If you have not noticed, shares of Endocyte (ECYT) are in rally mode. They are up 40% today, following gains all week. In this column, we discuss what you need to know about this rally and why it is occurring. The price action is strong:
What a run! Let us now discuss what we are seeing and why.
Endocyte stock is rallying because of three major items. First, strong data. Second, a key upgrade. Third, and most surprisingly, a capital raise through an equity offering that we take as bullish given the price action.
Endocyte reported a net loss of $8.6 million, or $0.18 per basic and diluted share, for the fourth quarter of 2017, compared to a net loss of $11.1 million, or $0.26 per basic and diluted share for the same period in 2016. That narrowing loss is promising. Let us dig further.
Research and development expenses were $5.1 million for the fourth quarter of 2017, compared to $8.2 million for the same period in 2016. The decrease was primarily attributable to: a decrease of $1.4 million in compensation expense as a result of employee terminations since December 31, 2016, including those resulting from the company’s restructuring in June 2017; a decrease of $1.0 million in manufacturing expense for EC1169; a decrease of $0.7 million in expenses related to trial and manufacturing costs for EC1456; and a decrease of $0.6 million in expenses related to pre-clinical work and general research, including the development of EC2629. These decreases were partially offset by: an increase of $0.6 million in expenses related to consulting fees for PSMA-617 and in expenses related to our CAR T-cell therapy program.
We did note that general and administrative expenses were $3.7 million for the fourth quarter of 2017, compared to $3.1 million for the same period in 2016.
The increase was primarily attributable to an increase in expenses related to legal and professional fees and an increase in compensation expense, including stock compensation expense.
Cash, cash equivalents and investments were $97.5 million at Dec. 31, 2017, compared to $103.1 million at Sept. 30, 2017, and $138.2 million at Dec. 31, 2016.
Endocyte had sufficient cash to fund its activities into the second half of 2019 through many important milestones; but as we will see there is a new capital raise.
The company has just launched a Phase 3 clinical trial, VISION, assessing Lu-PSMA-617 in patients with progressive prostate-specific membrane antigen (PSMA)-positive metastatic castration-resistant prostate cancer (mCRPC) who have received at least one novel androgen axis drug (NAAD) and at least one taxane regimen. Enrollment will commence next quarter.
The primary endpoint of the open-label, 750-subject study is overall survival (OS) in patients receiving Lu-PSMA-617 plus best supportive care alone or in combination with a NAAD compared to best supportive care alone or in combination a NAAD. Patients in the treatment group will receive Lu-PSMA-617 intravenously every six weeks up to six cycles.
Interim data from 50 patients in an Australia-based study will be presented at ASCO in June.
Lu-PSMA-617, licensed from ABX GmbH, selectively delivers short-range beta-emitting radioactive isotope lutetium to tumor cells that express prostate-specific membrane antigen (PSMA).
The risk/reward at the current stock valuation looks good, says analyst Boris Peaker, noting PSMA-617 has been tested in 2K-3K patients in Germany and the feedback from one doctor has been very positive.
He conservatively sees the drug launching in 2022.
Then there’s the CAR-T program, which Peaker calls a “free lottery ticket” as it’s not yet factored into the current share price.
He upgrades to Outperform.
Anytime you see an equity offering that results in a stock price soaring, you have just witnessed one of the most bullish possibilities imaginable for a biotech stock. Today’s big rally is bullish because of this very reason.
The company just announced a registered public offering of 17,857,143 shares of its common stock at a price to the public of $4.20 per share. Shares have flown above this level. In addition, Endocyte granted the underwriters a 30-day option to purchase up to an additional 2,678,571 shares of its common stock on the same terms and conditions. All shares of common stock sold in the offering are being sold by Endocyte. Endocyte expects to close the offering on or about March 2, 2018, subject to the satisfaction of customary closing conditions.
Why does it need the money? Endocyte anticipates that the aggregate net proceeds from the offering will be approximately $70.0 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by Endocyte, but excluding any exercise of the underwriters’ option to purchase additional shares of common stock. Endocyte intends to use the net proceeds from the offering to fund the continued clinical development of its pipeline products, as well as for working capital and general corporate purposes.
All things considered
Positive trial data and finanical data could keep the party going. Right now its speculative, but we are buyers, simply because of the momentum. Be cautious, as shares could selloff quickly if things turn. Have a clear exit strategy.
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