Biotech Stock On The Radar: Assessing Mirati's Oncology Franchise With An Eye On Multiple Readouts

Mirati Therapeutics Inc MRTX, a thinly traded, smid-cap oncology biotech, is on investors' radars ahead of upcoming conference presentations and data readouts.

Mirati is expected to make a late-breaking presentation on its KRAS inhibitor MRTX849 at the American Association of Cancer Research, or AACR, NCI-EORTC International Conference on Molecular Targets and Cancer Therapeutics Oct. 26-30 in Boston, Massachusetts.

Founded in 1995, San Diego, California-based Mirati pursues a novel approach to cancer treatment by targeting genetic changes in tumor cells that lead to uncontrolled tumor growth and spreading. 

Its precision oncology strategy includes the development of drugs targeting specific mutations that cause cancer and genomic tests that identify patients carrying those driver mutations.

The Pipeline

Mirati's lead compound sitravatinib, an oral multi-kinase inhibitor, is being evaluated for multiple cancer types along with checkpoint inhibitors and as a single agent.

Checkpoint inhibitors are a kind of immunotherapy that blocks proteins that prevent the immune system from attacking cancer cells.

Sitravatinib is in the most advanced stage of development in the second-line setting for non-small cell lung cancer, or NSCLC, in checkpoint refractory patients following treatment with Merck & Co., Inc. MRK's Keytruda and chemotherapy.

Sitravatinib in combination with Bristol-Myers Squibb Co BMY's Opdivo is being evaluated in a Phase 3 study for this cancer type.

The combo is also being evaluated in midstage trials as a neoadjuvant therapy for bladder cancer as well as renal cell carcinoma, or RCC, and head-and-neck cancer.

Neoadjuvant therapies are treatments administered before primary cancer treatment — such as surgery — to enhance the outcome of the primary treatment.

Mirati is also studying sitravatinib in combination with Beigene Ltd BGNE's tislelizumab, an investigational humanized IgG4 anti-PD-1 monoclonal antibody, for solid tumors such as NSCLC; RCC; hepatocellular carcinoma, or HCC; gastric; ovarian; and others.

Much of the recent excitement surrounding Mirati surrounds MRTX849, a KRAS G12C inhibitor being developed for NSCLC, pancreatic and colorectal cancer, or CRC.

The KRAS gene makes a protein, KRAS, which plays a role in cell signalling that controls growth and proliferation.

The mutated KRAS gene is found in some forms of cancer such as NSCLC and CRC. The KRAS G12C mutation is present in about 14% of NSCLC patients, 5% of CRC patients and 2% of pancreatic cancer patients.

The initial data for MRTX849 due in the fourth quarter should come in favorably, Citigtoup's Yigal Nochomovitz said in a note.

Source: Mirati

Market Opportunity

With the sitravatinib-Opdivo combination, Mirati is targeting a lucrative market opportunity pegged at $2.8 billion in 2017. The KRAS G12C+ tumors present a $7-billion market opportunity, according to the company.

The breakdown is: $4.9 billion in NSCLC, $2.2 billion in CRC and $400 million in pancreatic cancer.

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The Financials

Given its limited revenue from research, collaboration and license agreements, Mirati has been reporting losses since its inception. Its accumulated losses since 1995 total $559 million.

Source: 10-K filing

For the three months ended June 30, Mirati reported licensing and collaboration revenue of $577,000 versus zero revenue a year ago.

The loss per share for the quarter widened from 94 cents to $1.26. As of June 30, 2019, Mirati held cash and cash equivalents and short-term investments amounting to $485.53 million, more than double the $222.79 million held at the end of December 2018.

The increased cash position is due to a follow-on offering in June that brought the company $219.9 million in cash.

Upcoming Catalysts

Phase 2 clinical data update for sitravatinib + Opdivo in checkpoint refractory bladder cancer: fourth quarter of 2019.

Phase 2 mechanism of action and initial clinical neo-adjuvant data for sitravatinib + Opdivo in RCC and head-and-neck cancer: fourth quarter of 2019.

Early proof-of-concept data for sitravatinib + tislelizumab: fourth quarter of 2019.

Phase 1 data for sitravatinin as a targeted single agent in NSCLC and melanoma patients showing CBL mutations: fourth quarter of 2019.

Phase 1 data for MRTX849 in patients with NSCLC, pancreatic cancer and CRC: fourth quarter of 2019.

Interim analysis of Phase 3 ORR data for sitravatinib + Opdivo in NSCLC: fourth quarter of 2020.

Final analysis of Phase 3 OS data for sitravatinib + Opdivo in NSCLC: fourth quarter of 2021.

Stock Take

Mirati shares, which listed on the Nasdaq in July 2013, went on to hit a high of $52 in mid-September 2015.

From late 2015, the stock was on a broader downtrend until mid-2017, when it touched an intraday low of $2.70 on May 31, 2017. The stock took off from this record low level and climbed to a peak of $109.64 on July 3, 2019, a peak-trough gain of about 3,960%. Subsequently, the stock pulled back sharply, with some of the weakness attributable to the not-so-encouraging results reported by Amgen, Inc. AMGN for its KRAS inhibitor AMG 510 in colon cancer at the ESMO 2019 conference.

In the year-to-date period, the stock has added about 79%. The 14-day RSI, currently at 38.86, suggests the stock is in oversold territory, thanks to the sell-off seen since early July.

Mirati shares are trading just shy of a resistance around $76.

A successful clearing of this hurdle could leave the stock targeting its 200-day SMA, currently at $79.05. The other key levels to the upside are the stock's 200-day SMA, currently at $86.21, and the $95 level, around which the stock was consolidating for much of June and July.

Mirati shares have strong support around the $60-$65 area.

Source: Y Charts

A response rate in line with Amgen's 50% for its AMG 510 in NSCLC should drive Mirati shares meaningfully higher, Citi's Nochomovitz said.

A slightly lower potential response rate of around 35-40% should not be by default viewed as inferior, given the smaller number of patients being tested, the analyst said.

Citi has a Buy rating on Mirati with a $130 price target.

Short interest in the shares has increased 10% recently, with shorted shares now representing about 13.83% of the float. The short interest ratio is around 10. Both metrics point to increased bearish bets on the equity. 

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