Developmental cancer companies can produce jaw-dropping returns on capital in short order. The core reason is that most of these companies are trading at a mere fraction of the commercial potential of their lead product candidates.
That's not surprising, given that most anti-cancer compounds fail at some point during the arduous and lengthy clinical trials process. On the rare occasion, however, these risky equities do sprout wings and learn to fly because of a surprise win in the clinic, a buyout agreement, or a licensing deal with a bigger pharma -- thus producing outsize gains for early shareholders.
Which clinical-stage cancer companies should risk-tolerant investors have their eyes on right now? Adaptimmune Therapeutics (NASDAQ:ADAP) and Trillium Therapeutics (NASDAQ:TRIL) could both turn out to be diamonds in the rough. Here's why.
Adaptimmune: The Holy Grail of T-cell therapy
Adaptimmune is targeting one of the largest commercial opportunities within the vast cancer space -- namely, the development of a safe and effective T-cell therapy for solid tumors.
The lowdown is that while T-cell therapies have proved to be game-changers for a variety of blood cancers, these next-generation treatments haven't performed particularly well within the solid tumor setting. Adaptimmune's goal is to change this narrative with its SPEAR (Specific Peptide Enhanced Affinity Receptor) platform.
The big picture is that the first company capable of breaking into this untapped therapeutic arena could generate tens of billions in future sales. That's a particularly juicy value proposition for a small-cap biotech such as Adaptimmune, which currently sports a market cap of just $805 million.
Where do things stand now? Adaptimmune's lead product candidate, ADP-A2M4, is marching toward a possible commercial launch for soft tissue cancer in 2022. In addition, the biotech is trialing two early-stage T-cell therapy product candidates: ADP-A2M4CD8 for a variety of solid tumors and ADP-A2AFP for liver cancer. Initial safety and efficacy data for this next batch of experimental T-cell therapies is expected within the next few months.
All told, Adaptimmune's calendar is chock-full of potential catalysts over the next two to three years. Whether this small-cap biotech sinks or swims, though, will depend on the data.
Trillium: A novel immune checkpoint play
Trillium is a pioneer in the emerging field of immunotherapeutic blockade of the CD47 inhibitory signaling pathway. In plain English, CD47 is a checkpoint protein that is often overexpressed on the surface of cancer cells.
The primary function of this cell surface protein in tumor cells is to prevent macrophagic activity -- or in simpler terms, CD47 boils down to a "don't eat me" signal. A therapeutic, in turn, could block this don't-eat-me signal, allowing the immune system to detect and subsequently engulf malignant cells.
Trillium's CD47 anti-cancer platform currently consists of two early stage immunotherapies: TTI-621 and TTI-622. The bad news is that these two experimental immunotherapies are well behind the leaders in the field from a development standpoint. Trillium may be able to overcome this competitive disadvantage, however. The key reason is that TTI-621 and TTI-622 are designed to be both safer and more efficacious than their predecessors.
Trillium's core value proposition is a risky one nonetheless. The company is still in the early phase of clinical testing. What's more, there are several major pharma companies racing to develop similar therapeutics. Trillium, in fact, probably won't be able to compete effectively against the big dogs in this space as a standalone entity. That's not the end of the world for shareholders, to be sure, but it is a key part of the dynamic that will undoubtedly impact Trillium's upside potential.
Nonetheless, this small-cap biotech undeniably has the potential to generate truly staggering returns for early shareholders. Driving this point home, Gilead Sciences bought one of Trillium's main competitors for a cool $4.9 billion -- a figure that is almost four times higher than the biotech's current market capitalization. TTI-621 and TTI-622 are also legitimate megablockbuster candidates (products that haul in annual sales in excess of $5 billion). So even if Trillium were forced to cut a licensing deal for financial or logistical reasons, the company would probably still walk away with a hefty sum.
All told, Trillium's stock clearly offers early shareholders an attractive long-term value proposition. This promising growth stock, though, does sport a rather hefty risk profile. TTI-621 and TTI-622 are years away from becoming commercial-stage products, and the field as a whole is still in its infancy. Investors, therefore, probably shouldn't buy more than they can afford to lose -- especially at this early stage of the game.