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After Years of Red Ink, Vical Says DNA-Based Vaccines ‘Ready for Prime Time.’

Xconomy San Diego — 

For a lesson in surviving tough times, look no further than San Diego’s Vical. (NASDAQ: VICL) The vaccine developer has endured two decades of red ink and by any sort of business logic should have folded its tent long ago. Instead, Vical is slowly but steadily advancing its “naked DNA” technology for use as a cancer vaccine (and with much fanfare against swine flu.) Last month, the company received a fresh $20 million infusion from investors, providing enough added cash for Vical to continue operations though the end of 2011.

By then, Vical will know the results of two key clinical studies. One is a late-stage trial of a therapeutic vaccine for metastatic melanoma to be completed in 2010. The second is a mid-stage test of a vaccine to prevent life-threatening cytomegalovirus infections in bone marrow transplant patients; interim results are expected this month. Positive outcomes from either trial would bring Vical a giant step closer to delivering a product while validating its faith in a pioneering technology.

When I recently asked CEO Vijay Samant for insight into Vical’s staying power, he first informed me that 20 years isn’t a long time to spend on something entirely new. He reminded me that one of San Diego’s most successful biotechnology companies, Idec – now Biogen Idec – worked on its first drug, a cancer medicine called Rituxan, for nearly 18 years.

“It takes time to understand the applications of the technology; it takes time to optimize the technology; it takes time to for regulatory agencies to understand the technology so they are comfortable with it; it takes time for clinicians and physicians to feel comfortable enough with the technology to inject people with it,” he said.

Traditional vaccines, such as those for flu, use actual virus to trigger an immune response. Vical instead uses genetic engineering techniques to produce sequences of virus DNA, which are injected into the body. Muscle cells take up the DNA and use it to produce virus proteins that stimulate the immune system. In essence, the body’s own muscle cells become vaccine mini-factories.

The beauty of Vical’s approach is that it can also be used for therapeutic cancer vaccines. Instead of virus DNA, the company’s experimental melanoma vaccine uses a genetic sequence that rarely occurs in Caucasians, who have a high incidence of skin cancer. Development partner AnGes of Japan wants to test the vaccine in head and neck cancer because the gene sequence is seldom seen in native Japanese, Samant said.

The early promise of Vical’s technology made it a biotech darling. The company’s market cap hovered around $1.5 billion in early 2000 — during what Samant calls the “rah-rah days” before the dot-com crash in April of that year. Vical’s current market cap approaches $90 million, much closer to earth for a company with no products.

Samant took charge of Vical in late 2000 after a stint as head of Merck’s vaunted vaccine group. He immediately faced numerous challenges. One was perception. Regulators considered Vical’s vaccines a form of gene therapy, a technology largely focused on using healthy genes to cure inherited disorders. Gene therapy companies typically use viruses to deliver genes, and face added regulatory scrutiny.

“It took us a long time, three or four years, to get out from under that gene therapy label,” Samant said.

Another was finding a way to intensify the immune response to Vical’s vaccines, which are designed to stimulate production of T cells in addition to antibodies. The solution was an adjuvant made of lipids, fatty molecules that naturally incite the immune system.

What other steps got Vical to this point? Samant shared some insights that offer useful tips to other innovation companies:

— Pick a market you can win. At least one Big Pharma player is working on a vaccine to prevent cytomegalovirus infections in healthy women; the virus can cause congenital disabilities when passed from pregnant women to fetuses. Lacking the resources to compete head-to-head, Vical targeted infections in bone marrow transplant patients, a narrow segment worth perhaps $100 million a year – too small to interest traditional vaccine makers. Successful results in transplant patients will position Vical to go after the larger market with a deep-pocketed partner.

— Validate your technology on someone else’s dime. Vical obtained government support for high-profile work on vaccines against avian flu and the H1N1 swine flu. The experimental avian flu vaccine promoted a robust immune response in nearly 70 percent of healthy volunteers; Vical is now looking for government money so it can move its swine flu vaccine from animal studies into human trials. Yet Samant was circumspect, even though Vical’s work on sequencing the swine flu virus was attention-grabbing. “My goal is to demonstrate the value of our technology against a very difficult target,” he said. “If we’re lucky and the government places an order, that’s an upside.”

With its shares trading in penny stock territory, Vical clearly is not out of the woods. Last year, it closed a San Diego research facility and cut 29 jobs to save cash. And as with any vaccine, there is always concern about a strong or uncontrolled immune system response. A patient death in a mid-stage trial was classified as “probably related” to Vical’s melanoma vaccine, Allovectin-7, because the possibility could not be ruled out. The company does not believe the vaccine, which is injected directly into tumors, was a significant factor in the death.

Samant expressed confidence in the company’s science, which suggests a final bullet point—Believe. “We are close to validation on a variety of fronts,” he said. “We are ready for prime time.”

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