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Expert Financial Analysis and Reporting

ImmunoCellular Therapeutics: A Close Look at Key Issues for the Ongoing Phase II Trial of ICT-107 (IMUC, $2.69)

Investment Thesis

It is my hypothesis that dendritic cell cancer vaccines have the promise to be a major advance in cancer therapy. In October of 2011, Dr. Ralph Steinman was posthumously awarded one-half of the Nobel Prize in Physiology or Medicine for his discoveries of the dendritic cell and its role in adaptive immunity. His discoveries have made possible the development of therapeutic cancer vaccines that are produced by removing living cells (monocytes) that are precursors to dendritic cells, loading them ex vivo with cancer antigens that stimulate the immune system to fight cancer and then re-injecting them into the body, a process called autologous immunotherapy.

There is a great unmet medical need for better ways to treat cancer. Chemotherapies that are the cornerstones of cancer therapy are essentially poisons dosed at low levels to destroy rapidly dividing cells like cancer. At the same time, they also kill normal rapidly dividing cells in the body and this gives rise to devastating, life-threatening side effects. With a few exceptions, they offer modest survival benefits at the price of a severe impact on quality of life. More recently monoclonal antibody and targeted therapy technologies have gained widespread usage in treating cancer. However they also offer only modest improvement in outcomes, with a few notable exceptions like Gleevec for chronic myelogenous leukemia, and they come with side effects.

To achieve a major advance in treating cancer, dramatically different approaches are needed. Why not look at what nature has created? All of us develop precancerous cells in our life, but the immune system in most cases is able to eradicate them or wall them off before they become full blown, uncontrollable cancers raging widely in the body. The dendritic cell is a powerful and central player in activating the immune system to attack cancerous cells. The goal of dendritic cell-based cancer vaccines (and cancer vaccines based on different approaches) is to boost and restore the inherent effectiveness of the immune system.

Autologous, dendritic cell-based cancer vaccines are based on elegant biology. They hold the promise of being that sought after advance in cancer treatment
and, if so, they could become one of the most innovative new biotechnology drug categories over the next decade. ImmunoCellular Therapeutics (IMUC) and Northwest Biotherapeutics (NWBO) are in the late stages of developing dendritic cell-based cancer vaccines for glioblastoma, the most severe type of primary brain cancer. Along with Dendreon (DNDN), they are currently at the forefront of this technology.

I think that some investors are incorrectly viewing the investment outlook for Northwest Biotherapeutics and ImmunoCellular Technologies. Both companies
are developing dendritic cell vaccines for glioblastoma multiforme, the deadliest form of primary brain cancer; NWBO's product is called DCVax-L and IMUC's is ICT-107. Some investors have portrayed this as a winner take all competition in which there will be one clear winner and one clear loser. I disagree; if both products are successful in their clinical trials, I think that each has blockbuster sales potential.

There is an urgent need for better therapy for glioblastoma. The average glioblastoma patient dies within 18 months of diagnosis after receiving standard of care which is surgical resection followed by radiation and chemotherapy. The data for both NWBO's DCVax-L and IMUC's ICT-107 is based on limited data from phase I trials, but the data is striking. It suggests that 55% of patients treated with either DCVax-L or ICT-107 are alive three years after diagnosis versus 16% for standard of care.

To me, this data suggests that two different versions of the same technology are effective and this provides important validation of dendritic cell cancer vaccine technology. If both products come anywhere near to phase I results in larger registration trials, they will each represent major therapeutic advances. It is my experience that in cases in which two products using similar technology are commercialized, there is rarely, if ever, just one winner and one loser. There are invariably points of differentiation that lead to segmentation in the market and this will almost certainly be the case with DCVax-L and ICT-107, if their clinical trials are successful.


