Vical, Inc. (NASDAQ:VICL)

CAPS Rating: 4 out of 5

The Company researches and develops biopharmaceutical products based on its patented DNA delivery technologies for the prevention and treatment of serious or life-threatening diseases.

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Player Avatar zzlangerhans (99.74) Submitted: 7/5/2013 4:00:42 PM : Underperform Start Price: $3.44 VICL Score: +61.50

Topline data from the phase III trial of Allovectin-7 in melanoma is expected to be released this quarter. This is the closest we've come to topline data without a delay being announced since the trial began six and a half years ago. For those who believe that delays in topline data are a good thing in oncology trials because "somebody is living longer and it can't be the placebo patients", I point you to the outcomes of the Celsion and Oncothyreon trials among others. Delayed phase III topline data from small biopharma companies suggests to me that management knows results will be negative and they're dragging their heels to maintain their smoothly salaried lives as long as possible before the earthquake. For those who think that management doesn't have any idea of the results of blinded trials before the database is unlocked, keep in mind that certain hedge funds are well-known to maintain their alpha through exactly that mechanism.

Allovectin-7 failure won't destroy Vical. They'll have about 70M in cash at the end of Q2, and clinical trials of CMV and HSV vaccines are in progress or about to kick off. I expect Vical's cap won't drop below 150M and could quickly rebound to 200M, which corresponds to a share price of 2.32. Puts are being offered for September and December expiration at 2.5 and 5. Given Vical's history of delays and remembering Celsion's cyncial decision to delay data release until the last day of their guidance range, I wouldn't risk September expirations unless management narrowed their guidance. The ask on December 2.5's is 0.8 (1.7 break-even) and on 5's is 2.6 (2.4 break even). As of now it's too early to buy puts. I'd wait for the stock to run up and drop the December 5 puts below 2, or for October 5 puts to become available below 2. And don't wait too long after negative data to exercise the puts - Seeking Alpha articles touting the amazing potential of Transvax and HSV vaccine are probably already written and waiting to be published.

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