Is Summit Therapeutics a millionaire maker?

The pharmaceutical industry often deals in home runs. Big pharmaceutical companies start small, and then a successful product catapults them into the limelight. Summit Therapeutics (SMMT 2.58%) has grown 1,000% in the past year in terms of progress in developing a drug that could rival MerckKeytruda, a product used to treat various types of cancer, had sales of more than $25 billion last year.

The early risers got rich. Is Summit Therapeutics Still A Potential Millionaire?

Or have investors gotten too far ahead of themselves?

This promising oncology drug could be a big deal

Summit Therapeutics is a biopharmaceutical company that develops oncology drugs to treat various types of cancer. The company has not yet sold its products. Its first potential drug, ivonescimab, is in phase 3 clinical testing. Ivonescimab works similarly to Merck’s pembrolizumab by making cancer cells more vulnerable to the body’s natural immune defenses and to chemical treatments such as chemotherapy.

Summit collaborates with another biopharmaceutical company, Akesoin a phase 3 clinical trial in China, and the companies recently announced encouraging data stating that ivonescimab reduced the risk of tumor progression in patients by 49% compared to pembrolizumab.

Merck sells pembrolizumab under the brand name Keytruda, and it is currently among the world’s best-selling drugs, with sales of about $25 billion last year. A competitive alternative to Keytruda could generate billions of dollars in revenue and change Summit’s trajectory as a company.

Optimism in the C-suite

It is generally risky to invest in unproven drug companies, especially when they are not yet generating revenue and so many races to bring a single product to market. Pharmaceutical product development is a long and rigorous process that often leaves investors waiting months or more between updates. While investors wait for drug trial results, they may turn to other sources to see if they can figure out how a company is doing. One such source is insider stock purchases and sales.

Many corporate executives regularly buy or sell stock using predetermined schedules, often tied to their compensation plans. However, it can raise eyebrows when a senior employee makes an unscheduled transaction. In late March of this year, Summit Therapeutics CEO and Chairman Maky Zanganeh purchased more than 110,000 shares in the public market through his revocable trust at an average price of $3.72.

An old saying goes that insiders sell stocks for many reasons, but they generally buy for only one: They think the stock is going up. Shares are trading over $20 today.

Now, we have no idea why Zanganeh bought shares and blindly following someone else’s stock moves would be unwise as everyone is in a different situation, but a CEO’s optimism can be encouraging to other investors.

Is Summit Therapeutics a Millionaire Maker?

Anyone who bought a year ago is probably happy right now. Of course, the millionaire-making question is whether stocks can deliver life-changing returns to those who buy today.

Summit Therapeutics could burst onto the scene with ivonescimab. A few billion dollars in annual revenue would make this a spectacular success, and the company could continue to do great things if it could eventually market other products. However, the stock’s market capitalization is now over $16 billion as of this writing, which is quite a bargain considering the company’s first drug has yet to hit the market. In addition, the joint venture between Summit Therapeutics and Akeso means that Summit will only sell the drug in the United States, Canada, Europe and Japan.

Merck trades at a price-to-sales ratio of 4.6. If we give the same ratio to Summit, ivonescimab would need about $3.5 billion in annual sales to justify the stock’s current value — and that could be a few years away.

As exciting as ivonescimab test results in china is, the stock is probably over its skis and more likely to destroy wealth than make you rich. Investors should look elsewhere for opportunities. However, it would be worth revisiting the stock once ivonescimab receives FDA approval.