ArQule: Enticing Risk/Reward Setup Into AACR

Summary

• This former ROTY holding/former Contender netted a substantial gain for readers.
• While no longer on either list, the stock currently is offering an intriguing entry point.
• Data for ARQ 531 at AACR provides optionality (heads I win, tails I lose little).
• Downside is cushioned by two other assets, namely rare-disease candidate miransertib and ARQ 087 in FGFR2 fusion-positive second-line intrahepatic cholangiocarcinoma.
• Readers who have done their due diligence should purchase a pilot position. Due to the strength of data for miransertib to date, this appears to be an ideal situation where traders can accumulate a full position to take advantage of optionality with ARQ 531.

Shares of ArQule (NASDAQ:ARQL) have risen by around 75% since my November article noted that there were several ways for investors to win here.

Figure 1: ARQL daily advanced chart (Source: Finviz Elite) (Disclosure: Contains affiliate link)

In my third-quarter update piece (accessible to ROTY or SA PRO subscribers) I noted that while the company had been a serial disappointment in the past, they possess a triumvirate of assets that could create value this year along with a strengthened cash position as a result of prior financings.

Drug candidate miransertib was granted Rare Pediatric Disease Designation for the treatment of Proteus syndrome and the tiny company could receive a priority review voucher if approved. While the company had previously stated that two overgrowth disease patients had seen substantial improvement in quality of life as a result of receiving the drug, updated guidance revealed that 5 of 6 patients had experienced a reduction of at least 50% of phospho-AKT levels. Importantly, disease modification in cerebriform connective tissue nevus lesions was observed. This data leads one to believe that miransertib has a decent shot at crossing the regulatory finish line.

BVF has continued to show conviction with their position here and reversible BTK inhibitor ARQ 531 provided us optionality. ARQ 087 is being evaluated in a pivotal study in FGFR2 fusion positive second-line intrahepatic cholangiocarcinoma as well.

For the fourth quarter the company reported cash and equivalents of around $48 million, while net loss rose to $7.76 million. Research and development expenses fell to $4.72 million. As the company has guided for finishing 2018 with a cash balance of between $23 million and $25 million, another financing in the medium term is likely.

One near-term catalyst that readers should pay close attention to is initial phase 1a data for ARQ531 to be presented at the American Association for Cancer Research (AACR) in mid-April. Pre-clinical data has been intriguing and the target patient population of 2^nd line B-cell malignancies is substantial.

Figure 3: ARQ 531 in vivo proof of concept data (source: corporate presentation)

A company with a similar asset has seen substantial upside (also a former ROTY pick) and thus any good news here could provide a nice bump to the stock.

Figure 3: SNSS daily advanced chart (Source: Finviz Elite) (Disclosure: Contains affiliate link)

As for miransertib, enrollment in the phase 1/2 study continues (patients with PROS and Proteus syndrome). If they achieve approval and are able to sell their rare pediatric voucher, that could result in around $150 million in cash proceeds to help support pipeline development and commercialization efforts. Data supporting a combination approach with anastrozole for the treatment of advanced endometrial cancer will also be presented at AACR.

The company has stated that enrollment for derazantinib in its pivotal study continues and enough patients should be recruited by year-end to allow for interim analysis. Licensing deals in China have been a trend in 2018 so far, and an exclusive license for the regions of China, Hong Kong, Macau and Taiwan was granted which resulted in an upfront payment of $3 million, $2.5 million milestone in the first year and other milestones plus royalties later on.

ArQule is a Buy

Readers who have done their due diligence and are interested in the story should purchase a pilot position. Due to the strength of data for miransertib to date, this appears to be an ideal situation where traders can accumulate a full position to take advantage of optionality with ARQ 531 (heads I win, tails I lose little) with other assets aiding downside cushion. Readers who already have experienced a large gain would do well to take partial profits and continue holding for additional upside.

Risks to thesis include disappointing data at AACR, negative results or clinical setbacks with miransertib or derantinib and the possibility of further dilution in the medium term. Competition with other assets, including Sunesis Pharmaceuticals' more advanced SNS-062, should also be taken into account.

It is my hope that you found this article helpful. As a reminder, I publish my medium- to long-term ideas on this free platform (including the popular Core Biotech series and research on non-ROTY stocks with near-term upside), while my writing on ROTY ideas (model account holdings and Contenders) is solely accessible with a subscription. The ROTY community continues to grow and I'm excited about what we have to offer and the potential to help other traders/investors achieve their goals.

Disclaimer: Commentary presented is not individualized investment advice. Opinions offered here are not personalized recommendations. Readers are expected to do their own due diligence or consult an investment professional if needed prior to making trades. Strategies discussed should not be mistaken for recommendations, and past performance may not be indicative of future results. Although I do my best to present factual research, I do not in any way guarantee the accuracy of the information I post. Investing in common stock can result in partial or total loss of capital. In other words, readers are expected to (and encouraged) form their own trading plan, do their own research and take responsibility for their own actions. If they are not able or willing to do so, better to buy index funds or find a thoroughly vetted fee-only financial advisor to handle your account. I am in a collaborative relationship with The Biotech Forum/Bret Jensen.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.