Like most investors, I enjoy a good bargain. And this prolonged sell-off is certainly providing a slew of compelling buying opportunities for bargain hunters like myself.
Interestingly enough, biotech stocks have been hit particularly hard by this market-wide downturn. Although the exact reason (or reasons) for biotech's year-end plunge is up for debate, there's no doubt that the long-term upward trend for the industry as a whole remains very much intact.
After all, the pace of innovation within biotech is only gaining momentum with the advent of new game-changing technologies, and the world's population continues to age at an unprecedented rate, thereby increasing demand for novel therapies for acute and chronic ailments alike.
With this theme in mind, I think investors should consider adding Agenus (AGEN -1.38%), Amarin (AMRN -2.10%), and Viking Therapeutics (VKTX -1.57%) to their portfolios in the wake of this latest pullback. Here's why.
A powerful alliance
Agenus, a small-cap cancer immunotherapy company, is down by a whopping 31% in 2018. However, the company and its stock appear to be nearing an inflection point, thanks to a landmark development deal with biotech blue blood Gilead Sciences (GILD 1.61%) announced earlier this month.
In brief, Agenus and Gilead are pairing up to develop five anti-cancer checkpoint inhibitor therapies. As part of the deal, Gilead will provide Agenus with $120 million in up-front cash, as well as a $30 million equity investment.
Why is this partnership such a big deal? Two major reasons. Apart from the financial benefits, Gilead's decision to partner with Agenus is a major endorsement for the company's anti-cancer platform. That's key because Agenus chose to dive headfirst into a field that's overflowing with potential competitors.
Secondly, the equity investment part of the deal possibly sets the stage for a high-dollar buyout later down the road. Now, Agenus does have other partners that may also want to make a bid at some point, but Gilead has more than enough cash to comfortably outbid any would-be competitor if it chooses to do so.
All told, Agenus' $266 million market cap is a drop in the bucket compared to the commercial opportunity presented by its broad checkpoint inhibitor platform -- a platform that has now attracted several top biotech and biopharma heavyweights.
The rebel defying all odds
Amarin and its prescription fish oil pill Vascepa have more than their fair share of naysayers. Even after the company unveiled unprecedented results for its omega-3 supplement in patients with high triglycerides despite being on statin therapy, for instance, Amarin still couldn't escape Wall Street's rather biting criticism.
Long story short, critics pointed out that the placebo arm in Vascepa's cardiovascular outcomes study known as Reduce-It experienced an unexpected spike in bad cholesterol levels -- implying that the drug's cardiovascular benefits may not be as pronounced as the initial results seem to suggest.
While the merits of this critique are certainly worth chewing over by potential investors, this knock against Reduce-It's top-line readout shouldn't have all that much of an impact on the drug's commercial opportunity. The fact of the matter is that even a minor cardiovascular benefit should boost Vascepa's sales by a staggering amount going forward. Amarin, for its part, expects the drug's sales to eventually exceed $2 billion a year at peak -- a figure that was echoed by more than one analyst after Reduce-It's results hit the street earlier this year.
The big draw here is that Amarin is now a red-hot buyout target in the wake of Vascepa's breakthrough. After all, several big pharmas and blue-chip biotechs have gaping holes in their product portfolios due to the never-ending patent cliff and many of these same companies have truckloads of cash to pursue deals. So, despite what the critics may say, Amarin's stock appears primed to benefit from an upcoming bidding war -- or from regular old organic growth.
Two for one
Not many clinical-stage biotechs sport two potential blockbuster products nearing late-stage development. But that's what sets Viking Therapeutics apart from the crowd. Specifically, Viking has a hip fracture drug candidate called VK5211 set to enter late-stage development soon, as well as a mid-stage fatty liver disease medicine known as VK2809. Each of these experimental drugs could easily generate well over $1 billion a year in annual sales.
Where do things currently stand for Viking and its high-value clinical pipeline? Viking is currently seeking a partner for VK5211 in order to focus squarely on VK2809's development. The basic idea is to allow a partner to pay for VK5211's costly late-stage development, while Viking advances VK2809 next trial for a potentially fatal liver condition known as nonalcoholic steatohepatitis (NASH). That's a smart move because NASH is widely believed by industry insiders to be the next multibillion-dollar drug market.
Despite sporting one of the more promising clinical pipelines within its peer group, however, Viking's stock has gotten absolutely crushed in the back end of 2018. Since its shares rocketed higher on VK2809's mid-stage data release last September, for instance, Viking has shed a jaw-dropping 63% of its value at the time of writing.
What's worrying investors? The main concern is VK2809's presumptive competitive position within the NASH market. As things stand now, VK2809 is well behind the current leaders in NASH from a development standpoint and some analysts have also started to argue that the future of NASH treatment lies in combination therapies, not monotherapies like VK2809.
The counterpoint here is that VK2809 has shown an arguably superior clinical profile to all other experimental fatty liver disease treatments to date, and there's a solid rationale to believe that these stellar results will extend to the NASH arena. If so, Viking's sharp pullback will prove to be unjustified.