Summit Corporation: Positive Developments

Summit Corporation has revealed a solid set of interim results. The drug discovery and development company has also announced the strengthening of its investor base and talent pool, the appointment of a highly experienced CFO (Erik Ostrowski), the advancement of both its DMD and CDI drug candidates (SMT C1100 and SMT19969, respectively) and the simplification of its capital structure. We are encouraged by these developments as they represent important steps in the progression of both its key drug candidates. We have adjusted our forecasts to account for the clinical development progress and one-off funding costs, and adjusted our EPS figure to account for capital reorganisation. Similarly, adjusting for the capital reorganisation, our target price becomes 264.59p and we retain our buy stance.

DMD Drug Candidate Shows Encouraging Results

Summit has reported encouraging results from its recently completed Phase 1b clinical trial of the utrophin modulator SMT C1100 for the treatment of DMD. Having successfully met its primary endpoint of safety and tolerability, the results of the study showed a decrease, which was statistically significant, in key enzymes associated with muscle damage and support the proposed mechanism of action of SMT C1100. The next patient study is now expected to start in Q4 2014.

Progression of CDI drug candidate

First patients have been dosed in the Phase 2 proof of concept trial that is evaluating the novel oral antibiotic SMT19969 for the treatment of CDI. In addition, the US Food and Drug Administration has designated SMT19969 for the treatment of CDI as a Qualified Infectious Disease Product, allowing Summit to benefit from a number of incentives, including eligibility for Priority Review, Fast Track, and an additional five years of market exclusivity.

Expanded Operations and Talent Pool Strengthened

Summit has recently established operations in Massachusetts, US, and strengthened its drug development operations team following the recruitment of new clinical and preclinical industry leaders. The new CFO will be based out of this office.

Valuation

The cash position at 31st July 2014 was £17.4m. Taking into account current cash and G&A costs, our rNPV for both drug-candidates when assuming a 17.5% discount rate is $181m or 264.59p per share. The main risk is that drug developments are unsuccessful, but we feel that this has been sufficiently accounted for in our model.