I have written a lot of articles over the years concerning my biotech investments and thankfully have done pretty well anticipating good entry and exit points. I like to invest in biotech stocks that are undervalued and have significant upside. For example, I wrote numerous articles nearly a year ago detailing why Medivation (NASDAQ:MDVN) was underappreciated and would be acquired. As we all now know, the company is currently the hottest biotech acquisition target on Wall Street resulting in the stock almost doubling in value the last couple months. I saw that investment as obvious but really enjoy utilizing my scientific knowledge to buy small cap biotechs to turn big time profits. Generally, these stocks have very little if any analyst coverage and are ignored until positive developments emerge enabling significant gains to be made quickly if one does the proper research. As described in previous articles I have done this with OvaScience (NASDAQ:OVAS), Actinium Pharmaceuticals (NYSEMKT:ATNM) and Cytokinetics (NASDAQ:CYTK) to name a few. Generally, making at least a 50% return within a year.

Having done significant research and reviewing my AACR meeting notes I believe Ignyta (NASDAQ:RXDX) fits my model and is a huge steal at current levels. The personalized medicine company has a best-in-class cancer drug Entrectinib entering a pivotal registration enabling study this year, an impressive clinical pipeline, huge insider buying, major stakeholders which includes several big pharma companies, an enormous $200M stockpile of cash and nothing but Buy recommendations from analysts with price targets of 300% plus from current levels. As I’ll explain below, the current market cap of under $300M leaves a lot of upside for investors and severely undervalues the stocks potential. With personalized medicine heating up and Ignyta holding one of the most targeted and highly effective drugs currently in clinical trials I’m loading up.

Ignyta’s Entrectinib has more potential than Loxo Oncology’s LOXO-101

When I first read over Ignyta’s results released at AACR describing the efficacy of Entrectinib and then checked its stock price I was shocked. I invested immediately as soon as I looked at the valuation of Loxo Oncology (NASDAQ:LOXO) which is nearly double that of Ignyta. In my opinion, Ignyta has a better drug with a much broader patient population potential than Loxo. Both companies have drugs in clinical trials that target neurotrophic tyrosine receptor kinase (NTRK) gene fusions. These oncogenic fusions drive tumor growth and when inhibited have dramatic effects on response.

There are several reasons why I believe Entrectinib has the edge over LOXO-101. First, Entrectinib has been in clinical development longer than LOXO-101. In fact, Ignyta was one of the first to hypothesize that TRK fusions could drive tumor growth. A total of 119 patients have currently been treated with Entrectinib while only 43 have been treated with LOXO-101. This fact doesn’t impact clinical results per se but when two companies are both racing to be first to market for a particular indication the one with the most experience with the drug and how to monitor treatment, side-effects, etc. generally has the edge. Second, Entrectinib is not only active against TRK fusions, like LOXO-101, but also has high activity against other kinase fusions such as ROS1 and ALK. When dealing with rare mutations in a personalized medicine setting the more mutations a drug can target the better. Another big advantage is Entrectinib has demonstrated consistent ability to cross the blood brain barrier and be effective in shrinking brain metastasis which is highly prevalent in a large number of tumors, such as lung cancer where upwards of 50% have brain metastases. Another big differentiator is that Ignyta is not only funneling patients into its clinical trials through 3rd party diagnostic testing but they also have developed their own diagnostic test to screen patients as well. This could provide a nice advantage once the drug is on the market as a way to provide testing for everyone who could be eligible. Finally, the results from the Phase 1 trial, which I’ll explain below, have been just as impressive as LOXO-101 and the data is more mature. Taking into account all of the above, I think Ignyta has more potential to capture the market that LOXO-101 and investors can buy it now for half the price.

Updated Entrectinib Data from AACR

The updated data from the Phase 1 clinical trial released last month illustrated an overall response rate of 79% (19/24) with extracranial solid tumors. In addition, one patient with an astrocytoma (brain tumor) had evidence of substantial tumor regression by volumetric measurement. Importantly, these responses were observed in patients harboring NTRK, ROS1 and ALK rearrangements.

*Slide from AACR 2016 Presentation

What is particularly impressive is the duration in which patients have remained on the drug with several out over a year with sustainable responses.

*Slide from AACR 2016 Presentation

The responses in patients with brain tumors are nothing short of remarkable, with many tumors seeming to “melt away”. The efficacy of the drug was highlighted during the AACR presentation with a patient with stage IV non-small cell lung cancer (NSCLC) harboring a NTRK1 gene fusion. He had metastatic disease to the brain and had exhausted all chemotherapies and was placed in hospice. In short, there was nothing else that could be done. The patient was placed on Entrectinib in March of 2015 and remarkably achieved a partial response in only 3 weeks with complete resolution of all brain tumors. The patient remains on the drug today and is still progression free after more than a year. This example illustrates the power of targeted therapy.

