Any analyst worth their salt will warn investors that nothing changes quickly in healthcare. Of course, the old axiom doesn't apply to the prices investors will pay for promising new healthcare stocks.
These three healthcare stocks made their first appearance on the Nasdaq exchange in 2018, and they've already doubled in price since going public. Read on to see what's behind their success.
|Company||IPO Date||Price Change Since IPO||Market Cap|
|Allakos (ALLK 1.96%)||July 19, 2018||377%||$4.1 billion|
|Guardant Health (GH 2.62%)||Oct. 4, 2018||138%||$7.1 billion|
|Twist Bioscience (TWST 2.55%)||Oct. 31, 2018||114%||$979 million|
1. Allakos: Expectations exceeded
This member of the IPO class of 2018 rocketed higher this August in response to unequivocally positive results in a mid-stage study as a treatment for eosinophilic gastritis, eosinophilic gastroenteritis, and eosinophilic esophagitis patients.
Mast cells and eosinophils are white blood cells that play a big role in the inflammation process, and they're also implicated in lots of autoimmune disorders. Allakos' lead candidate, AK002 is a potential first-in-class antibody that targets Siglec-8 receptors found on these cells.
Scientists have known there are inhibitory Singlec-8 receptors on troublesome white blood cells for years, but Allakos is the first company with evidence that targeting Singlec-8 in humans can significantly reduce unnecessary inflammation. During a phase 2 trial treatment with AK002 reduced eosinophil counts by 95% while the placebo group's eosinophil count rose by 10%.
More often than not, potential new drug targets are a colossal waste of time and effort, or else there are already half a dozen different companies developing drugs to hit those promising targets at the same time. The stock shot up like a rocket because most investors thought Singlec-8 fit the former description.
Now that the company's market value has reached $4.1 billion, another 377% gain probably won't happen again in 2020. Further success for AK002, though, could lead to market-thumping returns that more than double your money in the long run.
2. Guardant Health: A vital new tool
Today's targeted cancer therapies are all designed to address the specific gene mutations that are actually responsible for driving tumor growth. Biopsy procedures to retrieve samples can be incredibly dangerous, and a majority of cancer patients never have their tumors sequenced.
Guardant's most popular service at the moment, Guardant360 is a blood-based test for fragments of DNA that break free from tumor cells. Guardant's test is in many ways more effective than a tumor tissue biopsy, and the company has the numbers to prove it.
The National Cancer Institute thinks around 1.7 million Americans received a new cancer diagnosis last year. That means there's a relatively limited audience for the Guardant360 service.
Practically everyone over 50 years old should receive regular cancer screenings, but most never learn they have cancer until it becomes too difficult to treat. Mass-market screenings that Guardant Health is still developing could make a big difference to the rate of diagnosed malignancies that get squashed before they can spread.
Later this year, Guardant will begin a registrational study with a blood-based colon cancer screen that could generate more than $1 billion in annual top-line revenue within several years, if it continues to perform in line with previous observations.
3. Twist Bioscience: Making genes to order
This biotech stock more than doubled shortly after its IPO, and it's been on a rollercoaster ride ever since. Twist Bioscience developed a DNA synthesis platform that allows the company to produce synthetic DNA at a much lower cost than its peers, at least in theory
While Twist appears to offer significant savings over the competition, it doesn't look like competitive prices are bringing in new business. The number of genes shipped per quarter peaked at 71,246 during the fourth quarter of 2018. In the second quarter of 2019, the company shipped just 68,069 genes and investors are beginning to wonder if there's any more room to grow.
Last February, Twist also began selling a kit for next-generation gene sequencing. The market for custom-built synthetic DNA sequences is growing, but demand for gene sequencing is already enormous. Unfortunately for Twist, there are already some big players in this field to contend with.
Twist Bioscience may have a lower market value than Guardant and Allakos, but it still looks like investors are expecting a lot of growth ahead. At recent prices, the stock has been trading at 16.4 times trailing sales. Those sales have been contracting since the end of 2018, and the stock will follow if the top line doesn't change course.
Any good stocks to buy here?
Buying shares of a risky start-up simply because their price recently doubled is a great way to lose money. The important thing to remember is that the best-performing stocks land on these lists, too.
Allakos and Guardant look like they've got what it takes to provide market-thumping returns in the years ahead, but it's probably best to steer clear of Twist until there's more evidence that undercutting its competitors is a viable strategy.