Summit Tumbles 80% On Phase 2 DMD Failure, But The Stock Is Still Worth A Look

Recently, Summit Therapeutics (SMMT) announced that it had failed its phase 2 Duchenne Muscular Dystrophy (DMD) trial. This caused the stock to close lower by 80% down to $2.55 per share. While the DMD study failed, it is important to note that it still has a pipeline full of other clinical candidates. That means I expect a bounce to occur, since the stock had fallen so much on the news. That's why I think it is worth a look as a buy.

Phase 2 Data

The phase 2 study is known as PhaseOut DMD, and it had recruited about 40 boys with DMD. It was noted that after the trial went on to completion, only 38 out of the 40 boys had finished treatment. Patients in the study were dosed with either Summit's drug Ezutromid twice a day at either 1,000 mg or 2,500 mg. The primary endpoint was to see if the drug could improve upon leg muscles for these patients. In other words, the primary endpoint was looking to see if there was a change in baseline in the magnetic resonance parameters related to those patients' leg muscles. Unfortunately, the trial failed to meet on this primary endpoint. The secondary endpoints were also not achieved, which include: biopsy measure of evaluating utrophin (think of utrophin as being a substitute muscle mechanism to dystrophin) levels and reversal of muscle damage. It seems that this treatment was quite disappointing. That's because this study also took a look at a couple of exploratory endpoints as well. These exploratory endpoints were the six-minute walk test (6MWT) and North Star Ambulatory Assessment. Had the trial at least met one of these exploratory endpoints, Summit could have possibly moved on to a phase 3 study. One example I can give you is a biotech that I like known as Catabasis Pharmaceuticals (CATB), which had already shown to preserve muscle function and slow down disease progression of DMD. It also had met on the North Star Ambulatory Assessment in its phase 2 study, which will likely be used in phase 3 as the primary endpoint. Catabasis is expected to start its phase 3 trial in the first half of 2018, and it will target the entire DMD population. The reason why I brought up Catabasis is because, had Summit at least obtained one of those 2 exploratory endpoints above, it could have spoken with the FDA and still gone on to a phase 3 study. That's because North Star Ambulatory Assessment and 6MWT can still be used for a pivotal registration study for DMD.

The Next Steps

The next step for Summit is that it has chosen to completely abandon the DMD program. It also intends to implement cost-cutting measures as well to maintain its operations. That isn't the only item that it will be forced to lose. It had created a deal for $584 million with Sarepta Therapeutics (SRPT) for its DMD drug Ezutromid back in 2016. This means that Summit will now have to lose out on any other potential milestone payments it could have earned under this deal. Even though the DMD program was forced to stop, there is another opportunity on the horizon. Summit had stated that it will move on to a drug known as Ridinilazole. This drug will be used to treat patients with C. difficile infection. The good news is that this clinical candidate will be initiated in a phase 3 study in Q1 of 2019. That means that this biotech will have a late-stage program it can move on to. The DMD study falling through is disappointing, but it is not the end for Summit Therapeutics.

Financials

Summit Therapeutics has cash and cash equivalents of $36.2 million as of April 30, 2018. The good news is that it raised $21.2 million back in March of 2018. The cash might appear to be okay for now, especially now that the DMD program has been cut. However, keep in mind that it has to launch a phase 3 study for its C. difficile infection in Q1 of 2019. It will likely need a lot of cash to fund such a study. That's why I predict Summit will have to raise cash in the coming months, at least before the end of 2018.

Conclusion

Summit Therapeutics failed its phase 2 DMD study, which means it has to axe that program from the pipeline. The good news is that it has a program that is almost ready to start a phase 3 study in 2019. That means it will still be able to press on for potential approval of another clinical product. The risk is that this phase 3 study could end up failing. In that case, the biotech would be left with some other early-stage products in its pipeline. Such products include an antibiotic drug and a Gonorrhoea drug. These are more earlier stage programs, but the good news is that this company still has a pipeline left to advance. That's why I believe that the 80% drop was irrational. For that reason, I believe Summit Therapeutics is a buy.

This article is published by Terry Chrisomalis, who runs the Biotech Analysis Central pharmaceutical investment research service on Seeking Alpha Marketplace. If you like what you read here and would like to subscribe to my Service, I'm currently offering a two-week free trial period for subscribers to take advantage of. My service offers deep dive analysis of many pharmaceutical companies throughout the biotech sector. Come see for yourself if my service is right for you.

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