Grant Zeng, CFA
What Should Investors Know about the Differences between Provenge and ICT-107?
ImmunoCellular Therapeutics, Ltd (IMUC) is a clinical stage biotech company focused on research and development of innovative cancer diagnostics and treatments. The Company’s key technology is active immunotherapy aimed at targeting cancer stem cells. The Company is focused on developing products that harness the native immune system to attack CSCs without harming healthy tissue.
IMUC’s lead product candidate is ICT-107, which is an autologous, or personalized, dendritic cell-based vaccine that works by activating a patient’s immune system against specific tumor-associated antigens. This is accomplished by extracting dendritic cells from a patient, loading them with the antigens, and reintroducing them to the patient’s body to trigger an immune response. ICT-107 works the same way as Dendreon’s Provenge does.
Provenge is the first cancer vaccine that got the FDA nod at the end of April, 2010 for the treatment of advanced, hormone-resistant prostate cancer. This is certainly good news for the whole class of therapeutic cancer vaccines including ICT-107. Dendreon’s shares climbed as high as $57.69 per share (market cap of $8.3 billion) at the news of Provenge approval. Since then Dendreon’s shares have declined as low as $25.78 per share in early July and currently trade at about $36 per share (with a market cap of $5.2 billion). There are reasons for the price decline. One of the key factors triggering the share price decline is the manufacturing/logistics problems for Provenge.
It takes three steps to produce Provenge. First, the patient goes to a blood center for a leukapheresis procedure to collect the patient’s own immune cells; Secondly, the isolated cells are sent to Dendreon’s manufacturing facility to produce Provenge; Thirdly, the finished Provenge is shipped to an infusion center to treat the patient. The recommended course of therapy for Provenge is 3 complete doses within one month. Depending on the patient location and the location of Dendreon’s manufacturing facility, the whole process from the cell collection to patient infusion could take up to 72 hours.
In contrast, IMUC has developed an innovative method for the manufacturing of ICT-107 with its collaborators. The new method employs a closed-bag system designed to produce highly potent dendritic cells from white blood cells collected from patients, and for subsequently cryopreserving the dendritic cells for future vaccine treatments. The process has also been optimized to produce high levels of certain cytokines which are correlative of dendritic cells’ ability to boost immune response. Engineering and validation runs have confirmed that this process may be used to produce 20 or more doses of ICT-107 vaccine from a single blood collection, which may be frozen and later used for vaccination and maintenance of immune response in patients until disease recurrence.
Therefore, it’s important to recognize the differences between Provenge and ICT-107.
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ICT-107 has a higher purity of dendritic cells (great than 80%) and is optimized for interleukin 12 (IL-12) secretion. Provenge is only 20-25% activated monocytes and the rest are lymphocytes and other cell types which are not needed for immunization. Therefore, a much smaller dosage is required for vaccination, therefore reducing side effects.
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IMUC’s process produces 20 or more dosages of vaccine in a single production run which could be good for up to 4 years if boosted every quarter. The Company uses cryopreservation technology to freeze these cells and store it for long term (almost like off-the-shelf product). Provenge is produced one dose at a time and DNDN has to deliver Provenge within 18 hours to the patient after it is produced. IMUC certainly has a manufacturing convenience and logistic advantage.
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Cost advantage is apparent. COGS for ICT-107 is much lower (15,000/20 = $750 per shot of vaccine). Therefore, gross profit margin will be much higher (95% for ICT-105 compared to 60-70% for Provenge at scale, currently close to 40%).
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Due to limited treatment options for glioblastoma multiforme, IMUC should have pricing power if ICT-107 is approved for that indication. Therefore, management assumes first year reimbursement potential of $120K (same as Avastin) and 80K for the second year and third year. Total reimbursement should be roughly $280,000.
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While Provenge is specifically indicated for prostate cancer, addressable market for ICT-107 could be glioblastoma multiforme (GBM), melanoma, breast cancer, ovarian cancer and colon cancer. If IMUC only develops it for ovarian and GBM to be conservative, the potential market size for those two indications is huge.
What Are the Implications for Investors?
It’s clear that IMUC’s ICT-107 has many advantages over the first-in-class cancer vaccine Provenge including manufacturing convenience, easy logistics, potential less side effects, cost advantages and much larger addressable market, etc.
In early November 2010, IMUC received a grant of $244,479 from the US Government’s Qualifying Therapeutic Discover Project Program (QTDP) to help fund the Company’s ongoing projects, including the continued development of ICT-107. The amount of funds awarded were the maximum allocation allowed under the program. The grant program was very competitive and being selected is a strong validation of the Company’s technology.
IMUC has finished a Phase I trial of ICT-107 for the treatment of glioblastoma multiforme (GBM) with very encouraging efficacy data and safety profile. The Company plans to initiate a Phase II trial of ICT-107 soon. Upon the successful conclusion of a GBM Phase II Study, IMUC anticipates a lucrative partnering contract with a major pharmaceutical or biotech company.
In addition to ICT-107, IMUC has another active immunotherapeutic candidate ICT-121 and a few monoclonal antibodies under pre-clinical development.
Dendreon is a vivid example how investors can profit from potential blockbuster candidate. Market cap for Dendreon has risen from about $200 million to $5 billion within one year. Currently, IMUC shares are trading at about $1.2 per share with a market cap of about $26 million. This is a huge discount compared to its peers. We are optimistic about IMUC’s key active immunotherapy technology and its lead drug candidate ICT-107. We think the Company’s should be valued at about $100 million at this point which translate into a share price of $4.5. Apparently, this is a high risk Company at this stage, but return should also be high. Investors with high risk tolerance and relatively long investment horizon may consider IMUC as a component of their portfolios.
