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Endocyte Bulls Were Right, But Bears Aren't Going Away

The Endocyte (ECYT - Get Report) catalysts -- the ovarian cancer approval decision in Europe and the phase II lung cancer study results -- were going to be close calls either way. Fortunately (for Endocyte bulls) both came up positive last Friday. What did the Endocyte bears miss? And where does the bear thesis go from here?

Predicting regulatory decisions is always difficult, but in this case, the Endocyte bears under-estimated the significance European regulators placed on the unmet medical need in platinum resistant ovarian cancer.  The pairing of VynFinit with a diagnostic test to select ovarian cancer patients most likely to benefit was also something that helped sway European regulators in a positive direction. Endocyte bears didn't fully appreciate the importance of the diagnostic test. 

In terms of the lung cancer data, the bears made a more fundamental mistake under-estimating the transitive properties of mathematics. Going into the data, we knew the vintafolide monotherapy arm was not going to be superior compared to docetaxel monotherapy. I think many read that as the monotherapy being worse, but that was not necessarily the case. We also knew data safety monitors in the trial allowed patients to continue on vintafolide mono therapy, and 80% chose this option. If vintafolide monotherapy was clearly inferior, I doubt patients would have been allowed to stay on treatment, nor would 80% choose to do so. As such, I inferred from these facts that vintafolide monotherapy was essentially equivalent to docetaxel if not very marginally better.

We also knew data safety monitors did not recommend the combination arm (vintafolide/docetaxel) be discontinued, which meant the combination was better than the vintafolide monotherapy arm. (If it were similar it would also have been recommended to end.) So, we essentially knew the combination arm was better than the mono therapy, which was equivalent to or marginally better than docetaxel. The question became how much better was the vintafolide/docetaxel combination to docetaxel monotherapy? The difference between the two arms could have been small, raising the risk the study would fail. But given what we already knew, the odds favored the vintafolide/docetaxel combination being the best treatment arm. That turned out to be correct.

I expect the Endocyte bear thesis to transform in two ways: First, the focus will shift to the phase III study of vintafolide in platinum-resistant ovarian cancer. An interim analysis expected in the second quarter will determine if the study should stop for futility, success or add more patients. [The latter option would happen with high confidence of achieving a progress-free survival benefit but needing more patients to show a statistically significant prolongation of overall survival.] The bears could essentially argue the trial will end in futility, which would delegitimize the conditional approval in Europe. Futility in the phase III ovarian cancer study, however, seems unlikely given what we know about vintafolide activity in its already completed phase II trials. This doesn't mean the trial is guaranteed to hit the overall survival endpoint, but at this point an expansion of the trial would be a win for the Endocyte bulls.

Must Read: Endocyte Scores Double Win With Targeted Cancer Drug

I believe it's more likely the Endocyte bear thesis evolves to focus on the lung cancer data because it's a more significant commercial market that ovarian cancer. The statistical hurdle used to determine success in the phase II study was a one-sided test with a p value of 0.10 or lower. I don't want to get into the statistical weeds, but a more conservative approach would have been to use a two-sided test with a p value threshold of 0.05 to establish statistical significance. As such, the bears could argue Endocyte set itself an easier efficacy goal for the vintafolide lung cancer study. Had the study used a more conventional efficacy hurdle, vintafolide would have failed. 

If we were talking about a phase III trial required for regulatory approval, I would agree with the bears. That's not the case here. The goal of this phase II lung cancer trial was to determine if there was enough of an efficacy signal to justify the expense of a phase III trial, and to help guide the phase III design. As such, you do not need the same burden of proof. Would it have been "better" data if the p-value were below 0.05 and it was a two-sided test? Sure, but that does not alter the fact that vintafolide is clearly an active drug in lung cancer and is worth the investment needed to definitively show that efficacy in a phase III trial.

All in all, the results were clearly what the bulls wanted, but with any company there are always questions and concerns bears can raise. The key is how those questions are answered going forward. At this point, there seems little reason to abandon the Endocyte bull case.

Sobek is long Endocyte.

David Sobek has been writing on biotech for a number of years through various outlets with a general focus on small cap oncology and antibiotics companies. He received his PhD in political science from Pennsylvnia State Univeristy in 2003 and a BA in international relations from The College of William and Mary in 1997.

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