Over the next four years, cancer drugs and biologic therapies are forecast to grow into a $237 billion industry, according to EvaluatePharma. The direct offshoot of the industry's enormous size is that most oncology stocks currently sport rather rich valuations -- especially those with novel commercial-stage products or drug development platforms. As such, there aren't a whole lot of bargains to be had among publicly traded cancer companies at present. Having said that, there is a small cadre of grossly undervalued cancer stocks flying under the radar right now.
Atara Biotherapeutics (ATRA -3.25%) and Clovis Oncology (CLVS) are two names that have failed to capture the market's imagination over the past few years. This year could turn out to be the start of a long-term growth trend for both of these biotech stocks, however. Here's why investors may want to consider buying these two beaten-down cancer plays soon.
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Atara: A grossly undervalued cell therapy play
Atara's shares lost a whopping 53% of their value over the course of 2019, and so far, 2020 hasn't been much better for the novel cell therapy company. During the first four weeks of the year, Atara's stock has fallen by another 16.2%. Shareholders have been running for the exits for two reasons.
First, Atara failed to meet the internal development timeline for its lead product candidate known as tab-cel last year. Tab-cel is an off-the-shelf, allogeneic T-cell immunotherapy in late-stage development for patients with Epstein-Barr virus associated post-transplant lymphoproliferative disease. Second, the company's founder and former CEO Dr. Isaac Ciechanover abruptly stepped down in late 2019. Taken together, these twin events caused investors to grow increasingly skeptical about the company's novel immunotherapy platform.
Fortunately, Atara did seemingly land on its proverbial feet by hiring former Novartis executive Dr. Pascal Touchon as CEO. And not long afterwards, the biotech also provided investors with an encouraging clinical update on tab-cel's progress at the 61st American Society Of Hematology Annual Meeting in early December of 2019.
Why should investors consider this beaten-down cancer stock right now? The potential market-moving event with this name is the upcoming phase 3 data reveal for tab-cel. If successful, these pivotal data are expected to form the basis for a regulatory filing in the United States before year's end. Atara thus has a decent chance at evolving into a commercial-stage biotech in the not-so-distant future.
Aside from the financial benefits of having a therapy on the market for an ultra-rare indication, a regulatory approval would also validate the company's unique cell therapy platform at large. That's a big deal because Atara sports a highly diverse clinical pipeline for an array of high-value disease indications.
Bottom line: Market sentiment around this largely forgotten cell therapy stock could reverse course in the blink of an eye later on this year. As such, risk-tolerant investors may want to take advantage of this prolonged downward trend soon.
Clovis: Redemption is close at hand
Clovis' valuation plummeted by an eye-popping 40% in 2019. The company's woes stemmed from a trifecta of disappointing sales growth for its ovarian cancer medicine Rubraca, far too much debt, and a dwindling cash runway due, in large part, to its rather costly clinical program. Investors, in turn, were hoping that a suitor would emerge to end their collective pain -- especially with the biotech's valuation hitting a five-year low at one point last year. Unfortunately, big pharma never stepped up to the plate.
The good news is that Clovis should soon rise from the ashes, so to speak. The company is on track to expand Rubraca's label into BRCA1/2-mutant recurrent, metastatic castrate-resistant prostate cancer before the middle of 2020, and the drug's ovarian cancer launch has now expanded into several key territories in the European Union. The big reveal here is that Rubraca is expected to top $700 million in annual sales by 2025. That's a monstrous commercial opportunity for a company with a market cap of $645 million right now.
The fundamental disconnect between Rubraca's long-term commercial opportunity and Clovis' shockingly low valuation should thus be viewed as a stellar buying opportunity for patient investors. Now, it is true that the biotech's enormous value proposition may take a few years to round into shape. But there's no denying that it is on the right track. In fact, it wouldn't be surprising if Clovis' stock produced a total return on capital in excess of 400% over the next four years. That's a testament to just how incredibly undervalued this small-cap cancer stock is at current levels.
