MRTX - Mirati Therapeutics: Suddenly A Battleground Stock

Summary

• Today, we take a deeper look at mid-cap oncology name Mirati Therapeutics for the first time in several years.
• The company's first FDA approval and some other positive milestones have been overshadowed over the past two months by some disappointing trial data.
• This has caused the stock to be cut in half over the past two months.
• Can the shares recover? An investment analysis follows in the paragraphs below.

"Diligence is the mother of good fortune ." - Miguel de Cervantes Saavedra

We have not taken a look at Mirati Therapeutics, Inc. ( MRTX ) in nearly three years now. A lot has happened around this mid-cap oncology company since we last visited it. Where does MRTX stock go from here? An analysis follows below.

Company Overview:

Mirati Therapeutics, Inc. is a San Diego-based oncology company. The company is focused on developing product candidates to address the genetic and immunological promoters of cancer. Specifically, the company is targeting oncology indications with high unmet needs. Mirati Therapeutics, Inc.'s stock currently trades at just over fifty bucks a share and sports an approximate market capitalization of $3 billion.

The company has several compounds in development. These include Sitravatinib. This is an investigational spectrum-selective kinase inhibitor that is currently in a Phase 3 clinical trial for the treatment of non-small cell lung or NSCL cancer as part of combination therapy.

Of note, Mirati has a collaboration and license agreement with BeiGene, Ltd. ( BGNE ) to develop, manufacture, and commercialize sitravatinib.

Mirati Therapeutics, Inc. also has a compound dubbed MRTX849 in its pipeline. MRTX849 is also known as Adagrasib and is an investigational, highly selective and potent oral small molecule inhibitor of KRASG12C that is optimized to sustain target inhibition. This is a candidate in several mid/late stage studies both as a monotherapy as well as a component of combination therapies for treating NSCL, colorectal, pancreatic, as well as other cancers.

In mid-December, Adagrasib was approved by the FDA as a second-line treatment for NSCL. This positions MRTX849 to compete against Amgen's ( AMGN ) Lumakras and hopefully opens up the way to approvals for other indications in the future. Of note, the brand name for MRTX849/Adagrasib is Krazati, not to confuse things too much.

Finally, Mirati has several other candidates in development. However, they are too early stage in the pipeline to be germane to this analysis.

Recent Developments:

A week after Krazati won its initial approval from the FDA, it was granted Breakthrough Therapy designation as part of a combination therapy with Erbitux (cetuximab) for patients with KRAS-mutated CRC whose cancer has progressed despite chemotherapy and an anti-VEGF therapy. On January 19th, the FDA also cleared Mirati's investigational new drug or IND application for its inhibitor MRTX1133.

However, the major news outside of FDA actions has been twofold over recent months. First, the company tagged as a possible takeout target in late November by both J.P. Morgan and BMO Capital . Both analyst firms saw up to $200 a share as a potential price of the speculated buyout. The boost to Mirati Therapeutics, Inc. shares was short-lived, however.

On December 6th, Mirati posted phase 2 data around adagrasib in combination with Merck's ( MRK ) Keytruda (pembrolizumab) in non-small cell lung cancer. While data showed the combination demonstrated favorable tolerability and efficacy was good enough to advance to Phase 3 evaluation, data provided was less than analyst expectations. This triggered numerous Hold ratings and downward price target revisions within the analyst community (see section below). Since this data was disclosed, Mirati Therapeutics, Inc. stock has lost roughly half its value. I would also now take any previous acquisition rumors with a huge grain of salt.

Analyst Commentary & Balance Sheet:

Mirati Therapeutics has become a " battleground stock" within the analyst community since the latest trial results were posted. Since the latest trial results were posted, seven analyst firms including Piper Sandler and Barclays have reissued Buy/Outperform ratings, albeit a few had significant downward price target revisions. Price targets proffered range from $61 to $149 a share. Jefferies is the outlier here with the $149 price target, the next highest PT among the bulls is $90 a share.

Here is the view from Sandler's analyst, who maintained his Buy rating on Mirati but lowered his price target from $87 to $68 a share on December 13th.

Mirati Therapeutics priced Krazati at a slight premium vs Lumakras and justified the overage based on advantage seen in CNSmet patients and a better safety profile, but the analyst remains cautious until this theory pans out in the real world given the brain-met language or the safety data from tablet formulation was not reflected in the label ."

Eight analyst firms including Morgan Stanley and J.P. Morgan have maintained or downgraded MRTX to a Hold/Neutral rating. Price targets among these pessimists range from $50 to $64 a share.

Approximately 25% of the outstanding float of Mirati Therapeutics, Inc. stock is currently held short. There has been frequent and some significant insider selling of the shares since August of last year. Several insiders sold nearly $800,000 worth of shares in aggregate in January collectively. In the fourth quarter, they disposed of nearly $8 million in aggregate. The company ended the third quarter with approximately $1.2 billion worth of cash and marketable securities on its balance sheet after posting a loss of $173.6 million for the quarter.

Verdict:

It is easy to see why Mirati Therapeutics, Inc.'s stock action has been dismal in recent months and why analyst firms have divergent opinions around the shares right now. On one hand, the company has recently received its first FDA approval and garnered some other positive FDA-related milestones. Mirati also has a couple of "s hots on goal ," as it was recently mentioned as a potential buyout target by major analyst firms and has plenty of cash on its balance sheet for the time being.

On the other hand, analyst opinions have soured considerably since disappointing trial results were posted in early December. There is a large short position in the equity and the company has a large quarterly cash burn rate.

I am going to side with discretion as the better part of valor here and pass on any investment recommendation on Mirati Therapeutics, Inc. stock until new and hopefully positive trial results are posted, and we see how the initial sales rollout of Krazati is doing. This basically echoes the view of Needham's analyst, who initiated Mirati Therapeutics, Inc. stock as a Hold on December 14th with a $50 price target soon after trial data was posted. He had the following commentary: " we expect the stock to be range-bound for the foreseeable future with uncertainty in 1L NSCLC, limited upside to expectations in 2L and a lack of significant near-term catalysts ."

"Money isn't the solution to your problems. It only lets you carry your unhappiness around in style ." - Shannon L. Alder

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