Scrutinizing the Phase II Trial of ICT-107

I believe that there may be some misunderstandings about the Phase II trial now underway for ImmunoCellular Therapeutics ICT-107 in the treatment of glioblastoma multiforme. This report is based on presentations made by and conversations with the new CEO, Andrew Gengos, who joined the company in December 2012. It summarizes my understanding and analysis of the key information points on the trial.

The key points of this trial are:

· This is a 124 patient phase II trial.

· There will be an interim analysis soon. I think the most probable outcome will be that there are no safety issues and that the Data Monitoring Committee recommends that the trial should continue.

· The Company believes that topline data on median overall survival will be available in 4Q, 2013.

· The enrollment data on the trial suggests that 50% of potential patients are not eligible for treatment with ICT-107 because of HLA status.

· There is a high probability that IMUC will have to conduct a confirmatory phase III trial if the outcome of the phase II data is positive.


Enrollment in the Phase II Trial

I have seen some writers state that the current ongoing trial is a phase III trial and suggest that it could be the basis for seeking regulatory approval in the US. Mr. Gengos has described it as a phase II trial testing whether the potential signal of activity seen in the phase I trial in which 20 patients were treated can be replicated. Sixteen patients were newly diagnosed glioblastoma patients, three patients suffered from glioblastoma that had recurred and one patient had a brainstem glioma. The data that the company talks about in its presentations comes from the 16 newly diagnosed patients.

The company says that it has enrolled 278 patients in the clinical trial, but that only 124 were randomized and treated; approximately 41 patients were randomized into the standard of care arm and 83 into an ICT-107 combined with standard of care arm. The company says that patients must be enrolled into the trial before they can be screened to see if they are eligible for the trial. This has confused me and perhaps some other people. In my experience, I would describe the 278 patients as having been screened for the trial and that 124 were enrolled.

Semantics aside, the trial size or number of people participating in the trial is 124 patients, not 278. Whether you want to describe the 278 patients as enrolled or screened, 55% of these patients or 154 were not randomized into treatment. The primary reason was that patients did not have the proper HLA-A1 or HLA-A2 immune status. This is explained later in this report.


Design of the Phase II Study

In the 16 evaluable newly diagnosed patients in the phase I study, IMUC saw a median overall survival of 38.4 months when ICT-107 was added to standard of care. In designing the phase II trial, the most critical assumption is what the difference in overall survival will be in patients given ICT-107 plus standard of care as compared to patients given just standard of care. The trial that defined median overall survival for standard of care was the Stupp trial. This compared the previous standard of care which was surgery followed by radiation with surgery followed by the chemotherapy drug temozolomide and radiation. The latter regiment improved median overall survival and was adopted as the new standard of care.

The Stupp trial was published in the March 10, 2005 issue of the New England Journal of Medicine. The data showed that median overall survival for surgery followed by radiation and temozolomide was 14.6 months. This compared to 12.1 months in the group that only received surgery followed by radiation. In a May 9, 2009 issue of the Lancet, data on a subset of patients was presented. These were patients who underwent gross total resection that was enhanced by gadolinium imaging followed by radiation and temozolomide. In this group, the median overall survival was 18.8 months and this has become accepted as the current standard of care.

The difference between the 38.4 months median overall survival seen in phase I with ICT-107 plus standard of care and the 18.8 months seen in the Stupp trial is 19.6 months. The Company concluded that this striking improvement was sufficiently strong to proceed with phase II testing. In designing the phase II trial, they recognized that in the small phase I trial performed in a single center there was the potential for unintended bias on patient selection that could have resulted in more favorable outcomes than would be seen in a larger trial. To try to account for this possibility, the Company elected to use the more modest assumption that the differential in median overall survival would be 9.0 (not 18.8) months in the phase II trial. Once this assumption is made, biostatisticians can calculate the number of patients needed to show statistical significance (a p-value of 0.05 or less) in the phase II trial at different levels of powering; the 124 randomized patients in this trial represents about an 80% powering


How Good Do the Results Have to Be?

