Please ensure Javascript is enabled for purposes of website accessibility

3 High-Risk, High-Reward Stocks to Add to Your Watch List

By Alex Carchidi – Sep 22, 2020 at 6:55AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These biotechs have a long road ahead, but they just might deliver massive growth.

Most investors know that young biotech companies are risky investments. Between the unpredictable drug development process, the high costs of clinical trials, and fierce competition, many fledgling biotechs simply won't survive into adulthood. For the few companies that make it, however, their early shareholders can become rich.

All three of the companies I'll discuss today are in the process of developing their first therapies and advancing them through clinical trials. These companies have the potential for plenty of growth in the long term -- but only if they can overcome their near-term obstacles. Adding these stocks to your watch list will help you keep track of whether the market thinks they're any closer to regular and reliable success, and will alert you to potential opportunities to invest.

A scientist prepares a micropipettor amidst racks of sample vials.

Image source: Getty Images.

1. Jounce Therapeutics

The cancer immunotherapy company Jounce Therapeutics (JNCE 14.30%) has the potential to become immensely lucrative because it has chosen a challenging focus area and urgent problem to solve, and is lining its pipeline with the appropriate projects.

The company's therapies aim to affect the tumor microenvironment (TME), which is the area inside of solid tumors. This is a notable technical endeavor, as traditionally the tumor microenvironment is difficult to treat with first-line therapeutic methods like chemotherapy.

Jounce isn't the only company that's developing therapies to target the TME, but at the moment, Jounce is the only company that specializes in it. Thus, it may have a competitive advantage in the making if it can prove that its approach confers tangible benefits to patients.

So, how risky is Jounce? Many microenvironment-targeted therapies have delivered unimpressive results in the clinic. To succeed, Jounce will need to buck the general trend, and so far it hasn't had any of its projects reach late-stage clinical trials where its approach could be proven. Skeptical investors should add it to their watch list and check back in to see whether the company has made any headway in a year or so.

2. Rubius Therapeutics

Rubius Therapeutics (RUBY 7.20%) deserves a spot on your watch list because it's building a tremendously innovative and valuable red blood cell therapeutics platform. In short, Rubius' platform allows it genetically engineer red blood cells that can serve as medicines for illnesses like cancer, within difficult-to-treat niches like the tumor microenvironment.

While there are plenty of other biotechs developing cell therapies for similar purposes, Rubius may be the only company hoping to offer engineered red blood cells as its final therapeutic product. That good news gets even better with the evidence that red blood cells are better therapy vehicles than other types of cells for treating certain diseases. But Rubius' novel speciality comes with hefty risk, because it means that the company can't lean on previously established safety data, efficacy data, or manufacturing methods.

Rubius is also a risky pick because it has faced several costly setbacks that have prevented the company from gaining ground in clinical trials. One such setback led to the company's termination of its RTX-134 program for phenylketonuria (PKU). Another issue in its clinical manufacturing operations led to delays throughout the entirety of 2019.

^SPX Chart

^SPX data by YCharts

3. Sorrento Therapeutics

Aside from its coronavirus vaccine candidate and coronavirus diagnostic test, Sorrento Therapeutics (SRNE 4.00%) has a bevy of therapies for COVID-19 and a handful of oncology drugs and analgesics in development. Given the hot market for coronavirus vaccines and treatments, Sorrento could be positioned for success in several different product categories if its projects make it through clinical trials. And, if it's on their watch lists, investors can choose to ride the price waves of the news cycle across announcements about any one of Sorrento's five coronavirus projects. 

On the other hand, Sorrento is risky because it doesn't have enough money in the bank to cover its short-term debt obligations. The company had only $24.39 million in cash in the most recent quarter against its $91.34 million in current liabilities due before the end of the year. Sorrento also has more than $147 million in long-term debt, which far outweighs its trailing revenues of $35.54 million. Furthermore, Sorrento's stock has been punished on more than one occasion this year, and its stock has faced several dilutions that are likely to continue.

In sum, the company may be at risk of bankruptcy if it doesn't issue more stock, thereby harming its shareholders. Throw this biotech stock on the watch list and see how the market reacts to the company's ongoing attempts to stabilize its finances before you consider investing.

Alex Carchidi owns shares of Jounce Therapeutics, Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Nearly 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Sorrento Therapeutics Stock Quote
Sorrento Therapeutics
$1.30 (4.00%) $0.05
Jounce Therapeutics, Inc. Stock Quote
Jounce Therapeutics, Inc.
$0.88 (14.30%) $0.11
Rubius Therapeutics Stock Quote
Rubius Therapeutics
$0.22 (7.20%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.