Biotech's been heating up for a while, and a couple of names you might not recognize will start glowing if they get any hotter. Shares of AMAG Pharmaceuticals (AMAG) and BeiGene (BGNE -2.05%) have risen 53% and 45%, respectively, in 2018.
Is it going to be a case of "easy come, easy go" for these stocks, or could there be more gains to come? Let's take a look at what's driven these stocks higher to see if we should look for more gains or move on.
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Not one but two Food and Drug Administration approvals boosted AMAG Pharmaceuticals' stock price about 34% higher over the past month. The FDA green-lighted AMAG's Feraheme for treatment of iron deficiency anemia (IDA) in early February. Adding the IDA indication to Feraheme's prescription label instantly doubled the iron supplement's addressable patient population.
Feraheme will run into competition from Daiichi-Sankyo's Injectafer, which earned approval to treat IDA patients in 2013. Clinical trial data could help AMAG's sales team, though. During a head-to-head study, Feraheme proved itself non-inferior to Injectafer with an added safety bonus. Around 39% of patients treated with Injectafer exhibited severely low blood phosphorus levels versus just 0.4% in the group treated with Feraheme.
More recently, the FDA approved an auto-injector for the company's lead product, Makena. This decades-old drug is the only one approved to lower the risk of preterm births. It was also the source of around 63% of AMAG's total revenue during the first nine months of 2017.
Unfortunately for AMAG Pharmaceuticals, Makena's seven-year period of orphan drug exclusivity recently expired and generic versions of the intramuscular injection are expected to pressure sales this year. The newly approved subcutaneous auto-injector could offset those losses and allow sales to continue growing, but I wouldn't bet on it. The subcutaneous version has a smaller needle, but that probably won't be enough to keep patients from opting for cheap generic versions of intramuscular Makena in the quarters ahead.
At recent prices, you can buy AMAG Pharmaceuticals stock for just 10.9 times this year's earnings estimates. Although that's an attractive valuation, it seems a bit steep for a company with a huge pile of debt and a vital revenue stream under threat. Adjusting for a $319 million noncash impairment charge associated with intramuscular Makena, AMAG's operations generated a $33 million profit during the first nine months 2017. That wasn't enough to cover interest expenses of $52 million during the period. If Makena sales slide, as I expect they will, servicing the company's debt pile could get a lot more difficult.
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Sino-Celgene?
China's most compelling biotech stock, BeiGene, soared when Celgene (CELG) cut a deal regarding the company's PD-1 drug, tislelizumab, last summer. The partnered drug takes the brakes off the immune system so it can fight cancer the same way as Opdivo and Keytruda. Even though they launched just a few years ago, the pair generated a combined $10.8 billion in sales last year. Similar success with tislelizumab would be more than enough to keep BeiGene's stock price climbing but the partnered candidate isn't the company's only path to growth.
Celgene bought rights to develop tislelizumab for solid tumors outside of Asia and now allows BeiGene to sell its most popular cancer therapies throughout China. Revlimid alone is an $8-billion-a-year drug, which suggests BeiGene could generate enough revenue to support one of the industry's most ambitious oncology pipelines.
Imbruvica has been the most successful leukemia drug to launch in the present decade, but BeiGene intends to give the multibillion-dollar blockbuster some competition with a Bruton's tyrosine kinase inhibitor of its own. Zanubrutinib is in two head-to-head pivotal trials right now, one against an older leukemia treatment and another against Imbruvica. Success against either could lead to billions in annual sales for BeiGene.
The company also sports a PARP inhibitor called pamiparib. This relatively new class of cancer therapy works by limiting tumor cells' ability to repair their own DNA, and they're already the most popular targeted therapy for treating recurrent ovarian cancer. BeiGene's testing pamiparib right now in a pivotal trial with heavily pretreated patients. If it leads to a significant benefit, it could open up another wide avenue for growth.
Unfortunately, I'm not the first investor to notice BeiGene's potential. With a recent $6.8 billion market cap, it looks like a great deal of success is already baked into the stock. Despite the rich valuation, successfully launching just one of three drugs in late-stage development and selling plenty of Celgene's therapies in China could provide years of lift.
