PropThink: ArQule Rising on SPA Agreement with FDA, Further Indications for tivantinib

By Jake King

Shares of ArQule ARQL are up 8% on news that the FDA has agreed to a Special Protocol Assessment for the company's planned Phase III tivantinib trial. ArQule is designing a study of its lead candidate as a second-line Hepatocellular Carcinoma (HCC) treatment. This is the drug's second Phase III trial, following the discontinuation of a Phase III study for Non Small-Cell Lung Cancer (NSCLC) early this month. In a planned interim analysis, ArQule and development partner Daiichi Sankyo DSNKY determined that the drug was unlikely to meet its primary endpoint, improving Overall Survival, and discontinued the trial. ARQL was crushed, falling more than 50% within a day.

But the failure in NSCLC means little to the drug's potential in HCC and created an opportunity for value-seeking investors. Back in June, ArQule presented final results from tivantinib's Phase II trial as a second-line HCC treatment, which demonstrated statistically significant improvements in Time to Progression (the trial's primary endpoint), Progression Free Survival, and Overall Survival. Tivantinib is far from entering the market, but liver cancer remains an unmet medical need, and the market for a quality second-line product is large.

The FDA has been particularly liberal with Special Protocol Assessments (SPA) this year, and although not an endorsement of the drug, the SPA lends credibility to the design of the forthcoming trial. Also encouraging is Daiichi's commitment to the product; even after its previous NSCLC failure the Japanese drug-maker is sticking around. The company splits Phase 2 and 3 development costs of tivantinib with Daiichi Sankyo, reducing expenses significantly, and the two have a noteworthy royalty agreement. Since ArQule's plummet early this month, the company trades just over its cash, equivalents, and marketable securities, and although on the mend, ARQL still looks undervalued. ArQule will report data from a Phase II trial for tivantinib in Colorectal Cancer by the end of the year and plans to initiate the Phase III HCC trial within the same time frame. The SPA is an incremental positive, but upcoming data and trial initiation leave room for ARQL to run.

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