So far this year, shares of Blueprint Medicines (NASDAQ:BPMC) haven't performed nearly as well as the company's research and development team. The company's already earned FDA approval for two new cancer drugs this year, but the stock is down about 17% this year.

Is this a good biotech stock to buy right now, or do investors have good reasons to remain wary? Here's what you need to know about this underappreciated cancer drug developer. 

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Gavreto for lung cancer

On Sept. 4, the FDA approved pralsetinib to treat a genetically defined group of patients with non-small-cell lung cancer (NSCLC) under the brand name Gavreto. This is a once-daily capsule that inhibits rearranged during transfection (RET) kinases, a group of proteins known to drive aggressive tumor growth for around 1% to 2% of all cases of NSCLC, and around 60% of all medullary thyroid cancers.

In a clinical trial leading to its approval, Gavreto shrank tumors for 70% of treatment-naive NSCLC patients. Among patients who had previous experience with standard chemotherapy, Gavreto shrank tumors 57% of the time.

Lung cancer is expected to claim the lives of 135,720 Americans in 2020, and around 84% of those cancers are of the NSCLC variety. If Gavreto becomes a standard treatment in its niche, it could generate blockbuster sales in just a few years.

Blueprint won't be marketing Gavreto on its own. Instead, Blueprint's collaboration partner, Roche (OTC:RHHBY), will commercialize the drug everywhere except the U.S. and China. In the U.S., the partners will co-commercialize the RET inhibitor and split the profits. In addition to milestone payments from Roche that could exceed $900 million, Blueprint could also end up receiving tiered royalties on Gavreto sales that range from a mid-single-digit percentage up to the low double digits.

A lot of what big pharma wants

Blueprint Medicines is moving so quickly that Gavreto is actually the second targeted cancer therapy from the company to earn approval from the FDA. Earlier this year, the agency gave a green light to the company's first drug, Ayvakit, a treatment for a genetically defined group of stomach cancer patients. 

They aren't as flashy as complex cellular therapies, but small-molecule drugs that act on specific mutated proteins that promote aggressive tumor growth are relatively easy to sell. As a result, companies like Blueprint Medicines are popular acquisition targets for big pharma companies with deep pockets.

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Reasons to remain cautious

Ayvakit sales reached just $5.7 million in the second quarter, which wasn't nearly enough to offset $133.2 million in operating expenses recorded over the same period. The company finished June with a big $650.3 million in cash, but the company will chew through this cushion like a lonely puppy if Gavreto's launch isn't a success.

Unfortunately for Blueprint Medicines, Gavreto won't be the first treatment option for its relatively limited patient population. In 2019, Eli Lilly (NYSE:LLY) spent around $8 billion to acquire Loxo Oncology, the company that discovered Retvmo. This is an oral RET-inhibitor the FDA approved in May to treat the same NSCLC patients as Gavreto. Retvmo's also approved to treat the same thyroid cancer patients that Blueprint has Gavreto aimed at. 

Looking ahead

During the trials leading to their respective approvals, Retvmo shrank tumors for a higher percentage of patients overall but Gavreto could have the upper hand. Blueprint's drug helped eight patients out 114 achieve complete remission, while Retvmo led to complete remission for just two out of 144 patients treated.

Gavreto and Retvmo were both approved based on results from their first clinical trials, neither of which has had enough time to tell us just how well these drugs improve patients' chances of long term survival. These accelerated approvals can be revoked if it turns out the drugs don't provide a strong enough survival benefit to outweigh their safety risks.

It could be years before Blueprint and Lilly produce survival data that helps oncologists decide which RET-inhibitor is the best option for their lung cancer patients. Any comparisons made between different populations need to be taken with a grain of salt, but so far it looks like Gavreto could have a slight advantage in the NSCLC indication.

A buy now?

Blueprint Medicines boasts a modest $3.7 billion market cap at recent prices, which isn't much when you consider the company's accomplishments. The company's earned FDA approval for two cancer drugs in just five years following its initial public offering. It isn't often you see a successful cancer drug developer trade at such a bargain bin valuation.

We don't know if Ayvakit can expand its addressable patient population, and Gavreto's launch could be overshadowed by Retvmo.