The iShares Nasdaq Biotechnology Index has tacked on a healthy gain of around 15% so far this year, without any help from Celldex Therapeutics, Inc. (NASDAQ:CLDX), Agenus Inc. (NASDAQ:AGEN), or Progenics Pharmaceuticals, Inc. (NASDAQ:PGNX). All three of these relatively small biotechs have slipped by double-digit percentages in 2017.
Is the pessimism justified, or has the market underestimated the potential value drivers within these companies' drug development pipelines? Let's take a cool-headed look at each to see if there's something for long-term value investors to get excited about.
1. Celldex Therapeutics, Inc.: Still a bargain
This biotech took a few steps back earlier this summer, when one of its clinical-stage candidates, varlilumab, generated less than thrilling results for 21 patients with advanced-stage colorectal and ovarian cancer when given in combination with Opdivo from Bristol-Myers Squibb.
Another study with its lead candidate, glemba, did a little better. Among 62 heavily pretreated melanoma patients given the antibody-drug conjugate, a type of drug that delivers chemo directly to cancer cells, 16% exhibited tumor shrinkage. That's an impressive result for patients who had exhausted existing treatment options, but it might not be enough to make waves in the increasingly crowded pool of new melanoma drugs.
It's a good thing glemba still has a chance to make a major splash for patients with an extremely difficult-to-treat form of breast cancer that lacks three common targets existing therapies aim for. In a previous study with glemba, triple-negative breast cancer patients who relapsed after taking other drugs showed an enormous survival benefit. An ongoing trial with a lot more patients from this well-defined group is expected to wrap up early next year.
Celldex Therapeutics stock has fallen about 31% this year, leaving the company with a tiny $145 million enterprise value. If results from glemba's ongoing triple-negative breast cancer study fall in line with previous observations, shares at this price will look like a tremendous bargain in retrospect.
This biotech bargain isn't for the faint of heart, though. The current lack of enthusiasm out there for the rest of the company's clinical-stage candidates would make a surprise upset extremely painful.
2. Agenus Inc.: Guilt by association
Unfortunately for Agenus Inc., its lead candidates are in the same class as drugs that recently failed in a key combination study for AstraZeneca. Sure, the Mystic trial failure doesn't bode well for a similar combo from Agenus, but I think the stock is in deep value territory once you look at the bigger picture.
Agenus has lost about 33% of its value since Astra revealed that its PD-1 and CTLA-4 checkpoint inhibitors didn't lead to a significant improvement over standard chemo for advanced-stage lung cancer patients that hadn't been treated with anything yet. Missing the mark for this large group of patients that tend to stay on therapy longer than those that have already relapsed suggests lower peak sales potential, but tiny Agenus doesn't need a megablockbuster to more than double your money.
At recent prices Agenus sports a market cap of just $351 million, which means moderate success with just one oncology candidate in its robust pipeline would lead to impressive gains for patient investors. The company's wholly owned PD-1 and CTLA-4 checkpoint inhibitors are still in early to midstage clinical trials, plus Incyte is funding development of candidates aimed at the GITR and OX40 checkpoints in return for a 15% royalty on any future sales if they succeed.
It will be years before we can better estimate the potential in Agenus' pipeline, but I expect the company to burn through cash a relatively slow pace. An application for a shingles vaccine from GlaxoSmithKline that contains an adjuvant Agenus developed is under review at the FDA, and a widely expected approval could lead to a steady royalty stream from the big pharma partner.
3. Progenics Pharmaceuticals, Inc.: Nearly ready to file
This small-cap biotech stock sold off in response to lackluster sales growth for its first drug, but the most important announcement in its latest earnings report went largely unnoticed. In my mind, news that the company expects to complete a rolling submission for Azedra this August should have lifted the stock.
It's easy to understand the disappointment over Relistor sales. Progenics' marketing partner, Valeant Pharmaceuticals, had built up big expectations for a tablet version of the opioid-induced constipation treatment that just haven't materialized.
With all eyes on Relistor, Azedra has flown under the radar despite posting positive results in the adrenal gland cancer study supporting the application on its way to the FDA. The vast improvement over existing treatments the candidate appears to provide led the agency to offer Progenics an expedited review once the submission is complete.
If approved, annual Azedra sales could top out around $250 million. That isn't huge by today's standards, but neither is Progenics' recent enterprise value of about $297 million. With Relistor royalties steadily rolling in, and a solid chance of launching wholly owned Azedra next year, this might be the best bargain in biotech right now.