Summit Therapeutics Skyrockets on Sarepta Deal

Shares of Summit Therapeutics PLC (NASDAQ: SMMT) more than doubled on Tuesday after it was announced that it would be entering into a licensing deal with Sarepta Therapeutics Inc. (NASDAQ: SRPT). Essentially, the companies entered into an exclusive license and collaboration agreement granting Sarepta rights in Europe to Summit’s utrophin modulator pipeline, including its lead clinical candidate, ezutromid, for the treatment of Duchenne muscular dystrophy (DMD).

Under the terms of the agreement, Summit will receive an upfront fee of $40 million. In addition, Summit will be eligible for future ezutromid related development, regulatory and sales milestone payments totaling up to $522 million, including a $22 million milestone upon the first dosing of the last patient in Summit’s PhaseOut DMD trial, and escalating royalties ranging from a low to high teens percentage of net sales in the licensed territory.

Keep in mind that prior to Tuesday’s move, Summit had a market cap of less than $100 million.

Summit also will be eligible to receive development and regulatory milestones related to its next-generation utrophin modulators. Sarepta and Summit will share specified utrophin modulator-related research and development costs at a 45%/55% split, respectively, beginning in 2018.

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Utrophin modulation is a potential disease-modifying treatment for all patients with DMD, regardless of their underlying dystrophin gene mutation. Ezutromid is currently in a Phase 2 proof of concept trial called PhaseOut DMD.

Janney raised Summit’s fair value estimate to $18 a share from $13 as a result. Janney pointed out several things, including the following:

• In addition to the $40M, there is $22M in near-term milestone (upon the first dosing of the last patient) in the PhaseOut DMD phase 2 study.
• Summit will also be eligible to receive royalties on net sales and development cost will be shared 45% (SRPT)/55% (SMMT).
• The anticipated cash on the balance sheet should be sufficient to fund operations into 2018.
• The new ezutromid formulation potentially simplifies dosing and clinical path forward.

Janney’s Debjit Chattopadhyay said of the valuation being hiked:

We value SMMT based on a risk-adjusted sum-of-parts analysis of its two clinical-stage programs. Beyond its clinical programs, Summit is also developing next-generation utrophin modulators, which could be more potent and have superior PK/PD compared ezutromid. Our r-NPV for ezutromid is $16/share based on a 20% probability of success (POS), considering the program is in phase 1/2 with POC data in patients not yet firmly established. Our r-NPV for ridinilazole is $2/share, as the market is largely generic, price sensitive, and two well-controlled phase 3 studies against an active comparator will have need to be successfully executed prior to launch. Based on available resources, SMMT will have to seek a commercial partner and the timing of such a partnership is currently unknown.

Shares of Summit were up over 112% at $18.37 early Tuesday, with a consensus analyst price target of $21.17 and a 52-week trading range of $4.26 to $19.75.

Sarepta shares were up about 1.4% at $61.82. The consensus price target is $73.14, and a 52-week range is $8.00 to $63.73.

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