Cancer drug sales are on track to post an impressive compound annual growth rate of 11.4% over the next five years, according to a report by EvaluatePharma. This double-digit growth rate is particularly noteworthy because cancer drug sales already dwarf all other pharma market segments by a wide margin. Underscoring this point, EvaluatePharma's forecast calls for oncology medicines to rack up an astonishing $237 billion in total sales in 2024. For comparative purposes, anti-diabetics are slated to come in at a distant second with $57.6 billion in 2024 sales.
This brief background lays bare why oncology treatments have been a primary focus for both the pharmaceutical industry in general, and biopharma investors in particular, over the last few years. That being said, experimental cancer treatments do have one of the highest costs of development, one of the highest rates of failure in the industry, and they even frequently struggle to gain traction in the marketplace after approval due to an often-fierce competitive landscape. In short, oncology, despite its promise for unusual returns on capital, is fraught with pitfalls for early-bird investors and pharmaceutical manufacturers alike.
Which cancer treatment stocks offer the most attractive risk-to-reward ratios? Agenus (AGEN 2.66%), Clovis Oncology (CLVS 5.13%), and Puma Biotechnology (PBYI -0.88%) might be controversial picks as potential "top" oncology plays, but each of these names does possess a positively skewed risk-to-reward profile. Here's what you need to know about these out-of-favor cancer treatment stocks.
Agenus: Catalysts incoming
Agenus is a small-cap biotech that sports marquee oncology partnerships with Gilead Sciences, Incyte, as well as Merck. The company's shares are up by nearly 11% so far this year, but this stock could be about to take a big leap forward price-wise.
The key catalyst is the upcoming interim data readout for the checkpoint inhibitors AGEN 1884 and AGEN 2034 in second-line cervical cancer. The company plans to use these data as the basis for an accelerated regulatory filing early next year. If the Food and Drug Administration green-lights this experimental therapy, Agenus should be able to significantly curtail its quarterly losses over the next few years and take a major step toward becoming a profitable operation.
Apart from the potential financial benefit, a positive interim data readout may also convince one or more of Agenus' partners to explore a full-on buyout or perhaps another equity deal. Success breeds success, after all.
The key takeaway is that Agenus' stock has the potential to at least double from current levels if its checkpoint inhibitor platform lives up to expectations. So, while this small-cap biotech is still on the risky side, it should appeal to investors on the hunt for hidden gems.
Clovis: 2020 should be a year of redemption
Clovis' stock has been a lead balloon this year. Because of the disappointing commercial performance of its PARP inhibitor Rubraca as a treatment for advanced ovarian cancer and some truly staggering quarterly losses, Clovis' shares have lost 82.2% of their value so far this year.
Better days could be close at hand, however. Even though Clovis' weakening financial condition will remain a serious concern heading into 2020, the company's plan to expand Rubraca's label to include advanced prostate cancer has the potential to be a game-changer.
Clovis is expected to file a supplemental New Drug Application for this indication before year's end. So, if things go smoothly, Rubraca could be on the market for advanced prostate cancer by no later than the fourth-quarter of 2020.
The big deal is that the drug's sales might be able to climb to a healthy $740 million by 2025 with this key indication in hand, according to analysts at SVB Leerink. To put this forward-looking sales estimate into the proper context, Clovis' market cap has now sunk to a mere $174 million. In short, the market's extremely dire take on Clovis is probably way overdone at this point -- perhaps creating an outstanding buying opportunity for risk-tolerant investors.
Puma: The sky isn't falling
Like Clovis, Puma's shares have gotten slammed this year due to the less-than-stellar performance of its lead asset, Nerlynx. Nerlynx is indicated for adults who have early-stage HER2-positive breast cancer. The drug's commercial performance has underwhelmed this year due to high discontinuation rates stemming from its harsh side effect profile. In fact, Wall Street is calling for the drug's sales to essentially flatline in 2020, which is a bad sign for a novel oncology medicine that's only a few years into its launch.
So, why consider buying this cancer stock? While the market should be concerned about Nerlynx's unfavorable side effect profile, this sell-off is arguably way overdone at this stage. Puma's shares are now trading at a price-to-sales ratio of 1. That's a clearance rack price point for a company with an FDA-approved breast cancer drug.
Although Nerlynx will probably never become a blockbuster product, it should easily generate a few hundred million in sales per year for years to come. That fact alone should entice one or more suitors to come calling in the not-so-distant future -- especially if Puma's shares continue to trade at dirt cheap levels. Put simply, this beaten up cancer treatment stock is likely close to a bottom, meaning that it might be the perfect time to start accumulating shares.