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ArQule: Buy the Dip?

By Maxx Chatsko - Aug 30, 2019 at 2:39PM

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The pharma company has wowed investors with solid clinical data multiple times this year.

A little clinical data can go a long way. Promising updates from two pipeline assets have catapulted shares of ArQule (ARQL) 230% higher since the beginning of 2019. The company's market cap soared to $1.3 billion, which is pretty impressive considering it has rarely topped $400 million in the last decade. 

The clinical results announced to date need to be replicated in larger trials, but investors have reason to be at least a little excited for the company's future. Knowing that, what should investors make of the fact that shares of ArQule have tumbled 20% since the beginning of July? Is the stock a buy?

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Image source: Getty Images.

A first-half 2019 recap

Investors can't be sure that ArQule will wrap up clinical trials with successful results in hand, but recent updates do help to validate the company's approach to treating diseases. The pipeline harbors four drug candidates that inhibit the activity of proteins called kinases. While the proteins drive a wide range of cellular processes in healthy organisms, kinases can also help cancer cells to proliferate or trigger the progression of various diseases when they become too active.

ArQule is studying drug compounds that can selectively inhibit specific kinases while sparing others. For instance, ARQ 531 is being studied as a treatment for cancers affecting B cells, a type of white blood cell. The drug candidate binds to the BTK protein, which plays a crucial role in the creation of new B cells. While other BTK inhibitors exist, they're too good at binding to the protein, which often mutates its structure and results in the cancer becoming resistant to treatment.

That's why ARQ 531 was designed to bind to the BTK protein reversibly (reducing the risk of mutations) and to a common mutated form (reducing the impact of mutations). If the hypothesis pans out, then the drug candidate might allow individuals to keep their cancer in check for longer periods of time.

The results from a small study announced in June were promising. A daily dose of ARQ 531 achieved a partial response in four of six patients with chronic lymphocytic leukemia (CLL) and one of eight patients with a rare complication of CLL called Richter's syndrome. All patients had been treated unsuccessfully with other drugs. One patient has been treated for two years, which suggests the reversible binding properties might be delivering the expected benefits.

ArQule also announced promising results for ARQ 092 (miransertib), an inhibitor of ATK proteins, in treating Proteus syndrome and other overgrowth diseases. The rare diseases are characterized by bones, skin, or organs growing out of proportion to the rest of the body because of overactive ATK proteins. Of the 17 individuals tested in a small study, nine had stable disease after one year of treatment and three had stable disease with less than one year of treatment. Eleven patients reported a reduction in pain. There are currently no approved ATK inhibitors or drugs for treating overgrowth disorders on the market.

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Image source: Getty Images.

Where's ArQule headed?

Following promising proof-of-concept results for ARQ 531, the next step is to study the drug candidate in a larger population of patients. ArQule is preparing to conduct a phase 2 trial for the asset with an additional 80 to 150 individuals, although the company has not announced a timeline for when the study might begin or have preliminary data available. The company is also planning to enroll the first patient in a registrational trial (a study that can support an initial application for marketing approval) for miransertib in Proteus syndrome and rare overgrowth disorders before the end of September. The trial will conclude once all patients in three separate cohorts have received treatment for 12 months, so likely in 2021 or 2022. 

ArQule also expects to report initial data from a phase 1b trial evaluating ARQ 751, a next-generation AKT inhibitor, before the end of 2019. The drug candidate is being studied as a potential treatment for cancers with solid tumors harboring specific genetic profiles, which the company believes are present in up to 5% of all solid tumors. The preliminary results will determine whether the drug candidate can move into midstage studies and if investors might have a third promising pipeline asset to watch. 

The fourth pipeline asset is derazantinib, although ArQule has licensed the rights and development responsibilities to Basilea (globally ex-China) and Sinovant (China). If the treatment earns regulatory approval and reaches certain sales milestones, then ArQule could earn up to $400 million in milestone payments. However, most analysts aren't that optimistic for the asset, and those who are don't see major sales until the 2030s, so it shouldn't figure into the near-term future of the company. 

Is ArQule a buy?

ArQule exited June with $179 million in cash, which the company says should be able to fund operating expenses into 2022. That goes a long way to de-risking the stock. Meanwhile, ArQule has a promising duo of pipeline assets headlined by ARQ 531, which will soon progress into a much larger phase 2 trial. 

ArQule is clearly headed in the right direction and may prove successful in targeting overactive kinases to treat disease. That said, while the preliminary results do look promising, the safety and efficacy of ARQ 531 must be replicated in a more robust setting -- such as the planned phase 2 trial -- before investors get too carried away. At a market cap of $1.1 billion, this stock isn't a screaming buy, but investors with an existing position have no reason to sell, either.

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