Is Summit Therapeutics a buy now?

Actions of Summit Therapeutics (SMMT 55.99%) it recently jumped in response to positive clinical trial results for experimental cancer therapy. Results from the Phase 3 Harmoni-2 trial suggest that newly diagnosed lung cancer patients do better with its cancer drug candidate, ivonescimab, than the current standard of care, Keytruda from Merck (MRK -2.06%).

With global sales rising 19% last year to $25 billion, Keytruda is the world’s best-selling drug. It is approved to treat a lot of different cancer patients, but first-line lung cancer is the indication most responsible for its success.

Is Summit Therapeutics a good investment right now? While ivonescimab beat Keytruda in Harmoni-2, there are plenty of downsides when it comes to determining the trajectory of new cancer drug launches.

Reasons to buy

Keytruda and ivonescimab both act on PD-1, but ivonescimab is a bispecific antibody that also inhibits vascular endothelial growth factor (VEGF). This dual action appears to prevent tumors from growing more effectively than PD-1 treatment alone. At a planned interim update, the investigators found that patients treated with ivonescimab were 49 percent less likely to have gotten worse than the group randomized to Keytruda.

If the reported benefit for disease progression leads to a strong overall survival benefit, ivonescimab could become the new standard of care for many first-line lung cancer patients. Given Keytruda’s $25 billion in 2023 volume, it is not unreasonable to expect a similar sales trajectory for ivonescimab if it is approved by the US Food and Drug Administration (FDA).

Summit’s stock price has been all over the map lately, but as of 10:30 a.m. ET on Monday, September 9, it had a market cap of about $13 billion. Shares of commercial-stage drugmakers tend to trade at single-digit multiples of total sales, suggesting these stocks could double your money — if all goes well.

Summit Therapeutics CEO Robert Duggan is not a trained scientist, but his track record is remarkable. As the former CEO of Pharmacyclics, he made many investors rich back then AbbVie spent about $21 billion to acquire his company and Imbruvica, the breakthrough blood cancer therapy.

Reasons to remain cautious

There is still a lot that can go wrong for Summit Therpeutics. Successful Phase 3 trials generally lead to FDA approvals, but Harmoni-2 was made in China by Summit’s partner, Akeso. Ivonescimab won marketing approval from Chinese regulators in May, but the US FDA won’t approve new cancer therapies without a pivotal trial that includes patients in the US or at least several foreign countries.

Summit started in October 2023 a global phase 3 trial in first-line lung cancer patients called Harmoni-3. Predicting the outcome is difficult because it will compare ivonescimab plus chemotherapy with Keytruda plus chemotherapy.

Keytruda also tends to lag when it comes to overall survival, which is the gold standard when it comes to evaluating the effectiveness of a cancer therapy. In the Keynote-042 trial, Keytruda monotherapy initially underperformed chemo in terms of disease progression. It was months later that we learned that Keytruda actually reduced patients’ risk of death by 19% compared to chemotherapy.

The Harmoni-3 trial is a step in the right direction, but investors need to know how well ivonescimab stacks up against Keytruda plus a separate VEGF inhibitor like Avastin. The combination is already used to treat some lung cancer patients.

Lower-cost biosimilar versions of Avastin are now available, and Keytruda could lose market exclusivity soon after Summit gets its first chance to market ivonescimab. Launching an expensive new bispecific antibody when a combination of two traditional antibodies does the same job could be a big challenge.

A buy now?

Big pharmaceutical companies tend to go all-in for new cancer drugs. However, AbbVie bought Pharmacyclics for about $21 billion Johnson & Johnson already owned rights to about half of Imbruvica’s revenues. Summit Therapeutics has rights to ivonescimab outside of China and Australia, so a potential buyer wouldn’t have to share too much.

While this stock could offer big gains, it’s probably not worth the risk right now. With a market cap of more than $10 billion at recent prices, shares of Summit Therapeutics could drop a lot if the stock market starts to worry about the future of ivonescimab.

There is too much we don’t know about the overall survival of patients treated with ivonescimab versus standard care. Instead of opening your brokerage app to buy this biotech stock at its recently inflated valuation, it may be better to watch from a safe distance until we have more data or its market cap falls back below $10 billion .