Why Endocyte Inc. Shares Skyrocketed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Endocyte (NASDAQ: ECYT  ) , a biopharmaceutical company targeting therapies to treat cancer and inflammatory diseases, skyrocketed as much as 48% after reporting its third-quarter earnings results and providing a pipeline update.

So what: For the quarter, Endocyte produced total revenue of $16.6 million based entirely from collaborations and predominantly coming from Merck (NYSE: MRK  ) , which it netted $14.1 million from during the quarter. Net loss clocked in at $0.08 per share, which was more than double the $0.03 per share loss reported at this time last year. However, compared to an estimated loss of $0.21 per share, I'd say Endocyte handily topped expectations.

The real boost came from its pipeline update, which included the Food and Drug Administration accepting EC1456 as an investigational new drug to treat various types of cancer, and the expectation of phase 2b results for vinatafolide (which is being developed in collaboration with Merck) for non-small-cell lung cancer in the first quarter of 2014. In addition, Endocyte CEO Ron Ellis noted that late-stage enrollment for vintafolide and etarfolatide for platinum-resistant ovarian cancer remains on schedule and that an interim analysis of its findings should be available by the second quarter of 2014.

Now what: Although Endocyte shares have been shellacked recently, I believe today's pop serves as a reminder that there are a lot of near-term catalysts coming investors' way and that they should be prepared. As per the norm, I'm more than happy to hang out on the sidelines and wait for that interim data to hit in the first and second quarters of next year. I'd rather have that information to assess the possibilities for vintafolide's approval in platinum-resistant ovarian cancer than risk jumping in here and seeing the share price get hammered on poor study data. You'll definitely miss a few bigger pops that way, but you'll often set yourself up for steadier (and sometimes safer) long-term gains.

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