Arqule’s Theater of the Absurd


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Yesterday morning, Arqule (ARQL) announced it had signed two licensing deals with Japan based Daiichi Sankyo. The first deal involved the licensing of Arqule’s lead compound, ARQ197, a kinase inhibitor for the treatment of cancer, with a very broad potential utility. The second deal was a drug discovery collaboration in which Daiichi Sankyo gets access to Arqule’s recently established discovery platform with the purpose of developing kinase inhibitors against two targets.

 

The two deals are great news for Arqule because they serve as a validation for both ARQ197 and Arqule’s technology. The licensing of ARQ-197 was a much anticipated event, as I previously wrote here, as it seemed like the best way to unleash the potential of a compound with a utility in so many different indications. Prior to the deal, Arqule was a small company who carried the burden of developing a promising drug in a highly competitive field with limited financial resources. Now, with the resources of a large partner, Arqule can finally advance ARQ197 fast aggressively, without diluting its shareholders.

The licensing deal for  the drug discovery platform was a more surprising event, but equally important for the long run, and can be regarded as the first step in transforming Arqule into a platform company that can use its knowledge, expertise and intellectual property for bringing more cash and expanding its pipeline. These kinds of deals enable small companies like Arqule to get more compounds in the clinic and decrease the overall risk in the stock by increasing the number of shots on goal.

Nevertheless, the more near term impact of the two deals is in the upfront payment of $75 million Arqule received from Daiichi Sankyo. This amount is even more impressive when considering that Arqule had a market cap of just over $110M and a net cash position of approximately $90 million, prior to the deal. According to what the company said on its conference call yesterday, they now have enough cash for the coming three years, which completely removes any fears of dilution in the near future.  

 

Amazingly, in response to these announcements investors sent Arqule shares 12% lower, a reaction that, in my opinion, represents a severe lack of judgment. Even if there might be legitimate criticism of Arqule’s decisions in terms of the nature of the deals and the partner, the absolute values of yesterday’s deals cannot be ignored. Financially, Arqule is now a better investment that represents no risk of dilution, and higher chances for success, which is why we decided to increase our position in the company. Similar to the case of Immunogen we discussed here, this is a classic case of an extremely positive fundamental event that does not translate into a positive effect on the stock price, or in other words, a buying opportunity.

 

 

Portfolio holdings as of Nov. 10th 2008

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6 thoughts on “Arqule’s Theater of the Absurd

  1. Hi Ohad

    Do you think we could see another 20-30% lift if markets are calm?

    btw, being one of the first who started covering MITI, Can you write your thoughts on the company going into ASH?

    Thanks a lot,
    Ben

    Like

  2. Hi Ben

    I am now in india with limited internet access, so unless I am missing some recent developments, I think that with the two partnership deals in place and the clinical data ARQ197 has generated to date, ARQL should be a 5$ stock.

    With respect to MITI, it remains to be seen whether they will present updated data from the NHL trial (higher doses and duration of responses). The ALL data seems even more exciting, providing that switching patients from minimal residual disease to negative can lead to better survival after stem cell transplant.

    Ohad

    Like

  3. Hey Ben,

    It’s great to see those companies expanding with new biotech methods! The clinical data that ARQL generated is quite exciting and I hope the company can continue its growth.

    Commission Blueprint Editor

    Like

  4. I am a new blogger which has given me appreciation of what others do with their blogs. I just wanted to say good work and although our sites are not really related if you want to swap blogrole links I would be interested.

    Like

  5. Ohad,

    Do you want to sell your financial articles?

    Hello fellow blogger, we could not find your email, so we hope this comment reaches you. StockBlogHub wants quality investing bloggers to join us for: revenue sharing, and proven traffic. We can process posts from your RSS feed or you can post manually. You earn money, get traffic, and control your content – Your content remains unchanged. We are assembling a focused group of content providers to execute a deal with major financial publishers for significant syndication. Please visit now to learn who we are and how we do it: http://www.stockbloghub.com/contacting-publishers

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