ArQule Update On HCC/mCRC Trials: Study Misses, Trial Starts

The failure of ArQule's (ARQL) tivantinib to show a statistically significant increase in PFS in a Phase II trial in second-line metastatic colorectal cancer (mCRC) makes further development in this disease setting a challenging prospect for ArQule and its partners. Meanwhile, the Phase III trial in second-line hepatocellular carcinoma (HCC) is now underway, with the first clinical sites now open for patient enrolment. Despite its recent clinical study misfortunes, ArQule remains on solid financial ground, with an estimated $130m of cash and cash equivalents at the end of 2012, sufficient to support operations into 2015, when final data of the Phase III HCC trial should become available.

mCRC misses primary end point
The Phase II trial in second-line mCRC of tivantinib in combination with irinotecan/Erbitux showed a numerically superior median PFS (8.3 months) than control (irinotecan/Erbitux, 7.3 months), but this did not reach statistical significance (p=0.65). There was an encouraging trend of response rate (45% vs 33%); overall survival (OS) data are immature, but these are unlikely to be positive. ArQule and its partner Daiichi Sankyo intend to analyse subgroup data, such as in high c-Met patients (50% of the enrolled patients, or about 60, have c-Met measured in the trial) and report those findings at a future meeting. However, in the light of these data, further development for tivantinib for mCRC is unlikely to be an attractive option given the evolving competitive landscape, in our opinion.

HCC Phase III trial underway
Nevertheless, the Phase III trial (to be called METIV) was listed on Clinicaltrials.gov on 19 December and at least one site is now open for patient enrolment. The listing confirms the previously communicated design with 303 patients with second-line, high c-Met inoperable HCC to be recruited with the primary endpoint of OS in intent-to-treat (ITT) population. The trial is expected to be complete by December 2015, similar to our previous estimate, making approval possible in 2016.

Valuation: $324m without value from mCRC
We have revised our valuation in the light of the mCRC study result, and now value ArQule at $324m or $4.65 per share (fully diluted), based on our risk-adjusted DCF model. This includes tivantinib rNPV at $169m, without contribution from mCRC, which we previously valued at $52m, $25m for other assets and estimated year-end net cash of $130m. Nevertheless, our value of ArQule is significantly higher than its market cap, suggesting potential for share appreciation.

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