Most investors would be quite happy to get a 20% return over the course of a year. Of course "happy" wouldn't begin to describe the feeling of getting an even better return than that in just a week. But that's just what three drug stocks did over the last five days, with two of them achieving much-higher gains.
Endocyte (NASDAQ:ECYT), MannKind (NASDAQ:MNKD), and Mylan (NASDAQ:MYL) saw their stocks soar this week after floundering for much of 2017. Let's see why these drug stocks took off -- and whether they're smart picks for investors.
Endocyte was the biggest winner of the week. Its stock skyrocketed nearly 300% over the last five days. That's a big turnaround for the biotech, which saw its valuation plunge nearly 50% from June through September of this year.
The turning point for Endocyte came on Monday, when the biopharmaceutical company announced completion of an exclusive worldwide license of experimental prostate cancer therapy PSMA-617 from ABX GmbH. Endocyte paid ABX $12 million up front, and issued 2 million shares of Endocyte stock and a warrant for the purchase of up to 4 million additional shares to the German company. ABX will also be eligible for milestone payments of up to $160 million and tiered royalties beginning in the mid-teen percentage range.
Endocyte now plans to initiate a phase 3 study of the radioligand therapy targeting treatment of metastatic castration-resistant prostate cancer in early 2018. The study could be completed by 2020.
MannKind's share price soared more than 130% this week. Since the beginning of August, MannKind's market cap has more than quadrupled. What's going on with this stock that not long ago was crumbling?
On Monday, MannKind announced what CEO Michael Castagna called "a pivotal moment in the history of the company." The company said that the Food and Drug Administration approved three changes to the label for Afrezza, MannKind's inhaled insulin product. The most important of these changes was the inclusion of data about Afrezza's unique pharmacokinetic/pharmacodynamic profile.
MannKind can now market Afrezza more aggressively and tout its benefits as a fast-acting insulin that could be especially attractive for diabetic patients worried about low blood sugar levels while they sleep. The company was already seeing an uptick in sales for Afrezza. This label change should provide an even bigger spark.
Mylan's share price had fallen nearly 20% in 2017 as of the end of September. However, the generic- and specialty-drug maker came roaring back this week, with its stock surging by around 20%.
The quick rebound came as a result of an FDA decision announced on Tuesday approving Mylan's generic versions of Teva Pharmaceutical's (NYSE:TEVA) multiple sclerosis drug Copaxone. Teva already faced generic competition for the 20-milligram dose of Copaxone, but now faces a serious threat to its 40-milligram dose as well.
Teva plans to fight Mylan in court to try to keep the generic version of Copaxone 40 mg off the market. However, Mylan is moving ahead with its U.S. launch. The company also received more good news on Thursday, with its partner Synthon winning European approval of a generic version of Copaxone 40 mg.
Are they buys?
Of these three booming stocks, Mylan is without a doubt the safest pick for investors. Mylan has solid revenue and earnings and is in position to grow. The stock is also inexpensive even after the big move this week, with shares trading at seven times expected earnings.
Endocyte is the riskiest choice, in my view. It doesn't have any products on the market yet. Even though the company will now have a late-stage candidate thanks to the licensing deal announced this week, phase 3 studies still have more than a 40% chance of failure, on average.
That leaves MannKind, which does have an approved product in Afrezza. Things are certainly looking up for the once-beleaguered biotech. Keep in mind, though, the company only had $43.4 million in cash and cash equivalents at the end of the second quarter. MannKind will need to raise more cash soon. That will probably mean a stock offering that could dilute the value of existing shares. The long-term outlook is better for MannKind than it has been in a while, but there could be quite a few bumps over the short term.