10 Speculative Stock Plays in the Biotech Sector

Biotechnology stocks come with high risk; often their futures are dependent on the success or failure of a limited number of drugs in their pipeline. For those comfortable with these risks, several leading investment experts and MoneyShow contributors highlight their favorite biotech bets. Michael Murphy, New World Investor In a recent press release, Inovio Pharmaceuticals, Inc. said it had completed enrollment three months ahead of schedule in the Phase 1/2, 52-patient trial of INO-5401 for newly-diagnosed glioblastoma. There hasn't been much progress against brain cancer for 10 years. We'll see interim results before the end of this year. In addition, they presented a poster at the American Association for Cancer Research annual meeting showing their DNA-Encoded Bi-specific T-Cell Engagers (dBiTEs) generated potent anti-tumor activities in a preclinical study. Like a double-sided tape, dBiTEs bind to a tumor and to a cancer-killing T-cell. This double-binding activity drives T-cell activation directly at the tumor, resulting in a killing function and tumor destruction. A novel dBiTE targeting the HER2 molecule was tested in therapeutic mouse models for the treatment of ovarian and breast cancers. Inovio also said that the use of INO-3106 against the human papillomavirus type 6 (HPV 6) demonstrated clinical efficacy in a study of two patients with recurrent respiratory papillomatosis (RRP). RRP is a rare, orphan, HPV-associated disease that can cause noncancerous tumor growths, leading to life-threatening airway obstructions, occasionally progressing to cancer. The stock's primary risk is if its drugs fail in the clinic. Meanwhile, we consider the stock a buy under $6 a share for a very long-term hold. John McCamant, The Medical Technology Stock Letter Sangamo Therapeutics, Inc. has delivered excellent news across its proprietary ZFN drug development platform, reporting promising human data from both the Hemophilia A program with Pfizer Inc. and Beta Thal with Sanofi SA . In addition, the company has expanded their internal gene therapy manufacturing capacity and inked an agreement with longtime manufacturing partner Brammer, signaling both confidence in clinical success and the need to prepare for multiple commercial launches. In the unexpected update, Sangamo provided impressive, proof-of-concept human data for two separate programs and announced plans to significantly expand the company's manufacturing footprint through its agreement with Brammer. The take-home message is Sangamo has a high level of confidence in its clinical success and needs to be prepared for multiple commercial launches, with the company's platform having delivered successful POC data in two major programs that significantly de-risks the entire ZFN pipeline. The Hem A gene therapy data is excellent. The ST-400 data in Beta Thal data also looks quite strong. In our view, the sum of this data is substantial. It provides broad validation for Sangamo's proprietary ZFN platform, which should result in improving previously skeptical sentiment on Wall Street. With the plethora of positive and de-risking news, Sangamo is now a buy under $20 (up from $15) with a target price of $30 (up from $25). Mike Cintolo, Cabot Top Ten Trader One biotech with huge promise in the future is Array BioPharma Inc. , which is being driven by Braftovi and Mektovi, two drugs that are approved for treatment in later-stage melanoma patients who have a couple of specific gene mutations. Trial results were extremely positive and sales are off to a great start. Sales in the fourth quarter (just its second on the market) saw 2,600 prescriptions (double the prior quarter), bringing in nearly $23 million of revenue and quickly becoming the treatment of choice in this niche. But the story goes beyond just melanoma. Array is also testing Braftovi and Mektovi for colorectal cancer (again, with certain gene mutations that make up about 15% of patients) that has no FDA approved therapies thus far, and (very) early results have been bullish. The next big non-earnings event will be a mid-year readout on colorectal cancer test results. Expectations are high, but a great set of results could prove to be game changer. There's definitely event risk, but we like the combination of fast growth today and the potential for lots more growth going forward. Ionis Pharmaceuticals, Inc. is a complicated story to tell when you get into the weeds of its drug pipeline. But if you step back and look at the big picture, it's relatively straightforward. The big idea is that Ionis uses a proprietary antisense technology platform to develop treatments for cardiovascular, cancer and metabolic and neuro-degenerative diseases. The drugs coming out of its platform bind to RNA instead of proteins, and it has over 40 of them in the pipeline. The recent focus lately has been on Spinraza, an approved blockbuster treatment for spinal muscular atrophy (SMA). Altogether, Ionis has at least 10 programs entering pivotal studies over the next 24 months, so there's plenty to keep investors engaged. Plus, the company is not just selling dreams. Sales are expected to rise 31% (to $785 million) this year, while earnings should remain solidly in the black. We do think pullbacks are likely, but given the giant volume on the advance, we're not expecting a major retreat. Jason Clark, The Prudent Speculator Shares of