Beaten-up biotech stocks can sometimes represent fantastic bargains. In the same breath, biotech companies that have fallen on hard times often do so for a very good reason, and are therefore best avoided by investors.
With this theme in mind, let's consider if the downtrodden trio of Celldex Therapeutics (NASDAQ:CLDX), Gilead Sciences (NASDAQ:GILD), and Juno Therapeutics (NASDAQ:JUNO) are attractive long-term buys or potential value traps.
Celldex: Diamond in the rough or headed for the rough?
Celldex can't seem to find a bottom lately due to the unimpressive results discussed at this year's American Society of Clinical Oncologists (ASCO) meeting. The company reported that its T-cell booster, varlilumab, when used in combination with Bristol-Myers Squibb's (NYSE: BMY) Opdivo to treat advanced-stage colorectal and ovarian cancer. Initial results don't seem to warrant a lucrative licensing deal that Celldex so desperately needs, and may, in fact, eventually lead Bristol to lose interest in pursuing this particular combo altogether. Bristol, after all, is assessing Opdivo as a backbone therapy with numerous other agents at the moment, implying that varlilumab probably needed to get off to a hot start to remain in the race to be part of Opdivo's future.
The pressure is now on for Celldex's antibody-drug conjugate glembatumumab vedotin, or glemba for short, to produce an efficacy signal strong enough in triple-negative breast cancer to warrant an accelerated regulatory filing. If not, the company could be in deep trouble from a financial standpoint -- especially if Bristol dumps varlilumab in favor of other experimental immune-activating agents.
The bottom line is that Celldex's risk profile has ballooned in the wake of its ASCO presentation. That's not to say this stock is doomed, but everything now seems to hinge on glemba's forthcoming top-line readout that's expected within the next six to eight months. Until then, Celldex's shares are probably going to continue falling like a knife.
Gilead: All signs point southward until this happens
Gilead is facing a barrage of competitive threats to both its hepatitis C and HIV franchises right now. Fanning the flames, Gilead's highly anticipated new single-tablet HIV regimen consisting of a fixed-dose combination of bictegravir and emtricitabine/tenofovir alafenamide has yet to deliver the levels of efficacy needed to fend off GlaxoSmithKline's rival HIV medicine, Tivicay, that it co-owns with Pfizer and Shionogi as part of their ViiV Healthcare joint venture.
The net result is that the market has basically lost all confidence in Gilead's ability to turn things around without an infusion of new products and clinical candidates through an acquisition. Gilead's shares, after all, are butting up against their 52-week lows at the moment.
Unfortunately, Gilead doesn't appear eager to go this route until it's able to cheaply repatriate at least a portion of its $37.6 billion-plus in unremitted foreign earnings -- and that probably won't happen until corporate tax reform becomes a reality in the United States. The silver lining is that if Gilead did have access to this cash, it could potentially go after highly attractive targets like Bristol-Myers Squibb and its top-flight immuno-oncology portfolio.
Until then, there's no good reason to expect the biotech's downward spiral to lose momentum. Gilead's most promising clinical candidates for inflammatory disorders and non-hep C liver diseases, after all, are at a minimum three years away from becoming commercial-stage products.
Juno: Is this company fading into oblivion?
The next wave of the cancer immunotherapy revolution is set to begin with Kite Pharma and Novartis filing regulatory applications for their chimeric antigen receptor, or CAR-T, therapies as treatments of last resort for aggressive blood cancers. Unfortunately, Juno won't be joining its peers anytime soon following the loss of its lead product candidate, JCAR015, due to a handful of patient deaths earlier this year.
Perhaps even more worrisome, though, the company's new main drug candidate, JCAR017, reportedly also produced some troubling safety signals in its ongoing trial for non-Hodgkin lymphoma. That's seriously bad news for Juno and its shareholders because these genetically modified cell therapies all have fairly similar levels of efficacy -- meaning that safety may ultimately determine the market share leader.
The overarching concern is that if JCAR017 also gets derailed by safety issues, Novartis and Kite's first-mover advantage may prove too much of a hurdle to overcome -- that is, without a quantum leap forward on the efficacy or safety fronts that would hand Juno a truly best-in-class product. Making matters worse, numerous would-be competitors are already nipping at the heels of Kite, Juno, and Novartis, thanks to the multibillion-dollar commercial opportunity offered by these novel cell therapies.
In all, Juno is simply in a bad spot because of its unexpected setback with JCAR015, and it's going to need some luck with JCAR017 to change this situation for the better. The fact of the matter is that Juno could rebound overnight if JCAR017 finds a way to advance to a regulatory filing of its own. But there's also the very real danger that this stock may utterly collapse if it gets hit by yet another clinical mishap. Put simply, Juno's dramatic sell-off is arguably warranted in light of its unattractive risk profile, implying that it's not a terribly compelling bargain buy right now.