Endocyte: A Safe Bet for 2013

Endocyte (NASDAQ:ECYT) recently confirmed that the Marketing Authorization Application (MAA) filing process for vintafolide and etarfolatide in Europe is set to be completed by the end of 2012. Vintafolide is a small molecule drug conjugate that targets the folate receptor (preferentially expressed on numerous cancers) to deliver a highly potent chemotherapeutic agent (DAVLBH in the case of vintafolide) and is partnered with Merck (NYSE:MRK). Etarfolatide is the companion diagnostic that allows the company to identify cancers that express the folate receptor, which makes for not only a targeted drug but also a targeted population. The phase II PRECEDENT trial compared vintafolide with pegylated liposomal doxorubicin (PLD) to PLD in platinum resistant ovarian cancer (PROC) and hit its primary endpoint of a statistically significant improvement in progression free survival (PFS). In the intent to treat population (which included patients that had cancers not expressing the folate receptor) the median PFS (slide 21) was 5 months compared to 2.7 (hazard ratio was .63 and statistically significant). In the subset of patients that had 100% of their cancers expressing the folate receptor (the target population for the drug and about 40% of ovarian cancer patients), the median PFS (slide 21) was 5.5 compared to 1.5 (hazard ratio was 0.38 and statistically significant).

The progression free survival results maintained in the phase II PRECEDENT trial after anindependent review, but the effect on overall survival that appeared in the interim analysis went away. The reason behind the change in the overall survival is a long discussion, and I have previously addressed it. The larger takeaway, however, is that the focus on overall survival misses the point entirely, as it was a secondary endpoint and finding a statistically significant improvement in PFR for PROC is quite impressive. The lack of a survival benefit is not new. In fact, Fung-Kee-Fung et al (2007:202) looked at 13 different studies and noted, "for patients with platinum-refractory or platinum resistant disease, none of the trials detected any statistically significant survival advantage with one chemotherapy agent over another." The results are similar in terms of PFS in which there has not been a PFS benefit shown in PROC and rarely in ovarian cancer in general. Meier et al (2004) is an exception where they found topotecan more effective than treosulphan but the trial had 64% of patients still sensitive to platinum. Endocyte, therefore, is going after the hardest subset of ovarian cancer (platinum resistant) and the most difficult to treat subset of that population (folate receptor expression is correlated with more severe disease). On the strength of its PFS findings, the company is planning on filing for conditional approval with the European Union.

Of course, approval based on PFS can be controversial, and there is a reasonable bias towards using overall survival as the primary endpoint. While overall survival is certainly the gold standard, one has to understand the context of the disease and precedence. Given the dearth of new options in ovarian cancer in general, and in PROC in specific, a conditional approval based on the PFS PRECEDENT results is quite possible if not likely. Of course, full approval would only be granted on the corroboration of the PFS effect in the phase III trial. While not a direct comparison, the recent case of Roche's (OTC:RHHBY) avastin is interesting. There were two large studies (here and here) that examined the effect of avastin when added to chemotherapy for the treatment of women with platinum sensitive ovarian cancer (note Endocyte is looking at platinum resistant ovarian cancer) and found that it marginally increased PFS and did not have an effect on overall survival. Of course, these studies were regarded as a disappointment, but not so for the EU, as they just recommended approval of avastin for platinum sensitive ovarian cancer.

The question is whether the EU will look favorably on Endocyte as well. While predicting the outcome of regulatory processes is dangerous, it seems like the avastin case is a positive precedent, especially since it was approved only on PFS in an easier to treat population. The second advantage that vintafolide has in the regulatory process is its ability to target specific patient populations. When talking about the avastin results, Otis Brawley, chief medical officer of the American Cancer Society, was quoted as saying, “We desperately need to figure out a way to predict the folks who are going to respond to the drug versus the folks who will only get side effects of the drug.” This seems precisely what the vintafolide and etarfolatide combination is able to do: identify the patients most likely to respond and then provide a drug specifically targeted for them. Keep in mind as well that avastin was recommended for approval despite the fact that its addition to standard chemotherapy was not cost effective, although it might speak more to its commercial adoption than its regulatory approval.

As highlighted above, it is quite difficult to know what a regulatory body will find important or how it will decide. That being said, avastin is probably the closest comparator for vintafolide and etarfolatide and, taking that into account, it seems that approval is the most likely outcome. Of course, the company has yet to file, and the process can take over a year before a decision is made, but looking at the set of upcoming catalysts for Endocyte, there isn't much in the way of possible negative surprises. Between now and the end of 2013, there are five likely catalysts (slide 37): submission of marketing approval in the EU, PSMA imaging data, folate tubulysin IND, folate inflammation IND, and the development of vintafolide and etarfolatide into other cancers that express the folate receptor (each year over 1 million individuals in the US, EU, and Japan are diagnosed with a cancer that expresses the folate receptor [slide 10]). It is difficult to see any of these being major events, but they will all be positive minor catalysts. In late 2013 and early 2014 the major catalysts will start, with the EU decision, phase IIb NSCLC data, and phase III PROCEED PROC PFS data, and even these are more likely to be positive than negative.

In addition to having about 12 months of minor catalysts (before a major catalyst), Endocyte is not an expensive stock. It trades at a market capitalization of around $280 million with $200+ million in cash. As such, there is little chance that it will need to raise capital any time soon. While one might normally expect small catalysts to have only minor effects on  share price, Endocyte could be different given its valuation; in this case, those minor positive catalysts may have significant effects on valuation. Even without a major re-evaluation of the company in 2013 based on the upcoming catalysts, the risk/reward between now and the EU decision is skewed towards the long side: cheap valuation, ample cash, little chance of negative events, and a series of positive catalysts. Clearly the big move will occur on the EU decision, but in the time before that decision, there are few reasons (outside of sector-impacting macro factors) to expect the price to move significantly lower, and a number of reasons to expect a trend higher.