) HIV gene therapy SB-728 a valuation prop. In the column, I argued that this "functional cure" for HIV is more hype than reality, but it's also the only drug Sangamo has in the clinic. Without SB-278, the company would be hard-pressed to maintain its $500 million market value.

Fast forward two and a half months and Sangamo's stock price is down 20% in a raging biotech bull market.

Sangamo presented some new data on SB-278 Wednesday, described as "remarkable" by the company's chief medical officer. The market appears to disagree, and for good reason. The graph below is from an HIV patient described as a responder to SB-278:

Pay attention to the black line, which represents the viral load, or the amount of HIV in the patient's system. At the start of the study, the patient's viral load is so low it's undetectable. That's because the patient is taking anti-retroviral therapy, or ART. These are the drugs that Gilead Sciences ( GILD) is famous for. Right around 60 days, the patient stops taking ART. Almost immediately, his viral load shoots up. Now, it does fall a little during the ART interruption period, which is why Sangamo calls this patient a responder, but viral load never gets back to undetectable. Not even close. Once the patient resume ART, his viral load drops quickly to undetectable.

Whew!I wouldn't call this slide a "remarkable" indication of SB-278 efficacy, as Sangamo suggests. Instead, I'd say this slide screams, "THANK GOD FOR ANTI-RETROVIRAL THERAPY!"

Next. I tweeted this Wednesday night about Spectrum Pharmaceuticals ( SPPI):

Insane, I know, which is why I received some responses like these:

All jokes aside, the belinostat data released Wednesday night as part of the ASCO abstract dump do compare favorably to competing drugs used to treat peripheral T-cell lymphoma such as Celgene's Istodax and Spectrum's other PTCL drug Folotyn.

In the single-arm pivotal study, the overall response rate to belinostat was 26-28%, which matches Istodax and is just a tiny bit lower than Folotyn. Median duration of response to belinostat was 8.3 months, which is on the low end compared to Istodax (12 months) and Folotyn (10 months.)

Belinostat's strength is safety and tolerability. Patients in the study reported low rates of thrombocytopenia (13%), neutropenia (13%) and anemia (10%) -- much improved over Istodax and Folotyn which generally cause thrombocytopenia and neutropenia in 40% and 30% of patients, respectively. Anemia is reported in about 24% of patients for both drugs.

If these belinostat data hold up, FDA approval seems likely. The market opportunity in PTCL is small, however, and belinostat, if approved, will cannibalize Foltyn sales to some extent. Still, let's not start raining on Spectrum's parade just yet.

-- Reported by Adam Feuerstein in Boston.

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; click here to send him an email.

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