So far, 2018 is shaping up to be a banner year for a handful of small-cap biotech stocks. Endocyte, Inc. (NASDAQ: ECYT) and G1 Therapeutics Inc. (GTHX 2.19%) have seen their share prices more than double this year, and Geron Corporation's (GERN -6.17%) have already tripled.
Despite the massive run-ups, all three have what it takes to deliver market thumping gains over the long run. That said, there are a lot of obstacles in the way. Here's a look at the challenges they need to overcome to keep providing long-term gains.
1. Endocyte, Inc.: Radioactive returns?
The FDA approved a Lutetium-177 based cancer therapy called Lutathera for the treatment of neuroendocrine tumors earlier this year, after Novartis snapped up the developer, Advanced Accelerator, at a premium. Investors have been pushing up Endocyte stock in hopes its Lu-177 based cancer candidate will eventually fetch a 10-figure valuation as a prostate cancer therapy.
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Endocyte also boasts a budding CAR-T program with an original approach, but it's way too early to begin counting these chickens. The first human trial isn't expected to begin until the fourth quarter. That puts practically all of Endocyte's chips on Lu-PSMA-617, a two-sided drug that attaches radioactive Lutetium to prostate specific membrane antigen. Since PSMA's limited on normal cells, the therapy should hammer away at tumors while letting healthy tissues do their job.
Around four-fifths of prostate cancer patients have tumors with lots of PSMA for the therapy to bind to. If Endocyte can get this candidate to produce pivotal trial results that fall in line with previous observations, the $12 million it paid to license Lu-PSMA-617 last year could go down as the greatest biopharma investment of the century.
The targeted radiotherapy shrank tumors for 71% of patients who had already failed standard chemotherapy, but these results came from a small trial that started with 30 patients and then added another 20 after positive data started rolling in. Expanded results expected later this year will probably be all we get to chew on for a while. Endocyte will begin a pivotal trial in the second quarter, and the outcome is far from certain.
Although Lu-PSMA-617 put up good numbers in its small single-arm study, it still needs to outperform a physician's choice of approved treatments in a much larger global trial. Success would send the stock soaring much further, but anything less would be another devastating shock to Endocyte.
2. G1 Therapeutics Inc.: Cell preservation
This biotech's first year as a publicly traded company has been a terrific ride on the back of an experimental oncology therapy that could have huge built-in demand. This company's lead candidate, trilaciclib, is intended to prevent the blood cell devastation often caused by standard chemotherapies, and it appears to do the trick.
In a mid-stage trial, 16 of 37 lung cancer patients given a placebo ahead of standard chemo wound up hospitalized with severely low white blood cell counts. Among 38 patients given G1's trilaciclib ahead of the same chemo treatments, just two experienced grade three neutropenia. There haven't been enough events to measure an overall survival benefit yet, but hitting this mark would send the stock soaring higher still.
While trilaciclib has a huge potential market among cancer patients receiving standard chemotherapies, investors want to keep their eyes on an ongoing trial evaluating a triple-combination of Roche's (RHHBY 1.07%) Tecentriq, chemotherapy, and G1's candidate.
Roche's drug takes the brakes off the immune system so it can fight cancer, so trilaciclib ought to help it do a much better job. The best part about a tie-up like this is that it could give G1's drug heaps of free targeted marketing through Roche's sales force.
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3. Geron Corporation: Not there yet
Incyte's (INCY -0.52%) Jakafi racked up $1.1 billion in sales last year as the only targeted therapy for patients with myelofibrosis, but a majority of patients who take it eventually relapse. Geron stock has been soaring because the company's partner, Johnson & Johnson (JNJ 0.29%), gave the thumbs-up after the third internal data review of a trial with patients that relapse after Jakafi. The last patient enrolled in this study in October 2016, and it sure looks as if investors a bit too eager to call this one a win rather than wait for the final data set.
After a median follow up of 19 months, median overall survival hadn't been reached. The trial doesn't have a control group, but that seem's much longer than patients who relapse after treatment with Jakafi.
While data so far is pointing in the right direction for imetelstat, investors won't see any gains from recent levels until Johnson & Johnson agrees to license the drug. The company's market cap has swelled to $847 million, so there's plenty of room for more long-term gains if imetelstat becomes a bona fide blockbuster drug. Before you risk your hard-earned money, though, understand that Geron's performing without a net. Imetelstat is the only drug it has in clinical trials right now.
Any buys now?
In case you haven't noticed a pattern developing, buying any of these biotech stocks would be incredibly risky right now. If I had to choose one least likely to blow up in your face, though, trilaciclib's stellar mid-stage results make G1 Therapeutics my favorite right now.
Amgen's white-blood-cell booster, Neulasta was a $4.5 billion drug last year and oncologists could probably use a new mode of attack. While trilaciclib ability to serve in triple combos is still a stretch, it probably has what it takes to become a popular blood cell booster with nine-figure sales.
