Even in hindsight, it would have been difficult to predict Summit Therapeutics' (SMMT 2.88%) exceptional rise over the past three years. The company's shares have skyrocketed by more than 1,500% over this period. That's impressive even by the standards of the volatile biotech industry. Now looking forward, great things seem to be awaiting the biotech.
Let's discuss why Summit Therapeutics is still worth investing in today.
The "Keytruda killer"
Why has Summit Therapeutics, a drugmaker that generates no revenue and is unprofitable, soared in recent years? And why does it have a market cap of $15.6 billion? Biotech investors can already guess: The company has made significant progress with its leading pipeline candidate, ivonescimab.
Summit Therapeutics' management had the genius idea to license this investigational cancer medicine from China-based Akeso Biopharma a few years ago, which granted Summit the rights to commercialize the therapy in most countries outside of China, where it is already approved.
Image source: Getty Images.
Further, ivonescimab isn't just any investigational therapy. It is perhaps the leading potential "Keytruda killer" out there. Here's what this means. Merck's (MRK -0.27%) famous cancer drug Keytruda has earned over 30 approvals in the U.S. alone and has become the standard of care in many indications, including non-small-cell lung cancer (NSCLC), one of the leading causes of cancer death worldwide. The medicine's success has earned it the coveted status of the world's best-selling drug.
However, even beyond the fact that some patients don't respond well to Keytruda and may need new treatment options, any medicine that proves better in head-to-head clinical trials might take its crown, along with a decent share of its vast, multibillion-dollar market. The contenders are the would-be "Keytruda killers," and ivonescimab is arguably at the top of that list.
In one study conducted in China on patients with NSCLC and a PD-L1 protein overexpression, ivonescimab reduced the risk of disease progression or death by 49% compared to Keytruda, marking the first time a medicine beat Merck's crown jewel in a head-to-head, phase 3 study in NSCLC.
A pipeline in a drug
True, Summit Therapeutics' ivonescimab still has some work to do. It has to perform well in phase 3 studies in the U.S. to earn approval in the country. The biotech has launched, or is preparing to start, clinical trials for the medicine across NSCLC and other indications. There is always the possibility that ivonescimab will flop in these studies.
However, one reason the stock has reached valuations practically unheard of for clinical-stage biotech companies is that the risk of late-stage clinical failures is significantly lower than for the average small drugmaker.
Ivonescimab's commercial status in China -- where it has earned not one but two approvals in NSCLC alone -- and the vast amount of data it has already generated in the country can't support U.S. approval, but it isn't meaningless either.
What's more, ivonescimab could prove to be a pipeline in a drug, that is, a medicine that grinds out one label expansion after another, thereby significantly expanding its total addressable market over time. The medicine is already being tested across a range of other indications in China, indications which Summit should eventually pursue elsewhere.
Here's the kicker. Some analysts have estimated potential global peak sales of $53 billion for ivonescimab across every indication. Of course, even if the therapy achieves that total, it won't all go into Summit Therapeutics' pockets, but a significant portion should, considering it has the rights to the medicine in some of the most lucrative pharmaceutical markets, including the U.S. and Europe.
If these projections are correct, Summit Therapeutics' stock likely hasn't peaked yet. There will always be some uncertainty involved with estimates of this type, and there is still the risk that ivonescimab will fail to earn at least some indications. It's essential to keep that in mind.
Even so, Summit Therapeutics looks like a rising star in the biotech industry, and investors who initiate positions today could potentially see superior returns over the next five to 10 years.