*Slide from AACR 2016 Presentation

Similar to other targeted therapies, there were very little adverse events reported. There has been some discussion concerning resistance mechanisms as inevitably most on targeted therapies over time acquire additional mutations and become resistant to drug. Two patients on Entrectinib have developed resistance and the mutations conferring resistance determined. Importantly, the mutations detected would also inhibit binding of LOXO-101. Some analysts are using this data to support LOXO-101 over Entrectinib but it is important to note that more patients have been treated with Entrectinib and have been on drug longer. Dr. David Hong from MD Anderson Cancer Center when describing the LOXO-101 results stated that it is likely resistance would eventually develop in these patients as well as they remain on drug.

The data from AACR really reinforced the competitive advantage of Entrectinib over LOXO-101 and that is its broad targeting profile and the ability to treat brain lesions. The results were particularly good in NSCLC where responses continued for 12+ months for both primary and brain tumors. In addition, a TRK positive astrocytoma had converted from a stable disease response to a partial response. There was also an additional fibrosarcoma case where brain activity of Entrectinib was described. When pressed to compare the results of Entrectinib to LOXO-101 Dr. Leena Gandhi from Dana-Farber Cancer Institute would not directly choose, stating that both have high response rates and similar toxicity profiles but did mention Entrectinib’s ability to cross the blood-brain barrier and CNS activity as a differentiator. Entrectinib is currently enrolling a registration enabling Phase 2 clinical trial that will include ~150 sites across more than 15 countries.

Commercial Potential Massive

Although the types of gene fusions that Entrectinib targets are relatively rare, personalized medicine drugs do demand a premium. Sell-side analysts put the 2020 estimate for Entrectinib sales at $203 million. With an estimated treatable population of greater than 15,000 patients for NTRK, ROS1, and ALK mutations and duration of therapy at 12 months it puts the market in the US at ~$1.8 billion.

*Slide from Leerink Parnters 5th Annual Healthcare Conference

Considering Roche and Pfizer (NYSE:PFE) currently have drugs on the market for ALK fusions and Pfizer’s drug Xalkori was recently approved for ROS1 mutations that market would likely be smaller. However, Ignyta’s data in ROS1 fusions is currently more impressive with an 86% overall response rate (12/14) with 2 complete responses compared to Xalkori which had an objective response rate of 66% and only one complete response in 50 patients. Nonetheless, the TRK market is estimated at $1.2 billion and currently Ignyta is the front runner. The market potential is obvious with many other companies now trying to jump into the development of TRK fusion drugs.

I’m not going to spend much time describing the rest of Ignyta’s pipeline but they do have other promising drugs with RXDX-105 and Taladegib. RXDX-105 targets mutations in RET and BRAF and is currently in a Phase 1 clinical trial. Taladegib is a small molecule targeting mutations in the hedgehog pathway that is in a phase 1 dose escalation study. Importantly, a few weeks ago a SEC filing went largely unnoticed that detailed a patient treated with Taladegib with medulloblastoma that had a complete response. Rarely, can you find a small cap biotech with such a promising pipeline.

Financials and Risks

As with all small cap biotechs there are substantial risks that drugs may not pan out or lose out to competition. For example, Entrectinib in addition to TRK gene fusions, targets ROS1 and ALK for which drugs are already approved. Unless, they can differentiate themselves from these drugs they could be limited to the TRK market. The financial situation of Ignyta is very stable. After raising ~$60M earlier this month in an offering, the company has nearly $200 million in cash to support their clinical trial development. The cash is well needed as the Phase 2 registrational trial currently enrolling in addition to the advancement of their pipeline will surely eat cash quick. Following the recent cash raise management speculated cash on hand is now enough to see development of Entrectinib through approval, which is likely 2 years out.

Importantly, Ignyta is well supported by big pharma with Teva-owned (NYSE:TEVA) Cephalon owning 11% and Eli Lilly (NYSE:LLY) 15%. Insiders have also been buying heavily with director Alexander Casdin recently buying a huge 232,000 shares on the open market. Likewise, CEO Jonathan Lim, MD has bought nearly 3.5 million shares through options on the open market.


The summary is short and sweet. Ignyta is severely undervalued considering its pipeline, hoard of cash and best-in-class drug Entrectinib. The average analyst 12 month price target is ~$18 representing close to 300% upside.

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