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.
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1. Jounce Therapeutics
The cancer immunotherapy company Jounce Therapeutics (JNCE) 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) 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.
3. Sorrento Therapeutics
Aside from its coronavirus vaccine candidate and coronavirus diagnostic test, Sorrento Therapeutics (SRNE.Q -16.67%) 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.
