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After 500% Surge, Mirati’s Day of Reckoning Is Approaching

After 500% Surge, Mirati’s Day of Reckoning Is Approaching

(Bloomberg) -- With no drugs on the market and no earnings to speak of, Mirati Therapeutics Inc. has soared more than 500% since September 2017.

That’s when the oncology company’s lead product, sitravatinib, showed early promise in lung cancer. But even with a pivotal study for the treatment already in motion, investors have set their sights elsewhere: a yet-to-be proven experimental therapy known only as MRTX849.

While Mirati has only guided to a first look at MRTX849 sometime in the fourth quarter, sell-side analysts expect results to be presented as late-breaking data at the AACR-NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics, a meeting in Boston that kicks off at the end of the month.

MRTX849 targets a mutation on the KRAS gene, which in human tumors can spur cancer’s growth. It occurs in about 13% of non-small cell lung cancers and 3% of colon cancers, as well as handful of other tumors. Doctors have long-called the KRAS gene “undruggable,” an impervious target where treatments couldn’t get a foothold. That changed this summer, when Amgen Inc. revealed early data for its rival molecule. Amgen’s AMG 510 spurred a partial response in a handful of lung cancer patients, though the disease returned after a few months in some of them.

After 500% Surge, Mirati’s Day of Reckoning Is Approaching

That promising signal from Amgen was enough to send Mirati’s stock to a record $109.60 a share on July 3, despite a lack of any clinical data for its KRAS drug. Bulls believe MRTX849 may last longer in the body and therefore be more effective than Amgen’s AMG 510. But investor concerns have crept back into shares of both companies after another look at AMG 510 showed that the highest dose helped shrink colon cancer in only one out of 12 patients.

Mirati investors have to ask if the disappointing colon cancer response is specific to AMG 510 or applies to the whole KRAS class, SVB Leerink analyst Andrew Berens said in a phone interview. Berens, who rates Mirati outperform, says dosing is Amgen’s Achilles’ heel, making it hard to get high concentrations of AMG 510 into patients. “If you don’t get enough of the drug into the tissue, you aren’t going to get complete efficacy,” he cautioned. Berens doesn’t cover Amgen; the stock is rated market perform by another Leerink analyst.

Wall Street has been bullish to neutral on Mirati with one exception: JPMorgan’s Anupam Rama. He gave the San Diego, California-based company its first ever sell-equivalent rating in August, shortly after Mirati reached a record. Expectations were too high and the downside was underappreciated, Rama warned clients in a note. Even if Mirati shows response rates as high as 60% -- similar to AMG 510 in lung cancer -- that could be viewed as a “downside scenario,” he wrote recently.

Rama said some investors may look on Mirati as a buyout target even if its results are merely comparable to Amgen’s data. He argues a takeover is unlikely to happen until its drug has established “some reasonable durability,” and that will take time. Rama expects Mirati’s medicine could ultimately outperform AMG 510 on the length of responses and how long patients live before their disease gets worse. The problem -- and the basis for Rama’s underweight call -- is the evidence isn’t likely to emerge during the first look at Mirati’s drug, and questions over durability won’t be answered in the near future. Mirati’s market valuation was just shy of $3 billion as of Friday’s close.

Meanwhile, competition has been heating up. Johnson & Johnson started its own study, as has the closely held German company, Boehringer Ingelheim GmbH. Boehringer will study its KRAS-inhibitor alone as well as in combination with other cancer drugs, an area where Amgen has also expressed interest.

Bearish bets against Mirati stand at 15% of the drugmaker’s float, according to S3 Partners data. Options in Mirati set to expire on Oct. 18 show investors expect shares to move about 13% over the next two weeks. The at-the-money straddle set to expire in November is showing an expected price move of 34%. Implied volatility is elevated at about 129% versus a 90-day average of 70.

--With assistance from Gregory Calderone.

To contact the reporter on this story: Cristin Flanagan in New York at cflanagan1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Michelle Fay Cortez

©2019 Bloomberg L.P.