Believe it or not, it's entirely possible to build out a successful biopharma without actually doing much (or any) work in the laboratory. And, at least for now, that's exactly what Summit Therapeutics (SMMT 3.92%) is angling to do. Thanks to its collaboration with a highly capable company abroad, this biotech may soon demonstrate the powerful financial performance that's possible using an asset-light business model.
With that frame in mind, let's sketch out its most probable trajectory over the next three years for Summit Therapeutics as there are guaranteed to be critical periods for this biotech.
NASDAQ: SMMT
Key Data Points
There are a lot of important milestones on the schedule
Summit's focus over the next three years or so will be to wrap up its two late-stage clinical programs for treating certain patient populations with advanced or metastatic non-small cell lung cancer (NSCLC) in combination with other treatments like chemotherapy and attempt to get regulators on board with commercializing them.
One of the trials is slated to end in late 2025, and the other is scheduled to conclude in late 2027. If the Food and Drug Administration (FDA) staff assent to either program, it'll mark the first time that the biotech will have an opportunity to generate revenue from sales of a medicine, which will be a major achievement.
All of the company's disclosed clinical trials center around testing a biologic called ivonescimab, which is licensed from a Chinese biotech called Akesobio. As Akesobio has a trio of medicines approved in China, a massive pipeline with 19 clinical-stage candidates, and a handful of other biologics in development, it's a much more mature business than Summit, which makes it a good collaborator. In fact, Akesobio handled the early and mid-stage clinical trials for the two indications that Summit is working on with ivonescimab.
The potential for the pair to forge additional collaborations over the coming years could be a big opportunity for shareholders.
If management takes the same approach as it did to the two indications it licensed already, the biotech could soon have as many as 15 different indications to choose from for additional collaboration, as that's the number of early to-mid stage clinical trials Akesobio is currently running with ivonescimab. Whenever any of those programs wrap up their phase 2 trials, assuming Summit thinks it has sufficient resources to do so, it can probably negotiate a new licensing deal to perform phase 3 trials, as well as get commercialization rights in the U.S.
That means by the end of 2027, the biotech's pipeline could be tremendously larger than it is right now. And, thanks to Akesobio, it won't need to do any highly risky early stage clinical trials. Nor will it need to invest in pre-clinical work, unless it actively chooses to develop new oncology interventions of its own with the proceeds it receives from any drugs it gets approved.
Much of the upside might be priced in already
A lot is likely to happen for this biotech over the next three years. But even if it commercializes ivonescimab for two or more indications in the U.S., it is questionable if the company can bring in enough revenue to justify its valuation today.
Today, Summit's market cap is $15.3 billion. As mentioned earlier, it has no earnings and no revenue. Reporting good news from its ongoing clinical trials will likely send the stock aloft further, and the same may go for positive results from Akesobio's programs, as at least a few future collaborations between the two businesses are practically guaranteed, given their close relationship today.
The average price-to-sales (P/S) multiple for the biotech industry is 10.3. Therefore, its market cap implies that Summit's current valuation is pricing in around $1.5 billion in annual revenue.
While that sum is not a wholly unreasonable expectation if it succeeds in launching its pair of ivonescimab programs as planned, it does not leave much of a margin of safety for investors who buy the stock today. In other words, if there is a hiccup with getting its programs approved in the U.S., or perhaps even a major setback in one of Akesobio's clinical trials, the stock will likely suffer a sharp drubbing, especially if its valuation inflates further between now and when it starts to realize sales revenue for the first time.
But there isn't any evidence to think that'll happen right now. So, overall, the chances are high that Summit's stock will be even higher in late 2027 than it is today. It'll probably be onboarding and pushing forward with more late-stage clinical trials in oncology with indications it licenses from Akesobio.
The biggest unanswered question is how much of a runway it has for growth over the long term, beyond the next few years. If management opts to essentially continue being Akesobio's proxy for commercialization of that company's therapies in the U.S., the future could be very bright. If it decides to pivot and attempt primary research and development (R&D) on its own, shareholders should be aware that it's a much riskier path than the one it's taking today.
