Endocyte Fails Ovarian Cancer Trial, Now What?

| About: Endocyte, Inc. (ECYT)


Endocyte fails combination of Vintafolide with PLD, but gives investors an opportunity for a long-term buy after big drop.

Endocyte shows a different combination of Vintafolide together with docetaxel achieves primary endpoint for Phase II study targeting NSCLC.

Merck still has the established partnership, despite Vintafolide failing with one combination of a chemotherapy drug.

NSCLC holds more value for Endocyte, and as such is a more important trial for the future of the company.

Recently, Endocyte (NASDAQ:ECYT) had announced that it had to pull the plug on one of its Phase III trials of Vintafolide in patients with platinum-resistant ovarian cancer. The Phase III trial was halted because of an interim analysis which was conducted by the Data Safety Monitoring Board -- DSMB. The DSMB concluded that Vintafolide did not produce the proper efficacy for the trial to continue recruiting patients. This is because the patients of the trial did not see an improvement in Progression-Free Survival -- PFS. PFS is a measure of how the patient lives with cancer while taking treatment but does not progress to a later stage. In the case of this Phase III trial, it seems that Vintafolide wasn't able to inhibit the progression of the platinum-resistant ovarian cancer.

Shares of Endocyte had plunged as much as 62% on the trial halt, down to a share price of $6.62 per share. Currently, though, shares of Endocyte trade around $6.47 per share, so at least the share price has somewhat stabilized even following the announcement of this Phase III trial halt. A little back story of Vintafolide is that Endocyte was to obtain milestone payments from Merck (NYSE:MRK) for Vintafolide, but Merck would be responsible for developing and commercializing the drug compound. Endocyte got a sweet deal because the company did obtain a $120 million upfront payment for Vintafolide, and would receive $880 million in additional milestone payments for the six cancer indications. Back in March of this year, the EMA had granted conditional approval of Vintafolide for patient use in platinum-resistant ovarian cancer based off of previous Phase II results. As was expected, on May 19, 2014, Merck and Endocyte withdrew the marketing application for Vintafolide in Europe in patients with platinum-resistant ovarian cancer.

The Vintafolide compound was a folate -- Vitamin B9 -- that was linked to a chemotherapeutic drug known as Pegylated liposomal doxorubicin, or PLD. PLD is doxorubicin -- current cancer chemotherapy -- coated with liposomes. The liposomes are added to increase drug circulation time throughout the body. The folate portion of the compound targets folate receptors of cancerous cells. Once these folates latch onto the folate receptors, they release the chemotherapeutic drug compound PLD. The good part about this was that the folate was able to release PLD in cancerous cells only, leaving healthy cells alone. This would have been a much-needed treatment for these patients, because chemotherapies currently target and kill all cells regardless if they are cancerous or not.

We mention this Phase III failure because we believe that investors still might be able to capitalize on another trial that is using Vintafolide. We make note of the key differences that may still provide value for shareholders to keep an eye on. For starters, Vintafolide is being tested with docetaxel, which is an entirely different chemotherapeutic compound than PLD. It may be that Vintafolide may prove to mix better with docetaxel than it did with PLD. Another key difference we can infer is that the primary endpoint is completely different. The Phase III trial for patients with platinum-resistant ovarian cancer had a primary endpoint of Progression-Free Survival. The lung cancer trial that is currently in Phase IIb testing has a primary endpoint of Overall Survival. We believe with these key differences, there might be an opportunity for investors to enter at the current share price given the amount of potential that is forthcoming. Investors may have to wait awhile, because the Phase IIb data testing Vintafolide isn't set to be released until the end of 2014. The difference in endpoints makes a difference, because the primary endpoint for Overall Survival is more doable in a cancer trial than Progression-Free Survival. For example, in having the primary endpoint as Progression-Free Survival, you are inferring to the number of patients where the treatment halts the progression of the tumor/cancer completely but doesn't look at their life span over a period of time. On the flip side, in Overall Survival, even if the cancer progresses further slightly, it doesn't matter, because the overall endpoint is if the patients' lives have been extended for a greater period of time regardless of the cancer progression. Therefore, Overall Survival would be a better measure of Endocyte's primary endpoint of its lung cancer trial over the ovarian cancer trial measuring PFS.

Let's take a look into the recent results for the Vintafolide compound in combination with docetaxel targeting patients with NSCLC -- non-small cell lung cancer. Regardless of the failure in patients with platinum-resistant ovarian cancer, we believe that the NSCLC trial holds more value, because it targets a larger market. The Phase IIb trial using vintafolide together with docetaxel was able to achieve the primary endpoint of Progression-Free Survival versus just docetaxel alone. Matter in fact, the disease worsening or patient death was able to be reduced by as much as 25% using the Vintafolide/doclataxel combo. As can be seen, the combination of Vintafolide with docetaxel works a lot better than Vintafolide with PLD.

We believe that Endocyte is still a good long-term buy, despite being unsuccessful in another drug combination. The encouraging results from the Phase IIb trial in patients with NSCLC provides an opportunity for investors to buy in at a much lower share price at $6.17 per share. There still may be an opportunity for investors make money pending additional positive trials in the NSCLC trial. According to the 10-Q, Endocyte had $133 million in cash at the end of the first quarter, but in April of 2014, did a stock offering selling approximately 5 million shares of its common stock to obtain $101 million of additional cash. Together with current cash and new added cash, the company currently has $233.3 million of cash, so it is set for a while before it has to go back out to dilute shareholders again. Investors, though, should be apprised of certain risks associated with Endocyte. For instance, the new Vintafolide combination being tested for lung cancer may not produce substantial results, and investors may suffer additional losses. Even upon successful clinical trials, the company will have to seek approval from the FDA, which is not a guarantee that Vintafolide will ever hit the marketplace. Investors should consider the risk/reward ratio and invest according to their risk tolerance levels.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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