Biogen Inc. fell 34% following the news that both phase 3 trials, Engage and Emerge, of the Alzheimer's drug aducanumab, are being discontinued due to futility. While the news is quite negative and results in material lost potential future revenues and profits, we think the sell-off was well overdone through a long-term investment lens. Yes, we understand that Biogen is facing looming pressure from generics in the next few years, but we also believe its pipeline isn't a one-trick pony, and that it's neurology portfolio and pipeline deserve some credit. Beyond the Alzheimer's setback, the firm's pipeline has seen progress in multiple sclerosis, pain, Parkinson's and amyotrophic lateral sclerosis. We also note that Biogen has the financial ability to undertake additive M&A should leadership deem it desired or necessary. True, Biogen may not merit as rich a multiple after the Alzheimer's failure, but the shares now trade for less than 8 times next 12-month earnings estimates. We have lowered our target price to $424, but we think the stock is very undervalued. Doug Gerlach, Investor Advisory Service Supernus Pharmaceuticals, Inc. potentially offers a rare combination of traditional value, backed by sales of its approved drugs, and upside excitement thanks to its high-potential pipeline assets. We view this as an opportunity for enterprising growth investors. The firm currently sells two drugs for epilepsy and migraine prevention, Oxtellar XR and Trokendi XR. It also has a pipeline headlined by two late-stage drugs targeting the psychiatric indications of impulsive aggression and ADHD. Pivotal trials for both drugs will read out in the first half of 2019. Another pivotal trial addressing bipolar disorder will read out in the second half of the year. Winning just a single-digit share of the enormous ADHD market should be worth at least a doubling of the firm's current share price, but the market seems to think the new drug is almost certain to be a complete flop. The next pipeline asset to read out will be SPN-810, an extended-release, low-dose formulation of an antipsychotic called molindone hydrochloride. The target indication is impulsive aggression (IA), for which there are no approved therapies. We model the downside as $20, but this should prove extremely conservative. Supernus' approved drugs justify a higher price. We model the upside for shares as $144, the product of a high P/E of 25.7 and five years of 25% compound EPS growth. The upside/downside ratio is 6.1 to 1. That may seem high, but we think the pipeline justifies it. Hilary Kramer, GameChangers When I'm hunting for unicorns, I start with biotech. They won't all be winners. But in a well-constructed portfolio, enough of them will hit their commercial targets with sufficient force to make their shareholders very happy. Start at the earliest stage of development with Kaleido BioSciences, Inc. , which just went public on Feb. 28. It is not much to look at today. The company has a dream of harnessing the body's internal microorganisms to clean harmful chemicals out of the blood more efficiently. Currently, it is using $75 million in cash to build on that vision. We aren't even looking for Phase 2 trial data before 2020, so investors need a lot of patience. But as far as I'm concerned, the technology is worth at least $500 million now, and should become more valuable every day it moves towards real commercial applications. Maybe in five years, KLDO's early shareholders will be extremely happy. Or look at Kiniksa Pharmaceuticals Ltd. , which hit the market nearly a year ago and is still a long way from a real commercial profile. As far as I'm concerned, KNSA won't even be at a meaningful revenue stage before 2022, when its next-generation dermatology drugs will be cleared to prescribe. While a lot can happen in the intervening time, if everything plays out well, this company can become a profoundly lucrative enterprise. Sometimes the market gives us a chance to grab a more advanced company at a start-up valuation. CytomX Therapeutics, Inc. was a $1 billion stock on Feb. 25, only to lose half that value on what analysts called an earnings miss. Earnings aren't even a factor here for the foreseeable future. This company is all about the dream of new, broad-spectrum cancer therapies that will one day be ready for the regulators to review. In the meantime, there's $430 million in cash to back up that vision. Burning through that capital to create something real is what good executives do. Biotech companies are no exception. But if you don't have years to wait, the biotech world is full of established franchises that are making money right now and are also priced at a fraction of what the ride-sharing unicorns currently command. Take BioMarin Pharmaceutical Inc. as an example. It is one of the biggest biotech stocks on Wall Street with even bigger prospects in curing hemophilia and other blockbuster diseases. In my view, BMRN is on the verge of sustainable profitability at its current scale.

10 Speculative Stock Plays in the Biotech Sector

For investors interested in biotech, there's a lot to choose from, with options ranging from startups with potentially blockbuster new treatments to companies those that have been around the block a few times.

Columnist Conversation

Implied Volatility on Crude Exploding

Ulcer Index

The Market Doesn't Believe Musk

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.