Should You Buy Summit Therapeutics (SMMT)?

There’s been a lot of chatter recently about a small biotech company – Summit Therapeutics (SMMT).

On September 9th, the company announced it hit a home run with Ivonescimab, its flagship drug, in a big lung cancer trial. 

Ivonescimab showed it could slow down cancer progression better than an existing treatment. 

News quickly caught the attention of financial pros, and search volume surged from nothing to making it the second most searched biotech stock according to our TrackStar data.

Shares of the company surged 175% before losing steam.

But like many biotech companies, Summit is still in the pre-revenue stages.

Given that caveat, is this company worth a moonshot?

Summit Therapeutics’ Business

Based in sunny Miami, with offices in California and the UK, Summit is all about creating cancer treatments that pack a punch. 

Their star player is a drug called Ivonescimab, which they didn’t actually invent. Instead, they partnered with a Chinese company called Akeso to bring the drug to market in other parts of the world.

Now, this drug is like a Swiss Army knife for cancer treatment, targeting two important factors in cancer growth at once.

First, it helps your immune system recognize and fight cancer cells better. 

Second, it cuts off the blood supply that tumors need to grow. By doing both jobs at once, it packs a one-two punch against cancer.

Current treatments often focus on just one approach. By combining two strategies in one drug, Ivonescimab could potentially work better and maybe even have fewer side effects. 

The market potential for this drug is massive.

The lung cancer drug market, its main focus, was worth about $24.7 billion, and it’s expected to grow to $55.6 billion by 2030.

Summit’s latest trial results come from China. It was noteworthy because it was the first time a drug had beaten pembrolizumab in a head-to-head comparison for this type of lung cancer.

China approved Ivonescimab for use in certain lung cancer patients in May 2024. That’s a good sign – the drug has already passed some important hurdles.

Summit has the rights to develop and sell Ivonescimab in the U.S., Europe, and several other regions. They’re now planning their own trials in these areas. If the drug works as well in these trials as it did in China, it could be a game-changer for Summit.

Source: Sept. 9, 2024 Investor Presentation

Financials

Source: Stock Analysis

As we mentioned before, Summit doesn’t generate revenues. Any sales in China or Australia would go to Akeso.

Summit’s purpose is to bring it to the rest of the world, including the U.S., Canada, Europe, and elsewhere.

Right now, Summit is burning between $75-$100 million a year with $325 million in cash on their books.

The company’s total debt sits at $100 million. To keep things going, management is issuing new shares, as they did recently, with 10.35 million shares used to raise $235 million.

Given it will likely take three years to bring the drug to market elsewhere, we expect there will be similar capital raises each year until then.

Without any sales, we’re left with no valuation metrics to work with.

However, this isn’t uncommon for biotechs. For example, Viking Therapeutics (VKTX) is in the same boat.

One way you can value these companies is by dividing the total addressable market per share by the market capitalization.

For Summit, the TAM is roughly $58-$73 billion, giving you a multiple of 2.5x-3.1x.

Viking Therapeutics’ TAM is around $78-$83 billion, giving you a multiple of 10.5x-11.2x.

Note – The way we set up this calculation, a higher multiple is better as you get more TAM per dollar of market capitalization.

Our Opinion 6/10

As a speculative play, there is a lot to love here.

The potential for Ivonescimab is incredible and likely has applicability beyond lung cancer.

Cash levels are adequate, and the company already has Phase III trials underway outside of China.

The only two knocks we have are the current market capitalization and a lack of any other drugs in the pipeline, creating concentrated risk.

If you like this company, we’d wait for the stock to come back down, as most do, before stepping in.

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