Week in and week out, at least a handful of biotech stocks generate huge gains. It comes with the territory, since biotechs tend to have plenty of potential catalysts, including clinical updates and regulatory approvals. But some weeks produce bigger winners than others.
Last week, the best-performing biotech stock shot up more than 70%. This week, however, the big winner -- Allena Pharmaceuticals (ALNA) -- gained less than half of that amount. Still, that's an impressive jump in just four days (it was an abbreviated week for the stock market due to the Good Friday holiday).
Two other biotech stocks also turned in great performances this week -- Shire plc (NASDAQ: SHPG) and Vital Therapies (NASDAQ: VTL). But are Allena, Shire, and Vital Therapies smart picks for investors after this week's big gains?
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Allena Pharmaceuticals: A couple reminders of its potential
Allena Pharmaceuticals stock soared 23% this week. You might wonder why, considering that an analyst lowered its price target for Allena.
That price target cut was actually good in one way, however. Credit Suisse lowered the one-year price target for Allena from $22 to $21. The good news, though, is that the firm still maintained an "outperform" rating for the stock. And the lower price target still represents a 91% upside from Allena's current share price. The bad news of the lower price target served as a reminder of just how much potential Allena could have.
The bigger story for Allena was that the company provided its fourth-quarter update on Tuesday. As a clinical-stage biopharmaceutical company, Allena continues to lose money. However, the company stated that it has enough cash to fund operations into 2020.
Allena also highlighted its pipeline progress. Everything appears to be on track for its first phase 3 study of ALLN-177 in treating enteric hyperoxaluria, an excessive urinary excretion of oxalate that can produce kidney stones. Allena expects to begin the second phase 3 study later this year. The company also continues to talk with the U.S. Food and Drug Administration (FDA) about pursuing an accelerated approval pathway for ALLN-177.
Shire: It's nice to be wanted
Shire stock jumped 18% this week. There's no mystery behind the nice gain: Japanese drugmaker Takeda announced that it was thinking about acquiring Shire.
At least for now, though, all Takeda appears to have done is think about a deal. Shire confirmed on Wednesday that it "has not received an approach from Takeda." The company added that "there can be no certainty that any firm offer for the company will be made nor as to the terms on which any firm offer might be made."
It's been a rough few years for Shire, with the stock dropping around 40% since 2015. Investors soured on Shire after the company took on a lot of debt to fund acquisitions. Shire has tried to get its balance sheet in better shape. However, those efforts were apparently too little and too late for billionaire investor George Soros, who dumped his stake in Shire in Q4 of 2017.
Shire shareholders would likely welcome an acquisition by Takeda at this point. It could take a divestiture of Shire's ADHD business to make a deal happen, though. A sale or spinoff of the ADHD business should lower the price tag for Takeda enough to make financing an acquisition more palatable. Shire announced in August 2017 that it was considering a spin-off of the ADHD business.
Vital Therapies: Holding on to momentum
Vital Therapies stock moved 17% higher this week. What was the biotech's big news? Actually, there wasn't any -- at least not this week.
The nice gain for Vital Therapies over the past few days is really just a continuation of momentum that began last week. On March 22, the company announced that it had reached the target enrollment of 150 patients in a phase 3 study of its ELAD system in treating severe alcoholic hepatitis. Vital Therapies stated that it's on track to report top-line results from the study in the third quarter of this year, most likely in September.
ELAD is what Vital Therapies calls a "human-cell bio-artificial liver." It's a type of cell therapy, where hundreds of billions of VTL C3A cells -- cloned human liver cells -- are added to patients' blood during continuous treatment over five days. Based on earlier studies, it appears that these VTL C3A cells can reduce liver inflammation and inhibit liver cell death.
If Vital Therapies' late-stage study is successful, there could be a significant market opportunity for the company. An estimated 60,000 people in the U.S. and Europe suffer from severe alcoholic hepatitis, which is caused by binge drinking. Patients are frequently treated with steroids, but many don't respond to the therapy.
Are they buys?
Two of this week's big biotech winners -- Allena Pharmaceuticals and Vital Therapies -- are clinical-stage biotechs. While successful late-stage clinical studies could cause the stocks to move much higher, I think these stocks are too risky for most investors.
What about Shire? Despite its challenges, the stock appears to be attractively valued. My concern, though, is that the Takeda announcement has already driven Shire stock up so much that there isn't a lot more room to run. There's also a risk that the deal won't go through, which would send Shire's share price spiraling downward.
If the acquisition by Takeda falls through, buying Shire stock could be a smart move for bargain hunters. For now, though, I think holding off is the best course of action.