This Healthcare Stock's Revolutionary Drug Could Make Early Investors Rich

Key Points

• Summit Therapeutics' leading candidate is showing promise in a key oncology market.

• The medicine could earn plenty of indications across a wide range of cancers.

• This success could lead to above-average returns for the biotech.

• 10 stocks we like better than Summit Therapeutics ›

Three years ago, Summit Therapeutics (NASDAQ: SMMT) was a little-known small-cap biotech that few investors with an average tolerance for risk would have bothered to pay attention to at the time. However, the company's shares have skyrocketed by more than 2,000% since then.

As is often the case in the biotech industry, Summit Therapeutics owes this terrific run to clinical progress from its leading pipeline candidate. And even after the significant gains it has experienced in recent years, it might still be early enough to get on the bandwagon.

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SMMT Total Return Level data by YCharts

Taking on a giant of the industry

Summit Therapeutics' leading candidate, ivonescimab, was originally developed by Akeso Biopharma, a China-based biotech company. Summit's licensing agreement with its partner granted the former the rights to the medicine in most regions, especially those that drugmakers target the most, the U.S. and Europe, since they tend to be the most lucrative.

Ivonescimab is approved in China. Summit is running clinical trials for the medicine to earn commercialization rights in the U.S. What makes this investigational medicine revolutionary? In a phase 3 study conducted in China, ivonescimab proved just as effective -- indeed, even more effective -- than Merck's Keytruda in reducing the risk of progression or death in patients with non-small cell lung cancer (NSCLC) and a PD-L1 protein overexpression.

Image source: Getty Images.

Let's put that achievement in context. According to Summit Therapeutics, it was the first time any medicine beat out Keytruda in a head-to-head late-stage study in NSCLC. Keytruda isn't just any cancer medicine; it is currently the world's top-selling drug. And as it so happens, NSCLC is one of its more important markets. Not only was it one of its first indications in the U.S. way back in 2015, but lung cancer is also the leading cause of cancer death -- and 85% of lung cancer cases are of the NSCLC variety.

Ivonescimab could challenge this market leader, which is strong evidence that Summit Therapeutics indeed has a revolutionary drug on its hands that could generate billions in annual sales at its peak.

A potential pipeline in a drug

Here's another reason ivonescimab is so promising, The medicine is being investigated as a potential therapy across a wide range of different cancers. Some of the medicine's targets include colorectal cancer, hepatocellular carcinoma (liver cancer), and more. Summit's crown jewel is emulating Keytruda in this way as well: It could be a potential pipeline in a drug. Although NSCLC should be its most important market, the medicine could also earn a slew of label expansions regularly, leading to consistent revenue and earnings growth over a long period.

Some might argue that ivonescimab's success is already baked into Summit Therapeutics' stock price. After the company's impressive run, is there any upside left? In my view, there is, provided ivonescimab delivers. There is already a substantial amount of data on the medicine's safety and efficacy from trials conducted in China. While that cannot be used to support approval in the U.S., it helps eliminate some of the risk involved in investing in clinical-stage biotech companies whose pipeline candidates have never been approved by any regulatory authorities anywhere.

Summit Therapeutics is not your average, young biotech that generates no revenue and consistently operates at a loss. Even with that, there is still some risk that Summit's promising drug will eventually encounter clinical or regulatory setbacks -- something even seasoned drugmakers experience. Further, competition is heating up in the bispecific antibody (the class of drugs ivonescimab belongs to) market, with several major pharmaceutical companies, including Merck, dipping their toes in this space.

It's essential to consider these potential challenges, but Summit Therapeutics' shares remain attractive due to ivonescimab's outstanding potential. Initiating a position in the company's shares today could lead to monster returns over the long run.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck and Summit Therapeutics. The Motley Fool has a disclosure policy.