Biotech Stock Mailbag: Inovio, Chelsea, Exelixis, Ariad, ImmunoCellular

Happy New Year and welcome back to the Biotech Stock Mailbag. Today marks the start of the eighth year for this column, which wouldn't be possible without your questions and comments. Thank you so much. 

Wayne writes:

Badly eager to know your comments and opinions on Inovio Pharmaceuticals'  ( INO) chances in 2014... Thank you so much in advance.

Inovio is conducting a randomized, placebo-controlled phase II study of its DNA vaccine VGX-3100, which enrolled 148 women with cervical dysplasia, also known as cervical intraepithelial neoplasia (CIN). Results are expected to be announced mid year.

All the women enrolled in the study are confirmed positive for the human papillomavirus (HPV) serotypes 16 and 18, and have a baseline diagnosis of CIN grades 2 or 3, meaning they present with abnormal cells on their cervix which carry a moderate to higher risk for progressing to cancer.

CIN, by itself, is not cancer. These are pre-cancerous cells, which if untreated, might turn into cervical cancer. Low-grade CIN (grade 1) usually never progresses and disappears on its own. High grade CIN (grades 2-3) have a 30-50% chance of progressing to cancer without treatment -- usually a surgical removal of the abnormal lesion.

VGX-3100 is a therapeutic DNA vaccine delivered using Inovio's electroporation device. It's designed to produce a T-cell response that identifies and kills cells that have been transformed by HPV into precancerous lesions.

Women in the study are randomized into two groups. The first group receives injections of VGX-3100 followed by electroporation at months 0, 1 and 3. The second group receives a placebo injection followed by electroporation on the same time schedule.

The study's primary endpoint is a comparison of the number of patients with regression of CIN to grade 1 or less at nine months.

The secondary efficacy endpoint of the study is the number of patients with clearance of HPV 16 or 18 and regression CIN to grade 1.

I'm an Inovio skeptic, with good reason. The technology upon which the company's vaccine candidates are based is more than 30 years old and has never proven to be effective in clinical trials. Inovio's management team is exceptionally promotional and 85% of the company's stock is held by retail investors, according to S&P CapitalIQ. [Promotional efforts plus speculation plus a raging biotech bull market explain much of Inovio's stellar performance in 2013.]

In September, Inovio and Roche  (ROG) formed a partnership to develop vaccines against prostate cancer and hepatitis B. But the products involved in this deal are both still in preclinical stages of development and Inovio only received a $10 million upfront payment -- which amounts to a penny-sized financial commitment for a company the size of Roche.

I know Inovio fans saw the Roche deal as a validation of the company's DNA vaccine technology but that's an overly optimistic interpretation unsupported by the stock's tepid performance since the deal was announced.

INO ChartINO data by YCharts

I look forward to seeing the data from the VGX-3100 cervical dysplasia study. Mid-year.

Dave H. writes:

I am holding ImmunoCellular Therapeutics  (IMUC) because one of two things are likely to happen. The FDA will structure a phase III trial and create some new hope in better results. Secondly, there is still some positive data that potentially come out of the analyzing of results in phase II by keeping this trial ongoing and seeing some further distinctions in the control arms. Not saying it's a good long term investment but any of these bumps could double the stock for a quick profit. Also even with a minor increase in longevity of two months that may not stop FDA approval do you think?

I have no guess on the short-term direction of ImmunoCellular shares. This is a stock owned primarily by retail investors, and as such, it will move up and down based on the strength or weakness of the overall market, on trader speculation/momentum or whenever the next round of hopelessly optimistic articles lands on the pages of Seeking Alpha.

The correct long-term, fundamental outlook for ImmunoCellular is -- and should be -- bearish. The phase II study of ICT-107 in glioblastoma multiform (GBM, or brain cancer) failed. Even if we remove bio-statistics from consideration, an increase of two months in median overall survival favoring ICT-107 over placebo (expressed another way: A 13% reduction in the risk of death) is too weak and clinically meaningless given that phase II results almost always look better than what you'd see in a larger, phase III study.

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