Wednesday, April 27, 2011
We recently have picked back up on searching for ten-baggers in the field of biotechnology and those companies tied to a broader “BioHealth” sector. Ten-baggers are those which can rise tenfold, or 1,000% from their lows, and these are generally measured from an extreme low in the shares. Occasionally you do get to see a legitimate Wall Street analyst calling for a stock to more than double. That is exactly what we are seeing this morning in shares of Vical Inc. (NASDAQ: VICL). Canaccord Genuity initiated coverage with a “BUY” rating and it assigned a whopping $8.00 price target objective based mostly upon its Allovectin-7 as a potential malignant melanoma treatment.
Before we get too far into the Canaccord call, it was just recently that we issued a potential ten-bagger alert in Prana Biotechnology Ltd. (NASDAQ: PRAN). It was after this note that a portfolio manager sent us an email as to why Vical was “his ten-bagger pick” in the space based in part on the belief that A-7 will get FDA approval after its results. And, yes, he did disclose that he owned the position. The portfolio manager’s biggest point is a true one: Prana may be a decade out, Vical is a 2011 to 2012 event.
Back to Canaccord Genuity… Vical closed at $3.25 on Monday and the 52-week trading range is $1.70 to $4.05. What Canaccord Genuity did was issue a research report calling for almost 150% upside. This is not unheard of, but calling for 100% upside in a formal research report is generally thought of as being extremely optimistic. This call was for 146%. There are very few analysts which cover Vical at this time and the consensus price target is about $5.50 per share.
OK, so almost 10% of that upside has already been spoken for. Vical shares were up 9.5% at $3.52 on more than 1 million shares even right before Noon today. Here is what Canaccord Genuity sees that the rest of us haven’t yet considered or caught on to as of yet:
- Anticipation of appreciation going into A-7′s Phase III melanoma trial results maturing in the first half of 2012.
- Bristol-Myers Squibb (NYSE: BMY) was referenced as a point for stand of care and as a recent approval by the FDA. A7 is noted as having even better results, with a 7.5-year survival rate in some of its patients.
- A7 also had a lower adverse event-risk than Yevoy with positive survival data. A-7 was said to absent of Grade 3/4 adverse events.
- The firm now models $1 billion in combined US/EU sales by 2018.
- Almost all of Vical’s market cap is based upon its A7 as an oncology asset, but the belief is that A7 will reflect well upon its entire vaccine platform. The company’s valuation is believed to be back-stopped by the DNA-based vaccine technology platform.
There are of course some risks. The obvious is that clinical trials could fail or that regulatory hurdles could arise, and there is also a risk that competition could change. Canaccord further noted that Vical had $52 million in cash at the end of 2010 and that should be ample to fund clinical trials and operations into the second-half of 2012.
There is also an Amgen Inc. (NASDAQ: AMGN) reference here. Canaccord’s team noted, “Data from a proof-of-concept trial evaluating Amgen’s newly acquired OncoVEX also supports immunotherapy potential in this indication.” Canaccord also gave a pipeline chart with the status of each candidate, shown by name, target, who the product partner is, and what stage these are in:
- Allovectin-7 AnGes, Teva Phase 3
- TransVax none Phase 2
- HIV DNA vaccine none Phase 2
- Malaria DNA vaccine none Phase 2
- Ebola vaccine NIH Phase 1
- H1N1 Pandemic Influenza virus US Naval Medical Research
- Center collaboration Phase 1
- H5N1 pandemic flu vaccine none Phase 1
- SARS vaccine NIH Phase 1
Vical has a market cap of $255 million even after today’s move. Biotech and biohealth companies typically trade at mulotiples of revenues rather than at fractions of revenues. Analysts only see $21 million 2012 revenues, so that “multiples” is true today. The difference is what happens if Vical can actually ramp up to that $1 billion in sales by 2018. There could still be a lot more to this story, particularly when Vical gets the call for its virus vaccine prgram any time the government gets scared about a new potential pandemic outbreak like SARS, pandemic flu, and worse.
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