Cancer therapy is not only the largest drug market by a wide margin, but it's also the fastest growing. Specifically, EvaluatePharma expects cancer drug and therapy sales to rise at a compound annual growth of 12.7% over the course of 2016 to 2022. Interestingly enough, the bulk of this growth is forecast to stem from the red-hot area known as immuno-oncology (I-O), or therapies designed to enlist a patient's own immune system in the battle against cancer. I-O offers patients a more targeted treatment option that hopes to minimize the treatment burden, as compared to traditional chemotherapy.
Agenus Inc. (AGEN -4.02%) and Kite Pharma (NASDAQ: KITE) are two of the smaller companies operating within the high-value I-O niche that appear primed to benefit from this rising tide. As such, I think it's worthwhile to consider which of these two cancer stocks is the more compelling buy for investors right now. Let's take a look.
Agenus is vying for a portion of the multi-billion dollar checkpoint inhibitor market
Bristol-Myers Squibb took the oncology world by storm with the FDA-approval of its game-changing checkpoint inhibitors Yervoy and Opdivo not long ago. Since then, the market has rapidly matured, with nearly every big pharma now sporting at least one approved checkpoint modulator antibody in its cancer drug portfolio.
Agenus is hoping to ride their coattails, so to speak, with its broad checkpoint antibody portfolio, which sports anti-cancer targets such as PD-1, CTLA-4, OX40, and GITR, among others. At present, Agenus has PD-1 (AGEN2034) and CTLA-4 (AGEN1884) antagonists in phase 1 trials for solid tumors. According to the company's latest investor presentation, the goal is to have one or both of these anti-cancer agents on the market for an undisclosed indication by the end of 2020.
The biotech has also signed partnerships with Incyte Corp. (INCY -0.70%) and Merck & Co. to develop additional checkpoint antibodies. These two licensing deals could produce upwards of $610 million in milestone payments, and double-digit royalties on net sales. As part of Incyte's deal, this large cap biotech has also become Agenus' largest shareholder.
On the flip side of the coin, though, Agenus' efforts may turn out to be too little, too late. Bristol and its big pharma peers, after all, are well ahead of Agenus in the checkpoint inhibitor game, implying that there may not be a lot of room left for copycat drugs entering the market in the 2020 time frame. Point blank: Agenus' only remaining option might be to try to compete on price in an extremely crowded field.
Kite's novel cell therapy approach is both risky and compelling at the same time
Kite is barreling toward the likely FDA-approval of its chimeric antigen receptor T-cell (CAR-T) therapy axicabtagene ciloleucel, or Axi-Cel for short, this November. If approved as a later line treatment for aggressive non-Hodgkin lymphoma -- and most industry insiders believe it will be based on its unprecedented efficacy profile for this indication -- Axi-Cel is forecast to become one of the top 50 selling therapies by 2022. In fact, EvaluatePharma has Axi-Cel's sales pegged at a healthy $1.71 billion in 2022, making it one of the most valuable experimental oncology therapies in development right now.
From a valuation standpoint, Kite appears to be a strong bargain in light of Axi-Cel's commercial opportunity alone, not even factoring in the company's other adoptive cell therapies under development. Specifically, Kite's shares might be trading at under 4 times its projected 2022 sales, which is downright cheap for an oncology company.
Kite's shares are cheap, though, for a couple of reasons. First off, CAR-T therapies have been riddled with safety problems from the get-go. So there is a real risk of the FDA pulling these promising cell therapies if they prove to be too dangerous once they start to be used more broadly upon entering the market. Another important risk factor is the company's actual ability to manufacture genetically modified cell therapies that are tailored to the individual patient on a commercial scale. That's a total unknown that simply can't be answered right now.
Which stock is the better buy?
Kite is arguably the better stock to own at the moment because of Axi-Cel's near-term commercial prospects. Agenus, after all, is still three to four years away from bringing one of its checkpoint inhibitors to market, and a lot can go wrong in the interim. That said, the FDA has never approved a CAR-T therapy before, so there is the real risk of a black swan type event regarding Axi-Cel's forthcoming regulatory review. While the chances for a rejection appear to be minimal based on all available evidence, the risk is enough to warrant caution with this promising mid-cap cancer stock. In other words, you probably shouldn't go hog wild when it comes to buying Kite's shares ahead of Axi-Cel's regulatory decision -- even though it does come across an outright bargain right now.