Better Buy: Clovis Oncology, Inc. or Endocyte, Inc?

Developmental stage oncology companies to consider.

Mar 24, 2014 at 6:00PM

Biotechs developing treatments for diseases with few therapeutic options can perform well in a variety of situations. This is especially true for developmental stage oncology companies because of the strong demand for new treatments. Indeed, Endocyte (NASDAQ:ECYT) exploded higher by 92% after announcing back-to-back clinical and regulatory achievements for its lead oncology clinical candidate, despite the entire health care sector falling by nearly 5% last Friday. And because this market appears to be turning into a 'stock pickers' type of environment, you should thus carefully consider which developmental biotechs have the best chance for success going forward. With that in mind, here is a Foolish comparison of two biotechs, Clovis Oncology (NASDAQ:CLVS) vs. Endocyte, both developing what could be the next generation of cancer treatments.  

What does Clovis Oncology offer?
Clovis is developing three oncology drugs and companion diagnostic products for a total of five indications. The company's most advanced clinical candidate is rucaparib, which is currently in a late-stage trial for ovarian cancer. If successful, Clovis plans on filing a New Drug Application for rucaparib in 2015. Next in line is CO-1686, indicated as a potential treatment for non-small cell lung cancer, or NSCLC. During the company's latest conference call, CEO Patrick Mahaffy said that the company is "aggressively moving forward with [its] plan to initiate registration studies for CO-1686 in the second quarter."

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Source: Clovis's Annual Report

On the fundamental front, Clovis exited 2013 with $323 million in cash and cash equivalents. And while that seems like a fairly large cash cushion for a developmental-stage company, management believes this amount only gives them a 12 month runway. In 2013, Clovis averaged a monthly burn rate of $7 million, so it's safe to say that the company believes the registration trial for CO-1686 is going to increase operating expenses in a major way moving forward. But the bigger issue might be $89 million in milestone payments due to Pfizer (NYSE:PFE) if rucaparib continues to meet clinical and regulatory milestones. As a reminder, Clovis licensed rucaparib from Pfizer in 2011, putting Clovis on the hook for up to $170 million in total milestone payments to the pharma giant.

What does Endocyte offer?
Endocyte's platform employs small molecule drug conjugates, or SMDCs. These SMDCs target proteins that are overexpressed in tumor cells, allowing them to largely avoid normal cell types. Moreover, Endocyte's SMDCs can carry either a drug payload or a companion imaging agent for diagnostic purposes.

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Source: Endocyte Annual Report

Last Friday, the company announced that the European Medicines Agency conditionally approved vintafolide (brand name Vynfinit), a folate receptor SMDC, as a treatment for platinum-resistant ovarian cancer, as well as two companion imaging agents. In a separate press release the same day, Endocyte announced that Vynfinit showed promise as a potential treatment for NSCLC in a mid-stage trial when used in combination with the chemotherapy drug docetaxel. Vynfinit is being co-developed with Merck (NYSE:MRK) under a licensing agreement worth up to $1 billion for the successful develop of the drug across six different cancer types.

Looking at the remainder of Endocyte's pipeline, the company does have a handful of other SMDCs completing preclinical studies for prostate cancer, and Vynfinit is also expected to begin a mid-stage trial for triple negative breast cancer soon, which will be funded and undertaken by Merck.

Turning to Endocyte's fundamentals, the company is in a relatively strong position, ending 2013 with $148 million in cash and cash equivalents. Moreover, the commercialization costs of Vynfinit in Europe should be borne by Merck. So I wouldn't expect a major secondary offering to be forthcoming in the near-term.

Foolish wrap-up
In this comparison, I believe Endocyte comes out the winner. My view is that Endocyte simply offers more value to investors than Clovis at current levels. Namely, Endocyte is on the verge of having a commercial product and only boasts a market cap of $1 billion. By contrast, Clovis is at least two years away from even submitting a regulatory filing for one of its clinical candidates, yet sports a market cap of $2.7 billion. Overall, Endocyte looks like it could outperform the broader market on the back of these recent developments, whereas Clovis could struggle to hold onto its lofty market cap in this difficult market. 

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George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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