Endocyte (ECYT): Targeted Cancer Therapeutics with R&D Warchest

Edward Kim  |

In the wake of Amazon (AMZN) notably breaching $1,000 per share today, CNBC highlighted that just five technology leaders have accounted for one-third of the S&P 500's gains this year. The NASDAQ bellweathers - Amazon, Alphabet (GOOGL), Apple (AAPL), Facebook (FB) and Microsoft (MSFT) - are pacing a 20% rise in the technology sector, leaving all other sectors far behind. Marc Chaikin of Chaikin Analytics, as quoted in the CNBC story, said that the rest of the S&P has "to catch up. Otherwise, it leaves the market vulnerable to a correction."

As we've chronicled in this space, microcaps have outpaced large caps over the past 12 months despite the large cap rally since the election, and we've seen microcaps closing the gap over the past 3 months. We think the protracted uncertainty surrounding the administration's tax reform proposals will benefit smaller stocks - biotechnology in particular - as we see the continued rotation out of large caps.

We've been following a cancer therapeutics company that has a very strong cash position to support its development efforts. Endocyte (NASDAQ: ECYT) has developed a proprietary drug conjugation technology to create novel small molecule drug conjugates (SMDCs) and companion imaging agents for precision targeted therapies. The SMDCs actively target receptors that are overexpressed on diseased cells relative to healthy cells. This targeted approach is designed to enable the treatment of patients with highly active drugs at greater doses, delivered more frequently and over longer periods of time than would be possible with an untargeted drug alone. The companion imaging agents are designed to identify patients whose disease overexpresses the target of the therapy and who are therefore more likely to benefit from treatment.

Source: Endocyte Company Overview, May 2017

Clinical Progress

In its Q1 results reported earlier this month, Endocyte reported good progress in the clinic with its two lead candidates for prostate cancer and lung cancer therapies. The company is enrolling patients in the expansion segment of the Phase I trial of its EC1169 candidate in up to 50 patients with metastatic castration-resistant prostate cancer who have had taxane chemotherapy. Additionally, the company is enrolling an expansion cohort of up to 40 patients in its Phase I trial of EC1456 for folate receptor-positive non-small cell lung cancer patients. Folate receptors are highly overexpressed on the surface of many tumor types.

Strong Cash Position

As of the end of March 2017, Endocyte had $128 million in cash on the balance sheet. The company expects to still have $100 million at the end of the year. We like the company's science and clinical approach, and we appreciate that the company won't be diluting shareholders with any equity capital raises in the near term. The current market cap of $117 million means that the company is valued solely on its cash balance, with investors getting a free call option on the entire research and development pipeline.

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