Recent developments are forcing comparisons between these two drugmakers.
Many pharmaceutical and biotech companies have one or a few main areas of expertise in which they develop and market their most important medicines. For Merck (MRK -0.37%), one of the most prominent companies in the business, that area is oncology. Merck is best known for its cancer drug Keytruda, which has been the best-selling medicine in the world since last year. It has several other cancer drugs in its portfolio although their sales pale compared to Keytruda’s.
However, one company wants to challenge Merck’s crown jewel: Summit Therapeutics (SMMT 2.58%). This California-based biotech is developing a cancer medicine that has produced excellent clinical trial results in one area where Keytruda is the leader. Summit Therapeutics still has no products on the market, but could it follow in the footsteps of its much larger peer?
Summit Therapeutics’ great move
They say a company’s management team is one of the most critical factors in its success, or lack thereof. We have at least some evidence that Summit Therapeutics’ top brass is quite savvy. Last year, the company entered into a licensing agreement with Akeso Biopharma, a drugmaker based in China. The deal involved Akeso’s ivonescimab. While Akeso would retain the rights to market this cancer medicine in China, Summit Therapeutics obtained commercialization rights in most other places worldwide, including the U.S., the most lucrative market for pharmaceutical companies.
Summit Therapeutics paid $474.9 million and 10 million of its shares for these rights. It will also owe Akeso various milestones and royalties. This move turned out to be genius. Since early 2023, Summit Therapeutics’ shares have skyrocketed by more than 1000%, largely because of ivonescimab progress. The medicine has already been approved in China, and it recently delivered positive results in treating patients with non-small cell lung cancer (NSCLC) that expresses the PD-L1 protein.
Ivonescimab performed significantly better than Keytruda in this study, marking the first time Merck’s crown jewel lost in a head-to-head phase 3 study in NSCLC. That explains why Summit Therapeutics’ market cap is $23.5 billion even though the company does not have a single drug on the market. Although Summit will have to run its own late-stage clinical trials to earn regulatory approval for ivonescimab in the U.S. and elsewhere, this isn’t a brand-new medicine that has never hit important clinical or regulatory milestones.
Considering the data already available, it looks extremely likely to earn approval and generate well over $1 billion in sales, including in Keytruda’s most important indication: NSCLC.
Here is what it will take
Could ivonescimab’s success allow Summit Therapeutics to become the new Merck? It won’t be easy. Merck’s history dates back to the late 1800s. Since then, it has developed scores of important products. Keytruda just happens to be its biggest cash cow right now. Also, Summit didn’t develop ivonescimab internally. There is nothing wrong with licensing deals, but to follow in Merck’s footsteps, it will eventually need to pour money into R&D and develop some gems in-house.
So, here’s how it could go for Summit Therapeutics. First, the company conducts phase 3 studies and earns approval for ivonescimab in the U.S. and various other markets in NSCLC. Then, Summit Therapeutics goes after many other indications for this medicine. It could be a pipeline in a drug as it is being investigated across a range of different types of cancer, just like Keytruda. If ivonescimab lives up to the hype, Summit Therapeutics will generate enough funds along the way to start developing new products.
Assuming everything works out well, Summit Therapeutics will also deliver superior returns in the meantime. As far as becoming the next Merck, though, that would take years, maybe decades — I wouldn’t bet on it. Merck is a tough act to follow, and a company does not need to be the next Merck to be worth investing in. True, there is no guarantee everything will go smoothly with Summit Therapeutics’ ivonescimab-related plans.
The biotech’s shares will fall off a cliff if there is any serious obstacle there, even with the wealth of clinical data we already have on the medicine. It’s essential to keep that in mind. No stock is risk-free. But Summit Therapeutics still looks attractive for biotech investors, especially those with an above-average risk tolerance.
