Summit Therapeutics (SMMT 0.21%) has more than just a potential blockbuster cancer drug in its portfolio. Ivonescimab could be one of the best drugs to ever hit the market. This has investors excited that Summit may be one of the next big healthcare companies in the world. After all, sometimes all it takes is one huge drug to change a company’s long-term prospects.
There’s been no shortage of optimism around Summit of late, and if ivonescimab does come to market and proves to be a game changer for the business, that could transform its operations. Could this be an investment that possibly doubles your money within the next five years?
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Why Summit Therapeutics may soar in value
The bullish case for Summit Therapeutics, and the reason the stock has been soaring in the past year, is that it’s potentially sitting on a drug that could generate tens of billions in revenue. Ivonescimab performed better than one of the best cancer drugs in the world, Keytruda (which Merck owns), in a trial involving non-small cell lung cancer. It could mean a new standard of care for patients.
While ivonescimab hasn’t obtained approval from regulators yet, Summit and its China-based collaboration partner, Akeso, are studying the drug in over a dozen trials. Investors are more than just a little optimistic that there will be at least some approvals forthcoming for the drug, which could not only justify Summit’s $21 billion market cap but may push its valuation even higher. But that high price tag could pose a problem for investors looking to earn a significant return on the stock.
Can it reach more than $40 billion in valuation?
For Summit to double in value, its already-high market capitalization would need to soar to more than $40 billion. It’s already trading at a significant value for a business that doesn’t generate any consistent revenue and doesn’t have an approved drug in its portfolio.
While there is hope that it may soon have at least one approval, investors shouldn’t assume it’s a slam dunk. There are serious question marks about ivonescimab. Most of the trials involving the drug take place in China, where there may not be a diverse enough group of participants to convince the U.S. Food and Drug Administration of how safe and effective it is.
There are a few global trials taking place, and that could put those fears to rest, but it remains to be seen if they will justify the optimism. With such a high market cap, it could still mean limited gains for investors who take a chance on the healthcare stock at this point.
Should you buy Summit Therapeutics stock?
In just the past 12 months, Summit Therapeutics shares have skyrocketed more than 530%. The risk for investors is that a lot of the upside in the stock is already priced in. Approval of ivonescimab may not necessarily send it to a whole new level — it may simply avoid a steep sell-off. When there’s so much speculation involving a stock, there’s a tendency for investors to buy the rumor and sell the news.
At its current price, there’s a lot more risk than there is upside for Summit. While I wouldn’t rule out more gains for the stock, especially if ivonescimab obtains approval, I wouldn’t expect it to double in value, even within the next five years. But I could see it losing significant value if there are any hiccups along the way for the drug. You may want to take a wait-and-see approach with the stock for the time being.
David Jagielski 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.
