Biotech features clinical-stage trial failure rates that are above 90%, and that makes investing in the industry treacherous. If you don't do your homework, you can wind up losing a lot of money. So, with that in mind, I went searching for hot biotech stocks that deserve a closer look and discovered Madrigal Pharmaceuticals (MDGL 3.22%) and NuCana Plc (NCNA 0.51%). Are these two companies worth adding to your portfolio?
Huge market, crowded opportunity
Madrigal's shares more than doubled this week after management surprised investors with phase 2 results that put it at the forefront in the race to treat nonalcoholic steatohepatitis (NASH), a fatty-liver disease that's quickly becoming the biggest cause of liver transplant.
IMAGE SOURCE: GETTY IMAGES.
Emboldened by the success of megablockbuster drugs for hepatitis C that racked up billions of dollars based on their ability to crimp the likelihood of liver disease, biopharma companies, including Intercept (ICPT), Gilead Sciences (GILD 0.47%), and Madrigal, are pouring big money into developing drugs for NASH.
The payoff for these companies could be huge. Although there aren't any approved drugs to treat NASH yet, industry watchers think the market for NASH treatment could reach $35 billion someday.
Among the companies jockeying for position, Intercept and Gilead Sciences have the most advanced clinical trials under way. Intercept's evaluating Ocaliva in two late-stage NASH studies, one of which is evaluating its ability to limit fibrosis, or liver scarring, in NASH patients and the other of which is evaluating it on cirrhosis, a more severe form of fibrosis. Meanwhile, Gilead's conducting phase 3 trials on selonsertib in fibrosis and cirrhosis.
Data from Intercept and Gilead Sciences' late stage studies are expected next year. In the meantime, the market's focus is squarely on Madrigal's MGL-3196 following phase 2 data showing that it met the trial's primary endpoint of reducing liver fat by more than placebo. More MGL-3196 patients saw a greater than two-point improvement on NAFLD Activity Score than placebo patients and, importantly, more people achieved a resolution of NASH on biopsy at week 36 than on placebo, too.
Based on the data, Madrigal thinks it has a shot at resolving NASH in 30% to 40% of patients in as little as nine months. If phase 3 trials prove that to be true, then a once-a-day, oral MGL-3196 may match up favorably to combination therapies being developed by Gilead Sciences that could increase patient burden and, potentially, the risk of side effects.
Madrigal also reported data from a phase 2 study of MGL-3196 in patients with tough-to-treat high cholesterol this week. In that trial, adding MGL-3196 to existing therapy, including statins, reduced bad cholesterol by about an additional 20% compared to placebo. Those results suggest MGL-3196's targeting of the thyroid hormone receptor pathway could allow it to address stubbornly high cholesterol, which is important because cardiovascular disease is a major cause of death in NASH patients.
There's still a lot of work to do, but Madrigal's leadership has experience running pivotal trials and that may help it sidestep obstacles along the way.
Its CEO, Paul Friedman, was CEO of Incyte (INCY 1.71%) when it developed and won Food and Drug Administration approval of the blockbuster drug Jakafi, and Madrigal's founder, Ruth Taub, is a former Roche Holdings (RHHBY -0.23%) research and development veteran who in-licensed MGL-3196 from Roche back in 2008 when Madrigal was operating as VIA Pharmaceuticals. She also happens to be married to Friedman.
The company couldn't be blamed if it taps equity markets for more financing following its big run-up this week, but it's already on pretty solid financial footing with about $183 million in cash and equivalents and operating expenses of just $7.1 million last quarter.
One thing investors ought to consider, though, is the timeline to the Food and Drug Administration. If phase 3 results aren't available until 2020, a decision from the FDA could come in 2021. That might not give Madrigal a whole lot of time to cash in on MGL-3196 because its first patent expires in 2026. Regardless, it only has to pay Roche a single-digit percentage of sales as a royalty, so Madrigal could still pocket billions in sales on MGL-3196, if it wins approval.
IMAGE SOURCE: GETTY IMAGES.
Proven chemotherapies, with a twist
The U.K.-based NuCana wants to put a new spin on commonly used chemotherapy drugs so that they're less toxic and more effective. The company is doing that by using its Pro-Tide technology to overcome cancer resistance and increase concentrations of active agents within cancer cells.
The company's most advanced drugs are the wholly owned Acelarin and NUC-3373 -- two new chemical entities derived from gemcitabine and 5-fluorouracil, respectively.
Results from a phase 2 trial evaluating Acelarin in platinum-resistant ovarian cancer patients is expected this year, as is data from a phase 1b trial of Acelarin in combination with cisplatin in advanced biliary tract cancer. In January, interim data from eight patients in the phase 1b trial showed a 50% objective response rate to Acelarin and cisplatin, including one complete response. For context, a 26% objective response rate established gemcitabine and cisplatin as a standard treatment in this indication. The National Cancer Research Institute in the United Kingdom is also conducting a phase 3 trial of Acelarin in pancreatic cancer.
In 2018, NuCana expects to initiate a phase 1b trial combining NUC-3373 with the standard agents used today alongside 5-fluorouracil. It also plans to begin a phase 3 trial in advanced colorectal cancer and a phase 2 trial in patients with advanced breast cancer.
Thanks to an IPO last year, NuCana's got 81.3 million pounds in cash and equivalents on hand as of March, and CEO Hugh Griffith has an investor-friendly background. Previously, he served as the former chief operating officer at Bioenvision, a biotech that was sold to Sanofi's Genzyme for $345 million in 2007.
Overall, there are reasons to include both of these stocks in portfolios. In NuCana's case, the odds of clinical trial success may be better than average given it's improving upon already proven, commonly used chemotherapies. Alternatively, Madrigal's post-rally $3.8 billion market cap may still undervalue the commercial opportunity associated with the potential size of the NASH market.
