#ec20

Endocyte (ECYT) has performed nicely since its IPO in early February. After trading at over  100% of its IPO price, apparently because of a press release detailing the company's discussions with the EMA, the stock dived after the announcement of a common stock offering on 07/14. 

At the end of April, the company announced that it is seeking conditional approval in Europe for EC145 and EC20 based on its PhII trial experience, including their randomized PhII PRECEDENT trial. Significantly, the release suggests that the EMA is open to, and reading between the lines, willing to grant, conditional approval for EC145 and EC20.

The company also did well in early April, possibly the result of it being added to the Russell 2000, buying from institutional – Blackrock and Fidelity for instance - and  the positive reception of EC145 data (the company's lead compound) presented at AACR (albeit preclinical data).

ECYT presented the final data from its PhII randomized PRECEDENT trial in platinum-resistant ovarian cancer at an ASCO meeting. Results from the trial showed a significant improvement in progression free survival (PFS) in patients with platinum-resistant ovarian cancer treated with EC145. ECYT is developing a companion imaging diagnostic, EC20, for EC145 and is now conducting a PhIII trial (PROCEED). The design of the trail is based on the PRECEDENT trial and has progression free survival (PFS) as a primary endpoint (PE). In principle we like the company's "targeted" technology and companion diagnostics, which have shown promising results to date. Additionally, the reported communications ECYT has had with the EMA seem promising. However, we have some major concerns: according to their latest 10-K they did not seek an SPA from the FDA for the PROCEED trial. So it is not clear the FDA will accept their trial as adequate/sufficient to support an NDA. Furthermore, they are taking a huge risk by using PFS rather than overall survival (OS) as the trial's PE. To that point, their latest 10-K notes that the FDA told ECYT it requires OS to be "the primary endpoint for an ovarian cancer registration trial". Apparently the FDA went on to say that the company can conduct a PhIII trial using PFS as a PE at their own risk but that the results will need to be "very robust statistically and clinical meaningful, and the trial must be powered to demonstrate a statistically significant OS benefit." It seems the company may be going after a conditional approval based on PFS, with a post-marketing commitment to analyze/demonstrate an OS benefit. One wonders if the trial design and decision not to obtain an SPA are business decisions or are driven by the absence of an OS benefit.

ECYT price action has been bullish since its IPO until the common stock offering. As the phase 3 study is set to end in 2013 and preliminary results may not come before next year, this breach of the momentum could be an opportunity. Indeed one believes EC145 will be approved, the price is not overly expensive. There is no doubt that, if successful, the EC145 will be a blockbuster and ECYT market cap would jump, as many drugs have failed to treat platinum chemotherapy resistant cancer. But it's still a long way to go. Moreover, the timing of the stock offering raises some questions. It was close to their IPO and ECYT does not seem to need the cash right now. According to the prospectus, the cash will be used to finance the current study and to prepare the commercialization in Europe. But was it to recoup what was foregone when the IPO price got slashed? Or does the management think the stock is rich?

What about a partnership? It does not seem that they are looking for one as they have plenty of cash – over 140Mios: $90Mio from their IPO and over 50Mios more from the common stock offering - to finance the phase 3 study. Thus a bullish news of a partnership is not expected. It may be limiting the short-term performance of the stock but for the long term, it is good for ECYT as they would be able to retain the full benefit of their research.