The need to show statistical significance in this trial that is based on a 9.0 month survival advantage is not critical. In oncology, an improvement of just 4.0 months is usually considered to be very meaningful clinically. Let me give you an example. The chemotherapy drug temozolomide became part of standard of care for glioblastoma even though it showed just a 2.5 month improvement in overall survival. Based on this, it went on to become a $1 billion drug.

ICT-107 is probably approvable if it shows just a 2.5 month improvement in survival in phase III trials as was the case with temozolomide. A 4.0 month improvement in median overall survival would be considered a major clinical advance and 9.0 months might be the oncology event of the year or decade. ICT-107 conceivably could miss the 9.0 month endpoint in the ongoing phase II trial and not achieve the magic p-value of 0.05. However, if there were a strong trend toward superiority, it could be the basis for designing a larger phase III study with the assumption of something less than 9.0 months of median overall survival (something between 2.5 and 9.0 months) that could result in a successful phase III trial.

Could ICT-107 be approved if it hits the 9.0 months median overall survival endpoint? The answer is perhaps, but most likely the FDA would want another confirmatory trial with more patients. There is also an issue with manufacturing. The FDA requires that the manufacturing process used in a clinical trial executed to gain regulatory approval should be the same as that used to manufacture the product when it is commercialized. In its phase II trial, ImmunoCellular produced part of its clinical supplies at the University of Pennsylvania before transitioning manufacturing to Progenitor Cell Therapy, a
subsidiary of Neostem (NBS). The FDA would not be comfortable with this dual sourcing for phase UU and this is another reason to expect a confirmatory phase III trial if the phase II results are encouraging. [AG1]


Timing for Data Readouts on the ICT-107 Phase II Trial

The statistical plan calls for the Data Monitoring Committee (DMC) to conduct an interim analysis for safety and futility when 32 deaths occur in the trial. The Company estimates that this should occur soon. Some writers are hoping that the DMC will see a dramatic reduction in the number of deaths in the ICT-107 arm comparable to that seen in phase I. They would then hope that the DMC would conclude that it was unethical to withhold this benefit from the control arm and would recommend halting the trial and switching the control patients to ICT-107. While this is possible, the most likely outcome is that the DMC will state that there are no safety issues and the trial will be allowed to continue.

The endpoint of the trial will be reached when 64 deaths occur. At that point, the trial will be unblinded and an analysis conducted to see if the trial reached the primary endpoint of a 9.0 month improvement in median overall survival. There will also be analyses of several secondary endpoints. The company believes that this data will be available before yearend. As I previously discussed, this trial does not necessarily have to be statistically significant on the primary endpoint of median overall survival to be considered a success.


Dendritic Cell Cancer Vaccines and HLA Status

ImmunoCellular and Northwest Biotherapeutics are each developing dendritic cell vaccines for treating glioblastoma multiforme. While both are targeting the same disease and both use patients' own dendritic cells to formulate their products, the products are meaningfully different. Both obtain monocytes (an immune cell) from the patient through a blood draw. These monocytes are then cultured outside of the body and allowed to differentiate into immature dendritic cells. The immature dendritic cells are exposed to tumor antigens in the culture. There are many molecules called antigens (short for antibody generating) that appear on the surface of glioblastoma cells that characterize them as being foreign.

The therapeutic objective is to allow dendritic cells to display the antigens when they are re-introduced into the body via intradermal [AG2] injections. The antigen loading approach of the two companies is somewhat different. ICT-107 uses synthetic peptides that mimic six widely expressed glioblastoma tumor and cancer stem cell antigens. Northwest Biotherapeutics grinds up tumor tissue obtained during surgery with the objective of exposing dendritic cells to all of the antigens in the tumor. There are arguments pro and con for each approach, but I find none convincing. Once they are re-introduced into the body, these immature dendritic cells migrate to lymph nodes where they display the antigens to T-cells circulating in the lymph. This is the start of the training process that allows the T-cells to recognize the tumor as foreign and to attack and try to destroy it.

