Summit Therapeutics shares tumble after recent results, but could the biotech play still offer value?
Last week saw biotech player Summit Therapeutics (LSE:SUMM) tank by as much as 80pc after revealing that it had discontinued its highly-anticipated treatment for a fatal muscle disease. With more projects in the pipeline, cash on the books, and the ongoing support of big-name institutional investors, could the firm be worth a punt at its current 36.5p share price?
Last Tuesday, Summit revealed that its drug for Duchenne Muscular Dystrophy (DMD), which affects c.50,000 patients and is currently untreatable, had failed to meet the goals of a mid-stage study.
CEO Glyn Edwards had hailed the potential of the drug, called ezutromid, as recently as last month and in its interim results, the organisation seemed to suggest decent trial progress. However, in last week’s update, the business said a total of 40 boys with DMD who had been trialling the drug had shown no improvements after 48 weeks of treatment.
‘These data come as a great disappointment to us and to all those living with DMD,’ said Edwards at the time. ‘While we believe utrophin modulation could still have a place in the treatment of DMD, it is clear that ezutromid is not providing a benefit for patients.’
Unsurprisingly, the news led investors to flee Summit en masse. By the end of the day, shares had fallen from 195p to 40p, leaving the firm with a modest £29.5m market cap.
Despite last week’s big blow, we think Summit could still have a lot going for it.
Firstly, while the company is understandably disappointed by the demise of its potential blockbuster opportunity, it has already made a concerted effort to look to the future. Under Edwards, who has confirmed that he has no plans to leave, it will now focus on developing the three antibiotics left in its pipeline.
The most advanced of these is ridinilazole, an antibiotic for colon infection C. Difficile that, unlike similar medications, does not cause damage to natural gut flora in the process of treatment. The drug is slated to begin phase three trials in Q1 2019 but is unlikely to hit the market for several years. Summit is also developing two further antibiotics for gonorrhoea, but these are currently at a much earlier stage.
Secondly, Summit has by no means in financial tatters. Analysts were quick to point out that it still has enough cash to last at least 18 more months, having raised £15m in a placing earlier this year. This figure is likely to stretch even further if a cost-cutting programme announced last week goes to plan. In an interview with The Telegraph last week, Edwards also said there was potential for significant new investment from organisations and governments interested in developing new antibiotics.
The final point of comfort is Edwards’ confirmation that none of Summit’s major investors appear to be planning a boycott.
‘They didn’t give us any indication they’ll all be bailing out and are saying come talk to us when the dust settles,’ he told The Telegraph.
These investors include hedge fund Lansdowne Partners, which owns a 26.9pc stake, and asset managers Point72 (6.1pc) and Hargreave Hale (4.1pc). Well-known tech investor Robert Keith also owns a 6.1pc stake. Names like this are nothing to be sniffed at, and their ongoing support suggests they still see a great deal of value in Summit’s investment style and have a lot of faith in its management. With Edwards carrying thirty years of experience in the life sciences industry under his belt, including stints as CEO of both the BioIndustry Association and Antisoma, it is not hard to see why.
The bottom line
Those invested in Summit before last Tuesday’s announcement will no doubt be disappointed by the recent performance of its shares. Furthermore, it is a little disappointing – albeit understandable – that it was so hard to see the news coming, with the company putting forward a feeling of progress and success over recent months.
However, with the biotech player managing to hold on to the management team and cornerstone institutional support that made it attractive in the first place as it enters a new stage of development, it could be worth a punt. At just 36.5p a share, any positive newsflow could trigger an upwards movement in its shares.