Biotech stocks have consistently produced market-beating gains for investors for the bulk of the past seven years. In fact, biotech companies made up a whopping eight of the 10 top-performing stocks last year.
Why are biotechs so profitable right now? The primary reason is the emergence of game-changing new technologies for high-value drug markets such as cancer, cardiovascular disease, and immunology. The good news for investors is that this supercharged growth party is probably only getting started.
Clinical-stage companies Adverum Biotechnologies (NASDAQ:ADVM), Atara Biotherapeutics (NASDAQ:ATRA), and CRISPR Therapeutics AG (NASDAQ:CRSP), for instance, are all developing next-generation therapies that could cause their stock prices to skyrocket in the coming years. Read on for more.
A top gene therapy play
Adverum is a clinical-stage gene therapy company whose stock has been ripping higher over the past month. Investors have been piling into this stock because of the official start of the company's clinical trial for the gene therapy ADVM-043 as a potential curative treatment for a rare breathing disorder known as alpha-1 antitrypsin (A1AT) deficiency. Adverum expects to give investors an update on the progress of this trial before the end of the year.
While there are a handful of FDA-approved treatments for A1AT deficiency, ADVM-043 has the potential to make these therapies obsolete by generating stable A1AT protein expression after just a single administration. If true, ADVM-043 stands to gobble up the lion's share of this $700 million market.
Beyond ADVM-043, Adverum has two pre-clinical candidates set to enter human trials later this year. Specifically, the company is reportedly preparing investigational new drug applications for ADVM-053 as a treatment for hereditary angioedema, and ADVM-022 for wet age-related macular degeneration. Each of these indications could generate well over a billion dollars in peak annual sales for the company.
As another encouraging sign, Adverum has also signed research partnerships with both gene-editing company Editas Medicine and biotech heavyweight Regeneron. Perhaps most importantly, though, the company has enough cash in the bank to see it through to at least next year. By then, the viability of the company's gene therapy platform should be a known quantity.
Making CAR-T commercially viable
Adoptive cell therapy took the world by storm in 2017, thanks to the FDA approval of both Novartis' Kymriah and Gilead Sciences' Yescarta. These first-generation chimeric antigen receptor T-cell (CAR-T) therapies, however, may turn out to be commercial duds.
The problem is that these therapies require sickly patients to visit specialized clinics to first have their T-cells harvested, and then modified, for them to attack the cancer cells in question. Both of these therapies also come with serious and potentially fatal side effects that often necessitate the administration of powerful immunosuppressants after treatment.
Atara Biotherapeutics is gearing up to solve these two major hurdles to the commercial success of CAR-T therapies in general with its "off-the-shelf" product candidate tabelecleucel. Last month, the company launched two late-stage studies to assess tabelecleucel as a potential treatment for Epstein-Barr virus-associated post-transplant lymphoproliferative disorders in patients who fail to respond to Roche's rituximab.
If successful, Atara could be the first company with a ready-made adoptive cell therapy product that can be easily shipped anywhere in the country. This enormous competitive advantage has already caused Atara's shares to more than double less than one month in 2018. More upside is sure to come if tabelecleucel's trials go as planned.
A potential gene-editing powerhouse
After hundreds of pre-clinical studies, the highly anticipated CRISPR-Cas9 gene-editing system is finally close to entering human clinical trials in the United States. Although there are some compelling reasons to think U.S. regulators may delay the start of trials even further, CRISPR Therapeutics remains hopeful that it will get the green light soon to initiate one of the first trials with CTX-001, its experimental beta-thalassemia treatment. CTX-001 is being co-developed with Vertex Pharmaceuticals.
Apart from the sizable commercial opportunity this initial indication presents, CRISPR's stock stands to appreciate substantially if this system is simply shown to be both safe and efficacious in humans. The lowdown is that the CRISPR-Cas9 gene-editing system may usher in a new era of breakthrough therapies for untold numbers of human diseases, making it next to impossible put any kind of quantitative valuation on CRISPR's broad pipeline at present. Having said that, CRISPR's promising preclinical data may ultimately not translate to success in humans. Time will tell.
Time to buy?
Adverum, Atara, and CRISPR all have sky-high upside potentials. But these three biotechs also have hefty downside risks that growth-hungry investors shouldn't sweep aside. Scores of promising gene therapy companies, after all, have gone belly-up in the past. The point is that investors shouldn't buy more than they can afford to lose if they decide to pursue these speculative opportunities in biotech.