Will Vintafolide Approval Silence Endocyte Bears?

Unless you've been asleep for a week, you probably noticed that Endocyte (NASDAQ: ECYT  ) shot up over 150% last Friday, before settling near a 100% gain. Nearly two years ago Merck (NYSE: MRK  ) made a deal with Endocyte potentially worth $1 billion. The uncommonly big deal for vintafolide attracted plenty of bulls, and bears suggesting the cancer therapy would never reach the market. Now that vintafolide has been given a regulatory thumbs up, can Endocyte investors finally enjoy some silence from the company's doubters?

The good news
Before considering the bear thesis for Endocyte, let's have a look at what prompted the market to smile upon this not-yet-profitable biotech, while the rest of the industry was getting butchered. First, the partners announced an important success with recurrent non-small cell lung cancer (NCLSC) patients. Vintafolide combined with a standard chemotherapy agent reduced their risk of disease progression or death by 25%, an impressive result.

What really whipped investors into a frenzy was the positive opinion Endocyte received from the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA). The opinion supports conditional marketing authorisations for vintafolide, and the company's diagnostic agents used to screen for patients most likely to respond to it. The EC isn't required to follow the CHMP's opinion, but it nearly always does.

What a bear says
One of the arguments against Endocyte centered around the NCLSC trial mentioned earlier. It began with three arms, but finished with just two. Last October the independent data safety monitoring board said the vintafolide monotherapy arm wasn't likely to be superior to the chemotherapy control arm. The board didn't shut down the vintafolide monotherapy arm. It just recommended informing patients and investigators involved that vintafolide alone probably wasn't going to be more effective than chemotherapy alone. 

The trend
Another argument against Endocyte was the lack of long term overall survival data. Bears were convinced that the CHMP would not recommend vintafolide without it. Clearly they were wrong.

Overall survival has long been the gold standard for measuring the efficacy of cancer therapies, so the bears had a solid argument. What they didn't account for was a growing trend among regulators -- one that anyone investing in companies like Endocyte should understand.

In a nutshell, regulators want to give patients with specific unmet medical needs access to potentially life-saving new therapies much faster. Two days before Merck and Endocyte announced the CHMP's recommendation, the EMA launched an adaptive licensing pilot project. It's still in the planning stages, but the project's goal, according to the EMA's Senior Medical Officer is "to explore with real medicines in development a progressive licensing approach that would allow timely access for patients to new medicines that address serious conditions with unmet medical needs."

Making deals
Endocyte ended 2013 still eligible for payments of up to $875 million from Merck for vintafolide. How much the company will receive if the EC accepts the CHMP's opinion is hard to say. The milestone payments are split over six different cancer indications. The agreement also includes a double-digit percentage royalty on ex-U.S. sales. The recommended indication of "adult patients with platinum-resistant ovarian cancer who express the folate receptor on all target lesions" is awfully specific. It might not be enough to push Endocyte into positive territory, but it could attract some valuable attention.

Vintafolide is a small molecule drug conjugate. It's similar to popular antibody-drug conjugates, but with a small, simple folate molecule in place of a big, complex antibody. Overall Endocyte's small-molecule conjugates are much easier to manufacture and administer to patients.

If ventafolide wins approval, Endocyte's proprietary technology might start attracting more deep-pocketed companies looking to make a deal. Seattle Genetics (NASDAQ: SGEN  ) also specializes in drug conjugates, but with large antibodies. Following the approval of Adcentris in 2011, its collaboration and license revenue more than doubled to $106.8 million for 2013.

Final take
Endocyte bears weren't wrong to be concerned about vintafolide's efficacy. What they had wrong was the way the CHMP would react to it. If approved by the EC, vintafolide will have a chance to generate some revenue and additional attention. Beyond vintafolide, the company has a candidate in phase 1 development, and two more in the preclinical stage. Revenue from current, and possibly some new, partnerships could give it enough runway to get those candidates off the ground.

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