The dendritic cells of human beings process antigens in different ways according to immune status. As it turns out, only a certain percentage of humans can properly express the cancer antigens used in ICT-107 on the surfaces of their dendritic cells. These are patients with HLA-A1 or HLA A-2 immune status. IMUC believes that about 25% of humans have HLA-A1 status and 50% have HLA-A2 status that allows the antigens to be properly displayed by the dendritic cells. This would suggest that somewhere between 50% and 75% of patients can actually create the antigen loaded mature dendritic cells that are the basis of ICT-107. The enrollment results in the phase II trial suggest it is closer to 50%, but the actual percentage remains to be determined; DCVax-L does not have this restriction.


Should You Choose to Invest in Northwest Biotherapeutics or ImmunoCellular Therapeutics?

Success in the phase II trial of ICT-107 and the phase III trial of DCVax-L would validate the promise of the dendritic cell vaccine therapy and highlight the potential of the pipeline products now under development. This magnifies several fold the commercial potential for each company. I am recommending both as asymmetric investment opportunities.

Some writers choose to portray the situation between NWBO and IMUC as a winner take all situation, even though median overall survival was similar for both products in their small phase I trials. I do not see it that way. My position is that if these drugs are successful in their clinical trials, they will both find significant usage in treating glioblastoma. They are both dendritic cell vaccines but the antigens which they present are different in terms of number and density. This could result in different therapeutic profiles.

It is very common for cancer drugs with different therapeutic profiles to be given in combination and in sequence and it may hold true for these products as well. There will almost certainly be patients who respond better to one drug than another. Importantly, ICT-107 is only applicable to 50% or so of the patient population because of HLA status. Both products have the advantage that they appear to have remarkably clean safety profiles relative to chemotherapy drugs and targeted therapy and even monoclonal antibodies.

I see ICT-107 and DCVax-L as each having blockbuster potential if they are successful in their phase III trials in glioblastoma. However, the investment significance extends far beyond glioblastoma. The mechanism of action for dendritic cell cancer vaccines suggests that they can be used in most solid tumors. So far, we have seen one dendritic cell cancer vaccine approved; that was Dendreon's Provenge. We have seen striking signals of efficacy for ICT-107 and DCVax-L in glioblastoma. We have seen striking evidence of efficacy of NWBO's DCVax Prostate in prostate cancer. This is suggestive of very broad applicability in treating solid tumors.

Both IMUC and NWBO have advanced manufacturing processes for producing dendritic cell cancer vaccines. By comparison, the manufacturing process for Provenge is crude. These companies will be able to use this manufacturing advantage to advance other products into clinical trials. NWBO has produced encouraging phase I results using in ovarian cancer and phase I/II data in prostate cancer with DCVax Prostate. It has started a phase I trial in all solid tumors using DCVax Direct which is based on injecting immature dendritic cells directly into the tumor and picking up antigens from the tumor directly. IMUC will be starting a trial with seven synthetic antigens for an ovarian cancer vaccine, ICT-140, and another, ICT-121, using just a single antigen that it believes is specific for cancer stem cells.


A Comment on Trading Activity

Over the last few years a popular trade has evolved in which investors bid up the price of a stock before an important event like a PDUFA date or trial outcome. The stock is then sold or shorted a few weeks before the event. Like all trading schemes, this is subject to risk. As this trade has become popular and crowded, I have seen stocks like A.P. Pharma get bid up steadily and then correct sharply as investors exit the trade. I am seeing recommendations to trade IMUC on this basis. I don't make trading calls and my focus is to wait for the results of the phase II trial believing that the upside is so significant in the event that it outweighs the risk of losing most or all of your investment if the trial fails. At the current price of $2.70, this calculus works. However, I would caution investors to be careful if the stock trades up sharply prior to the release of final results in 4Q, 2013. There is an excellent chance to get whipsawed.

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