Topline Summary
Summit Therapeutics Inc. (NASDAQ:SMMT) is a developmental biotech that is currently working on a novel immunotherapeutic for solid tumors. And they’ve achieved massive market success in 2024 so far, to peak at a market capitalization of well over $7 billion. Now, they have announced “historic” data from their Hong Kong-based partner, pointing to a very promising future for their pipeline.
In the premarket, as I write this, they are crashing off their highs on this news. Today, let’s explore a bit more about the investment thesis for SMMT at this stage.
Summit Therapeutics Pipeline Overview
Ivonescimab
The main pipeline candidate SMMT is working on is ivonescimab, a bispecific antibody targeting both PD-1 and VEGF, attempting to combine the activity of agents like bevacizumab and pembrolizumab (branded as Keytruda and sold by Merck (MRK)).
SMMT is hoping that their first wins for ivonescimab will be in patients with non-small cell lung cancer, and the company is currently conducting 2 phase 3 trials in the setting. First is HARMONi, which is enrolling patients with non-squamous disease that is EGFR mutation positive. The second phase 3 study, HARMONi-3, is enrolling patients with squamous cell lung cancer to receive either ivonescimab plus chemotherapy or standard-of-care Keytruda plus pembrolizumab.
These studies remain ongoing, and SMMT’s partner is conducting other studies outside the U.S. In particular, recent findings from their HARMONi-A study were received with significant caution by the markets until Citi initiated coverage with a Buy rating, leading to a dramatic cycle of fall and meteoric rise in valuation. The share price fell below $3 before shooting up to near $11 on this news.
Now, the big news for ivonescimab has been announced by SMMT, that their partner has achieved a milestone. The phase 3 HARMONi-2 study has shown “decisive” progression-free survival benefit for ivonescimab compared with pembrolizumab in patients with NSCLC that is PD-L1 positive. Subgroup analysis indicated that this benefit was present in both the PD-L1 1%-49% subgroup, and the PD-L1 >50% subgroup, indicating a fairly broad spectrum benefit.
It is the first drug to beat MRK’s juggernaut in any form of cancer, and it certainly bodes well for future prospects of ivonescimab. A press conference about the study is set for June 3, and full data are expected to be presented later this year (I would expect at the ESMO meeting in September).
Financial Overview
As of their latest quarterly filing, SMMT held $163 million in current assets, including $61.2 million in cash and another $95.4 million in investments. Their operating expenses reached $42.6 million for the quarter, and they recognized a net cash burn loss of $43.5 million in total.
Given this cash burn rate, the company’s cash runway is approximately one year, putting them square in line for needing to raise funds.
Strengths and Risks
Strength – You can’t beat Keytruda without starting to look like Keytruda
Full stop, you cannot understate the benefit for a company that comes along with a drug that shows improvement over Keytruda. MRK commands sales of almost $7 billion per quarter from that drug alone.
So the hype is very, very real for a drug that can show signs of life in beating MRK at its game. Granted, it’s taken years and years to build the juggernaut, so SMMT has a long way to go, and a lot of proving to do across cancers. Moreover, the fundamental hypothesis of combining anti-VEGF and PD-1 is not standard for all the cancers where Keytruda is in play. Melanoma, for example, does not currently include anti-VEGF (in any of its iterations) as part of standard treatment. There’s a lot of room for ivonescimab to grow, as evidenced by the laundry list of clinical studies being undertaken by the company’s partner in development. And this news is a great start.
Risk – Massive valuation for a developmental-stage company
Even still, $7 billion market cap for a company with no sales and no promise of any sales is a tough pill to swallow. I suspect this is the root of the expected dip in market valuation after this “historic” news. We’re talking a market cap for Summit that rivals mid-stage, reasonably successful biotechs that have a deeper pipeline.
So I see it as a major risk for market volatility to have shot up so high, and while I’m sanguine about the prospects of ivonescimab, I’m not sure if this is the price point you would want to be at for the near term.
Risk – Dilution is all but guaranteed, in my opinion
Couple that with the fact that SMMT is sitting on a very bare cash pool, and I expect that the “sell the news” crowd is looking to get ahead of the near-inevitable announcement of a public offering. This is about the biggest position of strength that a late-stage biotech can hope to find itself in, and I expect a public offering to rival the likes of Janux Therapeutics (JANX) and so on, closing out cash concerns for the medium term.
This will be an important step for the company, but those looking to time their investments in some way here are likely jumping ship, expecting that the company has hit a “local maximum” in valuation.
Is SMMT Stock Is A Buy Now?
SMMT at almost $11 per share is a very difficult thesis to make at this stage of the company’s life. These data from China are very promising, but we in the U.S. do not have a track record of accepting these studies for approval, so everything for SMMT hinges on their own phase 3 studies. And while those studies now look VERY promising, it’s still no guarantee of success. Couple that with just how fast the stock has risen, and the need for cash, and you have a recipe for short-term extreme volatility.
To me, this Summit Therapeutics Inc. move smells more of speculation than of people looking to make a sound investment. So while the ivonescimab data is indeed very exciting, and we may well see an heir apparent to Keytruda, I don’t believe that this is the right time to buy in. Given these data, I would be much more amenable to a buy in if and when SMMT would stabilize in the $1 to $2 billion range. Long-term believers here are probably going to be vindicated, but there is too much risk of near-term fall to make me think this is a sound investment just yet, even if we see the 30% drop predicted by the premarket trading.
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