Endocyte Gets Big Deal But More Validation Needed

| About: Endocyte, Inc. (ECYT)
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News that Merck & Co (NYSE:MRK) has licensed ovarian cancer candidate EC145 for $120m upfront caused shares in Endocyte (NASDAQ:ECYT) to double to $7.62 yesterday on mounting hopes the Indiana group will yet find a population in which the drug conjugate has a clear and unambiguous affect on survival. However, as such events go, investors seem to be giving the deal a rather tepid endorsement – even with yesterday’s spike Endocyte's shares remain marginally above their February 2011 float price and well below their record.

The company has had a good run of late, with European Union regulators agreeing to a conditional filing on positive phase II progression free survival data and resolution of supply issues with the comparator drug Doxil (Endocyte stages comeback on filing news, March 19, 2012). But a return to immediate post-IPO levels is probable only with positive news emerging from pivotal trials and an uneventful EU authorization.

Buried treasure

In what Endocyte claims was a very competitive bidding process the New Jersey big pharma secured EC145, now known generically as vintafolide, for a deal with a total value reaching the stratospheric $1bn mark, fairly rare even in the world of biodollars (Does a top dollar upfront payment give a greater chance of success?, August 4, 2011).

That nearly 90% of the value is buried in clinical, regulatory and commercial milestones in a total of six indications should be taken as a sign that this is an asset that still requires significant validation. Though successful on the primary endpoint of progression free survival in its phase IIb Precedent trial, patients taking both Doxil and EC145 actually died sooner than patients taking Doxil alone, a post trial analysis found (Endocyte looking a much riskier proposition, December 14, 2011).

However, robust progression free survival in women whose tumours express an abundance of folate receptors, known as FR++ patients, remains convincing data. EC145 is a combination of a potent vinca alkaloid and folate. EU regulators were persuaded to allow a conditional filing for use in this subgroup of patients, due later this year. About 40% of the targeted patients are considered FR++.

Coupled with the development of a companion diagnostic called EC20 for FR++ and a lack of treatment options for women whose disease no longer responds to platinum-based chemotherapy, EC145 must have remained a compelling package for many. Endocyte executives said “multiple partners” bid for it for different areas of the world.

Merck, which has little oncology presence to speak of, could use a few candidates. Although the FDA will decide on Taltorvic in sarcoma by June 5, the company has no phase III oncology products, with four in phase II.

A phase III candidate, and indeed one that with a companion diagnostic fits the description of “personalised medicine” now in vogue, is a nice catch for big pharma looking to fill its pipeline.


Yet for a company that signed an impressive deal – the upfront fee was very close to Endocyte’s $136m market capitalization on Friday – the fact that shares did not go higher is a sign of investor wariness. The stock was 11% higher again, at $8.46, in early trading today. Five months after its IPO shares reached their record of $14.59, valuing the Purdue University spin-out at $210m, allowing another share sale to boost its cash pile.

Endocyte ended 2011 with $128m cash. With the addition of the $120m from Merck, the company has on the order of $248m, compared with a market capitalization of $273m at Monday’s close.

Thus it is clear that investors want more from Endocyte before returning it to the values of last summer. Unequivocal trial results and regulatory success are needed.