Pharmaceutical stocks were initially expected to be largely immune to the COVID-19 economic downturn. Drugmakers, after all, generally produce products that are essential to daily life.
However, the extreme social distancing that has become part and parcel of this unusual period has halted numerous clinical trials, shuttered scores of clinics across the country that patients depend on for lifesaving medicines, and forced hospitals nationwide to put off noncritical procedures in order to focus on the ongoing pandemic.
The net result is that several pharma stocks -- especially companies in the pre-revenue end of the spectrum -- have been absolutely blasted by the market during the month of March.
But this tsunami of selling across the pharmaceutical industry has created some truly compelling buying opportunities for long-term investors. In fact, there are several pharma companies with share prices in penny stock territory (under $5) that probably shouldn't be in this ultra-high-risk area of the market.
Which penny pharma stocks should risk-tolerant investors have on their radars? Adaptimmune Therapeutics (ADAP -2.51%), Agenus (AGEN 6.43%), and Viking Therapeutics (VKTX 15.91%) are three names worth checking out in the wake of this marketwide sell-off. Here's what you need to know about these three clinical-stage pharma stocks right now.
Adaptimmune: A leader in the field of cell-based cancer therapy
Adaptimmune's stock has performed fairly well in 2020, but the company did give back a large chunk of its recent gains during March. Investors have taken notice of this small-cap immuno-oncology company this year because of a partnering deal with Japanese pharma giant Astellas Pharma.
Last January, Astellas and Adaptimmune inked a research and development deal to explore the use of stem-cell-derived allogeneic T-cell therapies as a novel treatment for various forms of cancer. As part of the deal, Adaptimmune received $50 million up front. Immediately thereafter, it also raked in $78.1 million in net proceeds via a secondary offering to further shore up its balance sheet.
The biotech has thus greatly extended its cash runway through this Astellas deal and the follow-on secondary offering. Cash is crucial for developmental biotechs, and Adaptimmune has essentially erased this key risk factor for the time being.
Another big reason to like this small-cap cancer stock is that the company has designs on launching its first cell therapy, an experimental synovial sarcoma treatment known as ADP-A2M4, as soon as 2022. This first product isn't expected to be a major revenue generator, but it doesn't have to be for a company with a market cap of just $365 million. More importantly, a positive pivotal trial readout, followed by a successful regulatory filing, would go a long way toward validating its novel immuno-oncology platform in general.
Bottom line: Adaptimmune's shares could be gearing up for another massive run over the next two years, if everything goes according to plan in the clinic and on the regulatory front.
Agenus: An underappreciated checkpoint inhibitor play
Agenus is a small-cap immunotherapy company that has now lost over half its value this year. Agenus' hefty slide in 2020 is due to both the marketwide downturn, along with the concern that the company's first product candidate -- a cervical cancer combo consisting of balstilimab (AGEN2034) and zalifrelimab (AGEN1884) -- won't be commercially viable. In a nutshell, Agenus will have to compete in a crowded market dominated by some of the biggest names in biopharma.
But this pessimistic take arguably misses the bigger picture. While it's true that this combo therapy for cervical cancer probably won't ever break $100 million in annual sales, Agenus' market cap currently stands at a mere $321 million, and the company also sports a number of additional cancer drug candidates. What's more, Agenus has an active oncology partnership with Gilead Sciences, which provides yet another avenue for value creation for potential shareholders.
This tiny biotech might lack that bona fide flagship drug candidate that growth investors crave, but it does have an attractive overall value proposition nonetheless. So if you're willing to be patient, Agenus' stock should provide a healthy return on capital over the next five to ten years.
Viking: A bargain-bin NASH stock
Not that long ago, Viking Therapeutics, a metabolic disorder specialist, was one of the hottest stocks in the entire market. The buzz centered around the biotech's experimental nonalcoholic steatohepatitis (NASH) drug VK2809. In a midstage trial for a related fatty liver disease, this drug showed a stunning ability to clear fat from the liver and improve a patient's lipid profile. Viking has since advanced VK2809 into a second midstage trial for biopsy-confirmed NASH, with top-line data slated for public consumption sometime in the first half of 2021.
The big deal is that NASH is easily one of the largest untapped pharmaceutical markets right now. Any drug approved for NASH within the next two to three years should thus turn into a megablockbuster (over $5 billion in annual sales) in short order. While Viking's VK2809 may not be among the first wave of NASH drugs approved, it does have a good chance to become a best-in-class treatment, and possibly even go on to serve as a backbone therapy for a top combo treatment. At a bare minimum, VK2809 should be a blockbuster product if it is approved for NASH as either a monotherapy or as part of a two- to three-drug cocktail.
Viking's stock should roar back to life once this coronavirus threat has passed and the market gets back to business as usual. So, even though this clinical-stage biotech will likely continue to struggle in the short term, it should ultimately turn out to be a big winner at some point in the current decade.