Shares of Summit Therapeutics (SMMT 16.28%) tanked more than 30% on Friday, May 30. Such dramatic price swings aren't unusual in the biotechnology industry; in this case, disappointing data from an important clinical trial drove the stock down.
Stock markets have a tendency to sell first and ask questions later. After watching this stock plummet, some bargain-shoppers are wondering if it fell too far. Recent trial results missed the mark the company was hoping for, but the results weren't entirely discouraging.
Let's weigh the bad news against the good to see if this stock could be a beaten-down bargain.
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Harmoni hits the wrong note
Summit Therapeutics and its investors have been eagerly anticipating results from the phase 3 Harmoni trial of ivonescimab. It's a bispecific antibody that works like a compination of Keytruda (a PD-1 inhibitor) plus Avastin (a VEGF inhibitor).
Summit's stock price rocketed higher in 2024 thanks to Harmoni-2 trial results that showed it outperformed Keytruda at limiting tumor growth in lung cancer patients. Although ivonescimab is already approved in China, it's not for sale in the U.S. and EU, where Summit Therapeutics has a license to sell it.
The Harmoni trial enrolled second-line lung cancer patients and treated them with ivonescimab or a placebo plus standard chemo. The treatment reduced the risk of disease progression in terms of tumor growth by 48%, but failed to show a convincing overall survival benefit.
Adding ivonescimab to standard chemo reduced patients' risk of death by 21%, but the results fell just outside a 95% confidence interval with a p-value of 0.057.
It's highly unlikely the Food and Drug Administration will approve ivonescimab for sale in the U.S. based on the Harmoni trial results. According to Summit, the FDA has been clear about the need for a statistically significant overall survival benefit to support an application.
The good news
The China-based company that owns ivonescimab, Akeso, recently earned a second approval to market the therapy to lung cancer patients in China.
Keytruda sales rose to $29.5 billion last year, and a treatment that can outperform the leader could do even better. Ivonescimab is unlikely to earn approval in the U.S. for patients similar to those enrolled in the Harmoni trial. Given its ability to shrink tumors, though, it's probably just a matter of time before it produces statistically significant overall survival results for an underserved patient population.
Not a bargain
Tumor responses get attention, but oncologists are far more interested in giving patients a chance for long-term survival. Keytruda's a top seller now because it produced dramatic overall survival results, compared to the standard treatments of its time.
The lack of convincing overall survival data so far for ivonescimab severely reduces the odds that it will go on to produce blockbuster sales in the places where Summit Therapeutics has a license to sell it. Despite the obvious challenges ahead, expectations are still sky-high.
Drugmaker stocks tend to trade at mid-single-digit multiples of trailing annual sales. Summit has no sales, as ivonescimab is the only candidate in its pipeline. Despite the lack of options and an uncertain path forward, the stock finished May with a market cap above $13.5 billion.
If ivonescimab goes on to produce sales anywhere near Keytruda's, investors who bought Summit Therapeutics at recent prices could reap enormous gains. Unfortunately, the Harmoni trial's failure to produce a convincing overall survival benefit suggests that future sales will be muted, even if the company can get it past the FDA. It's probably best to watch this story play out from a safe distance.
