Quickster: The Long Case for Ignyta ($RXDX)

by DrKSSMDPhD | May 20, 2016 3:48 pm

[Ed. Note: Dr. KSS writes about medicine and biotech stocks for the Irregulars. He choses his own topics, has agreed to our trading restrictions, and his words and opinions are his own. You can see his past columns and most recent comments on his Stock Gumshoe page[1].]

 

“Come on baby light my fire.”

—- The Doors

 

With this column, we inaugurate “Quickster,” a lean, synoptic format for presenting long biotech ideas to you in executive summary form. We realize our biggest task is getting information to you in timely fashion, and given that many readers are no longer neophytes in biotech investing, we feel a time has come when not every presentation to you requires a full long-form column. And don’t worry, we have drafts for our longer, in-depth, swashbuckling columns queued up out to the horizon!

When we Googled “Quickster” to see if the term is in use elsewhere, we learned that it’s a now-discarded term that Netflix was intending to use for a future post-fission version of itself: Netflix would be the online service, and Quickster the mailed DVD service. We’ve not purloined the term, but we are benignly filching it. We are constantly, silently tracking many biotech stocks for readers, and when the stars line up and seem to be making for a good entry point in a company whose science you may already grasp, we’ll cast it in Quickster format for a synoptic presentation so you can easily get about the process of your own due diligence before buying, and get in expeditiously.

(1) We recently took a long position, a starter one, in Ignyta after following it for about six months and watching it establish a bottom formation. While no one can guarantee, given the present biotech market, that $RXDX will bounce off its bottom, the stock appears undervalued to us.

(2) $RXDX is a $250M San Diego oncology biotech firm. Of 41.6M outstanding shares, 85 percent are held by institutions or large block owners. Short interest is limited. Major holders are a veritable Who’s Who of investing entities we respect and like: Teva-owned ($TEVA) Cephalon (11 percent), Eli Lilly ($LLY) (15 percent), Broadfin Capital (6 percent), Perceptive Advisors (3.5 percent). The aggressive Tang Capital Management owns more than 10 percent.

(3) Company insiders are impressively well-vested in $RXDX stock. Director Alexander Casdin recently purchased 232,000 shares on the open market. Casdin now owns just over 800,000 shares. By direct purchases and exercise of options, CEO Jonathan Lim, MD, owns nearly 3.5M shares. Most of Lim’s officers own positions worth at least $50,000. I am still researching quantitative extent of ownership among officers and directors, but regard Ignyta as having the highest such level I have come across in many months.

(4) We often speak at Gumshoe Biotech of four cardinal modes of cancer chemotherapy. The oldest and crudest mode is use of globally cytotoxic drugs. A more modern mode, the second mode, is use of drugs that target specific oncogene-encoded enzymes, such as tyrosine kinases. Oncogene-encoded enzymes drive growth and proliferation of cancer cells, and “nuking” them is a highly effective means of subduing cancer, and conquering it when used in combination with other classes of chemotherapy.

Our third class of chemotherapy is invoking immuno-oncology to override the deterrents to immune attack wielded by cancer cells. These include checkpoint inhibitors, antitumor monoclonals bearing toxic payloads, CAR-T approaches and the newer CAR-NK approach. The fourth class are agents that restore apoptosis, the normal urge to suicide that a cancer cell has and that oncogenes subvert and disarm.

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Ignyta is actively trialling agents that work along lines of our second class, and you can study its pipeline here[2]. Its lead drug is entrectinib, a novel inhibitor of so-called tropomyosin-receptor kinases. In some ways, these are similar to the receptor tyrosine kinases being chased by fave Blueprint Medicines ($BPMC). Entrectinib is theorized to have novel activity against possibly a vast array of tumors, including some very difficult to treat ones: cholangiocarcinoma, melanoma, pancreas, salivary gland tumors and ovarian cancer, but also breast, sarcomas, thyroid, non-small cell lung, renal and brain tumors. Because of the molecular targets Ignyta has chosen, we regard it as having a unique and comfortable niche in oncology, without a lot of obvious direct competition.

Entrectinib clinical trials are being done at the US’s best cancer institutions[3], implying that clinical investigators at those institutions are persuaded by the science: Memorial Sloan-Kettering, Scripps, UCSF, Moffitt, Mass General, Beth Israel Deaconess, and MD Anderson.

Ignyta’s most advanced study of this agent has it in phase 2 for a large variety of tumors felt to be susceptible, and began enrolling in October 2015, seeking 300 patients. Topline data should emerge in 4Q17.

(5) We harbor considerable admiration for CEO Jonathan Lim, MD, a McGill and Harvard-educated oncologist and entrepreneur who was CEO of Halozyme ($HALO) til 2010. Lim was managing partner at biotech investment firm City Hill Ventures, which now has a 12.5 percent interest in Ignyta. We regard Lim as part of an able and agile well-connected “west coast oncology Asian mafia” that moves and shakes this field. We are optimistic about being able to secure an eventual interview with him for readers via our contacts.

(6) Like many very successful companies in oncology, Ignyta is developing a suite of companion molecular genetic diagnostic tests to accompany its agents. Ignyta diagnostic testing will offer a separate income stream to the company in due course, and will allow quick determination, based on biopsy tissue analysis, of which patients and tumors stand most likely to benefit from Ignyta agents.

(7) In May 2016, the company completed a secondary stock offering affording about $55M after expense deductions. It now has a war chest of $136M versus an annual cash burn of perhaps $60M for its expensive clinical trial operations. These factors make now a propitious time for entry into shares.

(8) At the time this column is being prepared, share price is $6.40. Estimates and rankings from 5 analysts give shares a mean 12-month target of $18.80. Joshua Schimmer of Piper Jaffray propounds a $32 price target in 12 months. By parameters I use, I am personally estimating a price of $20 in 18 months, which in this case I regard as a more meaningful point at which to review and reassess the stock. On the HN scale, I regard $RXDX as an A-.

Acknowledgements and Disclosures: This column is neither a recommendation nor solicitation for you to purchase shares in any named stock, including $RXDX. As always, while we aim to help, your investing decisions are solely your responsibility. I have received nothing of pecuniary value from $RXDX or from any other person or company discussed by me at Stock Gumshoe. Of named equities, I have long positions in $BPMC, $HALO, $LLY, $RXDX. I have no short positions or options, and will not trade in any named equity for 72 hours, reckoned in business days, after this column appears. Follow me on Twitter @KSSMDPhD.


Endnotes:
  1. Stock Gumshoe page: http://www.stockgumshoe.com/author/dr-kss-md-phd/
  2. here: http://ignyta.com/targeted-therapy-pipeline-entrectinib-ntrk-alk-ros1/
  3. clinical trials are being done at the US’s best cancer institutions: https://clinicaltrials.gov/ct2/results?term=entrectinib&Search=Search

Source URL: https://www.stockgumshoe.com/2016/05/quickster-the-long-case-for-ignyta-rxdx/


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