Day after day, investment-bank analysts pin new price targets to biotech stocks. Adjustments are usually minor, but recent upgrades suggest these two drugmakers are worth a lot more than most investors realize.
Price targets always come with some important caveats, and meeting them is far from guaranteed. This is why buying any biotech stock hoping it will quickly reach a lofty new price target is an investing strategy that rarely works out.
Here's what you need to know about a couple of attention-getting upgrades making waves at the moment.
|Company (Symbol)||Recent Market Cap||Recent Share Price||New Price Target||Implied Upside||Investment Bank|
|Allogene Therapeutics (ALLO 4.65%)||$3.6 billion||$30.50||$45||48%||Oppenheimer|
|Collegium Pharmaceutical (COLL 1.14%)||$459 million||$13.74||$23||67%||H.C. Wainwright|
Allogene Therapeutics: Off the shelf
New cancer treatments that modify a patient's own cells to attack cancer are wonderfully effective, but harvesting, modifying, and then reinfusing stem cells is a long, complicated process that has impeded their commercial launches. Allogene Therapeutics is clinical-stage biotech developing an off-the-shelf solution that oncologists can quickly administer to patients with a lot less hassle.
Citing a handful of clinical trial readouts expected over the next year and a half, Oppenheimer analyst Mark Breidenbach thinks this $3.6 billion biotech is worth around $5.3 billion. That seems a bit dear for a company with one potential new drug in mid-stage clinical trials and one more scheduled to begin in the first half of 2019.
In a phase 1 study with Allogene's lead candidate, UCART19, an impressive 14 out of 17 relapsed patients with an aggressive form of leukemia that were given an anti-CD52 drug with their lymphodepletion regimen achieved complete remission. The study enrolled 21 patients, but all four patients that didn't respond to UCART19 also weren't given an anti-CD52 drug beforehand.
Although 14 complete responses out of 21 treated is still an impressive result, there are two cellular cancer therapies aimed at the same target already on the market that are arguably better, plus dozens more in development. ALLO-501 is convenient, but without an efficacy profile that matches available treatments, convenience won't be enough to drive significant sales.
Allogene will begin human trials with ALLO-501 and relapsed non-Hodgkin's lymphoma patients before the end of June. The study will also test ALLO-647, a potential new anti-CD52 antibody as part of an immune cell depleting regimen. This is a necessary step before ALLO-501 cells can be infused with a chance to graft.
We really don't know if the lack of an anti-CD52 was the reason four patients didn't respond UCART19. If Allogene serves up another round of relatively dull data with ALLO-501, the enthusiasm pushing this stock to its nosebleed valuation will disappear.
Collegium Pharmaceutical: Abuse deterrent
2018 wasn't a great year for prescription opioid sales, with the exception of Collegium Pharmaceutical and Xtampza ER, an abuse-deterrent oxycodone capsule. The oxycodone in Xtampza ER from Collegium Pharmaceutical isn't any different from the oxycodone in the leading brand, OxyContin OP from the infamous Purdue Pharma.
While the main ingredient is the same, Purdue's perfunctory attempt at abuse deterrence has been proven easy to beat. Xtampza has been proved to actually work as intended, and as a result, total prescriptions for Collegium's drug rocketed 233% higher in 2018 from their 2017 levels. Prescriptions written for generic oxycodone and branded OxyContin fell 21% over the same time frame.
In 2017, prescription opioids contributed to 35% of all opioid overdose deaths, and oxycodone is one of the top three contributors. For patients with a legitimate need for powerful pain medication, though, it's a lifesaver that physicians aren't ready to go without.
In 2018, an estimated 2.6 million OxyContin OP prescriptions led to approximately $1.5 billion in sales. Xtampza sales climbed to $69.4 million last year with just 327,000 prescriptions. With lots of room to grow, Xtampza could become a blockbuster opioid that helps doctors provide powerful, long-term pain relief without violating their Hippocratic Oath.
Worth the risk
Both of these biotech stocks are more than capable of delivering market-beating gains, but Collegium's booking significant sales for Xtampza and an in-licensed formulation of tapentadol now. Allogene's high valuation could lead to huge losses if it's new cancer therapy produces results that are anything less than amazing.
Collegium's still losing money, but operations lost just $20.1 million in 2018, and positive cash flows could happen in 2019. At its recent price, Collegium's probably worth the minuscule risk that physicians will stop using opioids with their most anguished patients.