ImmunoCellular Therapeutics Ltd. (OTCBB: IMUC) is a biopharmaceutical company focused on improving cancer treatment and diagnosis through new immune-based products. By targeting cancer stem cells believed to cause cancer growth and recurrence, the company’s sets itself apart from other companies taking immunological approaches, such as ImmunoGen Inc. (NASDAQ: IMGN) and Agenus Inc. (NASDAQ: AGEN).

Cancer stem cells (CSCs) operate in the same way as traditional stem cells, which self-replicate and produce progenitor cells. But in a variety of clinical studies, these CSCs have proven to be much more resistant to chemotherapy and radiation than their daughter cells. As a result, many experts believe CSCs may be responsible for the recurrence of cancer. Currently, ImmunoCellular is the only company targeting these CSCs with a clinical-stage pipeline.

A Promising Billion Dollar Drug Pipeline

ImmunoCellular’s lead product candidate is ICT-107, a personalized, dendritic cell-based vaccine for the treatment of glioblastoma (GBM). The vaccine works by extracting dendritic cells from a patient, loading them with specific tumor-associated antigens, and reintroducing them to the patient’s body in order to activate their immune system to fight the cancer. By targeting CSCs through this approach, it may be able to reduce incidents of recurrence.

In Phase I clinical studies, ICT-107 showed highly promising results that took many experts by surprise. Progression free survival after two years was 49.2% compared to 10.7% with the standard of care, while  overall survival after 2 years was 81.2% compared to 26.5%. These results also surpassed other treatments in development, from Celldex’s CDX-110 to Merck’s Cilengitide. The company began its randomized, double-blind, placebo-controlled Phase II clinical trials in Q1 2011 and should report an interim analysis of these results in Q4 of 2012.

ImmunoCellular’s other clinical development programs also show a lot of promise. ICT-121 is an off-the-shelf cancer stem cell vaccine that simulates an immune response to CD-133 – a protein that is overexpressed in many CSCs. Since this is a broadly applicable treatment (working on brain, pancreatic, lung, colon, renal, melanoma and breast cancers) it has the potential to become a blockbuster product and could see strong buyout potential in the future.

Finally, the company has three promising antibody programs that are targeting the other end of the immunological spectrum. These monoclonal antibodies have shown preclinical efficacy in small lung and pancreatic cancers (ICT-109) and multiple myeloma and ovarian cancer (ICT-69), and could also have potential applications in auto-immune diseases. In the near-term the company is looking at partnerships to help commercialize these platforms.

Significantly Undervalued in Today’s Dollars

ImmunoCellular’s ICT-107 is targeting glioblastoma (GBM), the most common and aggressive type of brain tumor. GBM accounts for between 50% and 60% of all primary brain tumors. Approximately 11,000 cases of GBM are diagnosed each year with roughly half of those being eligible patients for ImmunoCellular’s ICT-107 (e.g. HLA A1 and A2 status and no radiation and chemotherapy).

As for pricing, the company’s ICT-107 is likely to have better economics than Dendreon’s Provenge and Bristol Myers’ Ipilimumab. Provenge is priced at $93,000 annually, while Ipilimumab is priced at around $30,000 per dose or $80,000 per course of therapy. Since ICT-107 can be produced more cheaply than these options, the treatment could be priced at around $18,000 per dose with a four-year cumulative price of around $250,000.

Using this data, the following represents a simple discounted cash flow overview of ICT-107’s potential in the marketplace over its seven year exclusivity period once approved:

These cumulative discounted cash flows amount to $447.9 million in 2012 dollars. Assuming a better-than-average 20% chance of approval (due to very successful Phase I clinical trials), this equates to a fair valuation of $89.58 million after the risk premium is taken out. Compared to the company’s current $41.5 million market capitalization, this valuation suggests that shares are undervalued by around 115%, as of November 2011, using just ICT-107 estimates.

Trading Well-Below Its Peer Comparables

ImmunoCellular also appears undervalued relative to many of its peers, especially given its extremely successful ICT-107 clinical trials and near-term potential. Companies like Immunomedics Inc. and Oncothyreon Inc. trade with market capitalizations of $244 million and $273 million, respectively, without an FDA-approved drug on the market. And ImmunoCellular’s unique approach to targeting CSCs should enable it to trade at a premium.

Here are some other companies operating in its space and their valuations:

A Great Investment Opportunity

ImmunoCellular Therapeutics Ltd. (OTCBB: IMUC) represents a very attractive investment opportunity. Using a simple discounted cash flow analysis, the stock appears to be trading at a 115% discount to its fair valuation using projections from just its ICT-107 treatment. Meanwhile, the firm has multiple near-term catalysts including interim Phase II ICT-107 results and potential partnership deals for its promising antibody programs. Long-term, the potential for ICT-107 and ICT-121 could turn it into a billion dollar opportunity.

For more information about ImmunoCellular, please see the following resources:

• Company Website
• Company Presentation