This stock has been on my radar for a couple of months. Arqule could be the next Dendreon. It is a cash cow and needs a little more clinical trial data before I pull the trigger but I will continue to watch this stock. I will keep you up to date if anything changes. Currently AQ197 is entering Phase III clinical trials for non-small cell lung cancer with Japanese partner Daiichi Sankyo.
Daiichi Sankyo: (TO: 4568, DSKYY.PK)
ArQule's sky-high, but there still could be upside
By Val Brickates Kennedy, MarketWatch June 4, 2010
BOSTON (MarketWatch) -- They've been bid up over 60% over the past three months, but there could still be quite a bit of upside to ArQule shares, according to analysts.
"We don't think it's too late to get into the stock," Needham & Co. biotech analyst Mark Monane said recently. Needham has a $12 price target on the stock, which was trading this week in the upper $5 range.
ArQule's (ARQL 5.40, -0.02, -0.37%) fiery run-up would've been unthinkable just a few years ago. Back then, it wrangled with obscurity, largely because it focused on a rather un-sexy area of research known as combinatorial chemistry.
But then the company shifted gears, transforming itself into a drug discovery company with an emphasis on oncology. In fact, ArQule's new chief executive and chief medical officer were instrumental bringing one of the hottest new oncology drugs to market, Onyx Pharmaceuticals' (ONXX 25.84, +0.38, +1.49%) and Bayer's (BAYRY 63.71, +0.91, +1.45%) Nexavar. That alone, say some analysts, gives ArQule new-found gravitas.
Out of the five analysts listed by FactSet Research that cover ArQule, four have buy ratings, while Monane has an overweight rating. The average price target is $10.58, almost double its $5.61 closing price on Friday.
Which brings us to what's driving the shares: a tumor-fighting compound code-named ARQ197, or 197 for short.
ArQule has been testing the compound in combination with such highly-touted cancer drugs as Nexavar to see if it can help prevent the spread of certain cancers. But where the product is really showing promise is in the treatment of the most prevalent form of lung cancer, non-small cell lung cancer, or NSCLC.
To say the demand for new lung cancer drugs is acute would be a vast understatement. For reasons still unknown, lung cancer rates are on the rise, despite a dramatic drop in cigarette smoking over the years. An aging population is one explanation-- your chances of developing cancer definitely increase with age. Researchers suspect that environmental pollution could also be a culprit.
According to the American Cancer Society, for 2009, about 160,000 Americans died of lung cancer, accounting for almost a third of all cancer deaths. Meanwhile, there are pitifully few drugs out there that have shown any effectiveness in battling the deadly disease.
ArQule has been conducting Phase II clinical trials with 197 and the lung-cancer treatment Tarceva, which is marketed by OSI Pharmaceuticals and Roche (RHHBY 34.86, +0.37, +1.07%). In March, ArQule released data showing that the combination appeared to significantly slow down the spread of the disease in certain patients with advanced lung cancer. The news sent shares soaring over 80% on one day.
"The data's impressive to me and the lung-cancer doctors I've spoken with," said Oppenheimer &Co.'s Bret Holley, who has a price target of $11 a share on the stock.
"Assuming the data checks out, I can definitely see an upside in the stock," Holley added.
Monane cautions, however, that investors won't really know how well the drug works until Phase III trials are conducted to see if patients actually live longer using the therapy.
"The $64,000 question is does it affect survival," said Monane. "But the current data is encouraging."
And, of course, there's always the risk that 197 could bomb in Phase III testing, which would tank the stock. While the Phase II data is encouraging, investors should be reminded that roughly 40% of drug candidates wash-out in Phase III testing.
ArQule shares could also be in for another jolt this weekend, when the company is slated to present more 197 data at the annual meeting of the American Society for Clinical Oncology, one of the most influential conferences in the medical community. ArQule's first presentation is slated for Saturday, June 5.
"It think it should be a big event for them, it's like a coming-out party," said Holley.
And then there's the takeout speculation.
ArQule's run up has also coincided Japanese drug maker Astellas Pharma's (ALPMY 35.76, -0.55, -1.51%) courtship of Tarceva-maker OSI.
After more than three months of negotiation, OSI finally agreed to be bought by Astellas for $57.50 a share, or about $4 billion. Before Astellas entered the picture, OSI shares were trading in the low $30s.
Coincidentally, ArQule has partnered on 197 with Japanese drug maker Daiichi Sankyo. (DSKYY 19.93, -0.12, -0.60%) And in recent months, Japanese drug makers have been particularly aggressive in trying to acquire U.S. drug developers, in an effort to expand further into the lucrative U.S. market.
But analysts say that investors shouldn't buy into ArQule on just takeout speculation.
"That's not enough reason to buy the stock. The fundamentals here are strong and they have an experienced management team," said Monane. "These are the people who brought Nexavar to market."
- PREVIEW-Investors seek clarity on ArQule trial plan (reuters.com)
- ArQule and Daiichi Sankyo move ARQ 197 into phase III trials in lung cancer (pharmastrategyblog.com)
- ArQule drug works best in certain lung cancers (reuters.com)
Disclosure: Long ARQL, Daiichi Sankyo