Ambit Biosciences (NASDAQ:AMBI)

CAPS Rating: 4 out of 5

Recs

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Player Avatar zzlangerhans (99.78) Submitted: 8/17/2013 3:47:28 AM : Outperform Start Price: $11.74 AMBI Score: -49.45

Ambit seemed to be enjoying the biopharma summer of love along with all the other recent IPO's until the upward momentum hit a brick wall on August 6. There was no bad news, the earnings PR wouldn't come out for another week, lockup expiration isn't until November. I even held my nose and went to the message board sewer, but the Ambit YMB hasn't attracted a following yet. I had given the company a brief going-over, noted the requisite July double in share price, and entered a note to outperform on CAPS on a pullback below 12. Today I was fortunate in that the stock plunged below 12 and then came back to close at a moderate loss, giving the pick a nice headstart.

I find Ambit interesting because the market cap of 200M (at a share price of 12) is very modest when compared to the other recent oncology IPO's as well as the established developmental oncs. Of course, not all oncology drug developers are created equal (Telik is valued at 6M), so it would be very naive to buy Ambit just because of its cap. However, on superficial analysis Ambit does seem undervalued given that they have a pipeline asset, quizartinib, that has already completed a phase IIb trial in relapsed/refractory AML with encouraging results and they plan to discuss a possible submission for accelerated approval at their end-of-phase-II meeting with the FDA in November. In addition, they'll be presenting the full data set from the phase IIb trial at ASH in December along with data from several earlier stage trials of quizartinib.

Ambit has attracted very little attention from serious investors or the retail crowd. The only SA article on the company, a fairly decent effort, attracted exactly zero comments. Therefore, the low market cap doesn't necessarily mean the company has been fairly assessed and found wanting. It seems more likely that in the spate of higher profile IPO's the company has simply been lost. While I haven't carefully studied the trial data and could be missing huge red flags, I think Ambit has potential to be one of the biggest run-ups to ASH.

I still have a lot of work to do here before considering a real trade in Ambit. Their argument for accelerated approval rests on the phase II and phase IIb trial endpoints of composite complete response and complete response with incomplete reconstitution, while they admit that prior accelerated approvals of drugs for AML have been based on sustained complete responses. In addition, I don't know much about the FLT3-ITD mutation that quizartinib inhibits. How prevalent is it in the overall AML population? Are there other drugs in this class in development? Approved?

I'll be devoting some more time in coming days to answering those questions to my own satisfaction. In the meantime, I hope Ambit stock regains its downward momentum and plunges my outperform rating deep into the red.

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