According to IMS Health, the global cancer market is on track to grow at a stellar CAGR of 13.7% over the next three years due to the advent of several game-changing therapies. While that's an impressive growth rate for a drug market already valued in excess of $100 billion, it doesn't mean that all, or even most, cancer stocks are screaming buys. After all, novel cancer medicines have some of the highest failures rates in the clinic, and they often produce dangerous side effects that limit their commercial potential.
Armed with this insight, let's take a deeper look at three cancer stocks that are popular among retail investors at the moment and consider which ones have the best chance of capitalizing on this industrywide growth trend.
1. T-cell immunotherapy
Adoptive T-cell therapies for hard-to-treat blood disorders and cancers have been all the rage since 2015. Even so, these potentially game-changing treatments have run into a host of safety problems and have even led to the death of a handful of patients, especially when companies have combined these experimental cell therapies with highly toxic chemotherapies in order to juice their efficacy.
Houston-based Bellicum Pharmaceuticals (BLCM -2.18%) is working to change this outlook by incorporating powerful molecular switches into its cell therapies. These switches are "designed to eliminate, reduce or activate therapeutic cells," thereby enhancing their safety and efficacy. To date, the company has reported extremely encouraging results for its lead product candidate, BPX-501, in the haploidentical transplant setting in children with a range of deadly blood disorders.
Going forward, Bellicum is close to initiating clinical trials for its other adoptive cell therapy candidates for blood-based cancers such as refractory or relapsed acute myeloid leukemia and myelodysplastic syndromes, as well as a host of solid tumors. With a potentially best-in-class platform in hand, this clinical-stage cancer stock is certainly worth keeping an eye on right now.
2. Exelixis breaks into the TKI club
Tyrosine kinase inhibitors, or TKIs, aren't exactly novel anti-cancer drugs, but they have proven highly effective against a range of malignancies. For instance, the mid-cap biotech Exelixis (EXEL 0.47%) has illustrated that its flagship tyrosine kinase inhibitor that targets c-MET and VEGFR-2, cabozantinib (brand names: Cabometyx & Cometriq), can produce clinically meaningful anti-tumor responses in patients with medullary thyroid cancer and advanced renal cancer, helping the company to garner FDA-approvals for both indications.
The biotech is now hoping to add advanced liver cancer to cabozantinib's label by as early as 2018, with the drug's ongoing late-stage trial for this indication scheduled to produce top-line data sometime next year. While there's no way to tell if cabozantinib will continue its recent winning streak, Exelixis clearly has an important new cancer drug that it can use to build out a larger product portfolio. And that's a pivotal threshold that most smallish oncology companies simply never cross.
3. Not all TKIs are franchise-level drugs
Like Exelixis' cabozantinib, Ariad Pharmaceuticals' (NASDAQ: ARIA) flagship drug, Iclusig, is also a type of TKI. In 2012, the FDA approved Iclusig for the treatment of chronic myeloid leukemia (CML) and Philadelphia chromosome-positive acute lymphoblastic leukemia (ALL). However, the agency later restricted Iclusig's use in both of these patient populations due to a spike in the number of serious blood-clotting events, cutting the drug's peak sales potential from around $1 billion to about $400 million.
Ariad has since decided to restructure and focus more heavily on the prospects of its experimental ALK+ non-small cell lung cancer (NSCLC) drug candidate brigatinib. Brigatinib is currently in the middle of a rolling submission with the FDA as a later-line treatment for ALK+ NSCLC, with a regulatory decision possibly coming in early 2017. As a later-line treatment, the drug obviously won't upend Iclusig as the company's main revenue-driver, but it does have the potential to grab a frontline indication going forward. If so, brigatinib could generate blockbuster-like sales and thus transform into the drugmaker's flagship product.
Which stocks are buys?
Bellicum and Exelixis are arguably the best buys due to their potential to grow into top dogs in the high-growth oncology space within a few short years. Ariad, on the other hand, appears dead-set on selling itself, presumably once brigantinib's initial regulatory filing with the FDA is approved. As Ariad is already garnering a hefty premium, with a market cap of $1.5 billion on projected 2016 sales of only $193 million, it's hard to imagine a buyer stepping in with an offer that significantly tops the market's current valuation. After all, Ariad still lacks a surefire frontline therapy, and that's ultimately where the real money is made in oncology.