This Company's Co-CEOs Just Bought More Shares. Should You?

Nobody has more information about a company than its insiders, especially its executive management team. That's why when one of them buys more shares, it sometimes gives individual investors insights into the company's prospects. If those with the most knowledge think it's worth loading up on the stock, maybe other investors do the same -- or so the argument goes.

That brings us to Summit Therapeutics (NASDAQ: SMMT), a clinical-stage biotech whose co-chief executive officers recently bought more shares of the company they lead. Should other investors follow suit? Let's find out.

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A bullish sign from the CEOs?

On April 8, Summit Therapeutics' co-CEOs, Robert Duggan and Maky Zanganeh, each exercised warrants, financial instruments that grant their holders the right (but not the obligation) to acquire a company's shares at a predetermined price before a particular date. Duggan and Zanganeh's warrants wouldn't have expired until December 2029, but they both chose to go ahead and buy almost 4 million shares (each) of the company they lead for $1.58 per share.

Many investors and some analysts welcomed the move, seeing it as a sign that Summit's co-CEOs expect the company's shares to rise. But before deciding to jump on the bandwagon, it's essential to look at things other than the CEOs' moves. Do Summit Therapeutics' prospects -- beyond this recent development -- justify investing in the stock today?

Focus on other factors

On the one hand, Summit Therapeutics is a clinical-stage biotech company with a market cap of $20 billion -- which is exceedingly rare for a drugmaker without a single product on the market. Plenty of biotechs with several approved candidates don't have market caps that high. However, Summit's leading candidate, ivonescimab, looks incredibly promising. Last year, it bested Merck's Keytruda -- the world's best-selling medicine -- in a phase 3 clinical trial in one of its most lucrative markets: non-small cell lung cancer (NSCLC), specifically in patients with a PD-L1 protein overexpression.

This might have been in a study conducted in China, but it speaks volumes about ivonescimab, which is already approved in that country. Summit is running several late-stage studies for the drug in the U.S., including in NSCLC. It earned the fast-track designation from the U.S. Food and Drug Administration (FDA) for a specific indication in NSCLC. This designation helps speed up the approval process for medicines that target large unmet needs, and for which there are promising signs of efficacy.

Summit won't stop at NSCLC. Based on the number of clinical trials ivonescimab is undergoing in China, the investigational therapy could target many indications across several forms of cancer. It has the makings of a pipeline in a single drug, just like Keytruda. The therapy's potential explains why Summit's market cap is so high, despite the company not generating a single dollar in revenue. In my view, it's worth it.

True, Summit Therapeutics didn't create ivonescimab itself. It was licensed from its original creator, China-based biopharma Akeso. Summit Therapeutics now holds the rights to market ivonescimab in most regions outside of China, including the most lucrative pharmaceutical areas: the U.S. and Europe. But the fact that Summit isn't ivonescimab's original creator takes nothing away from the biotech: Larger drugmakers often resort to licensing agreements to beef up their pipelines, since early-stage research costs and risks are so high.

Summit stumbled upon a drug that could far exceed blockbuster status through a strategy that better-established companies opt for regularly. Some might say it was just a fluke, but in my view, it says much more about the biotech's leadership than the recent exercise of warrants does. Between ivonescimab's potential and the company's leaders, the stock looks attractive for ordinary investors.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Summit Therapeutics. The Motley Fool has a disclosure policy.