Summit

Days after announcing record losses, drug developer Summit has sealed a licensing deal worth up to $143m (£72m) for one of its pre-clinical candidates.

This is an important deal for Summit, known until last year as VASTox, whose valuation halved in the last two years as the market began to doubt its original assessment. Recent results cast the shares even lower as the Oxfordshire-based company unveiled losses had trebled in the year to January as it geared up R&D.

However Summit’s model is an interesting one as it has two technology platforms, zebrafish and carbohydrate chemistry, that both perform the similar dual function of generating cash as service providers and enabling the company to discover its own drugs. Thus there are five drug candidates on the roster, three at the pre-clinical stage and two in clinical trials.

After signing a £10m collaboration last year with Swiss company Evolva for a treatment that emerged from its carbohydrate chemistry platform, Summit’s has now secured a much bigger deal. US biopharma Bi0Marin has bought the worldwide licence to develop and commercialise the compound C1100 for the treatment of Duchenne’s muscular dystrophy for $143m.

This involves an immediate $7m equity investment and, says Summit’s chief executive Steve Lee, ‘by early next year we could trigger $4m with another $50m in the next three years at no extra cost to us.’ With BioMarin absorbing some development costs, house broker Panmure predicts R&D spend in each of the next two years will be £2m lower.

With £10m cash in the bank at year end and the management’s strategy proven, Lee’s hopes to sign deals for other drugs or even a collaboration on the entire carbohydrates platform have gained weight. Less than half their 135p listing price, the shares look unfairly undervalued. Speculative buy.