Biotechs have consistently dominated the list of best-performing stocks over the past two decades. A whopping 32 biotech equities, for instance, generated returns in excess of 300% in 2020. Perhaps the most attractive part of this powerful trend for investors is that several of these companies weren't so-called COVID-19 plays, either. As just one example, Cardiff Oncology, a clinical-stage cancer specialist, produced a jaw-dropping 1,400% return on capital over the whole of 2020.
Which biotech stocks are poised for rocket-like growth in 2021? I have my eye on several names as the new year opens, but my favorite name in biotech this year is Trillium Therapeutics (TRIL). Here's why I think this small-cap biotech could be a big winner in 2021.
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Why is Trillium a possible home run stock?
Trillium sports a truly novel -- yet largely unproven -- immuno-oncology platform. Specifically, the company's anti-cancer compounds both target the CD47 pathway (the "don't eat me" signal) and may also enhance the immune response against certain types of cancer cells.
Another unique aspect of Trillium's drug compounds is that they do not bind to red blood cells, which should reduce the risk of drug-induced anemia, keep the compound from being easily removed by circulating red blood cells, and minimize the potential for interference with transfusion medicine.
Where do things stand now? Trillium is presently evaluating its two lead compounds -- TTI-621 and TTI-622 -- in a pair of phase 1 dose escalation trials in heavily pre-treated patients with various types of blood cancer. These ongoing trials should provide insight into any dose-limiting toxicities, major safety signals, and perhaps most importantly, the specific indications with the best chance of success in larger trials.
Additionally, Trillium is planning on assessing these CD47 blockade compounds in combination with a variety of other anti-cancer drugs, such as PD-1 inhibitors. Keeping with this theme, the biotech's braintrust recently announced that a full-blown clinical development plan for its lead compounds -- including forthcoming combo studies and solid tumor trials -- would be revealed at some point in 2021.
The big picture is that the CD47 blockade arena has already attracted several major players. Gilead Sciences (GILD -1.15%), for instance, paid a handsome $4.9 billion last year to take out Forty Seven for its anti-CD47 monoclonal antibody magrolimab. And less than six months later, Pfizer (PFE -0.12%) agreed to purchase $25 million of Trillum's common stock in a move that may lead to a closer relationship down the road. In short, there is a lot of interest in this emerging wing of immuno-oncology.
What's Trillium's upside potential in 2021?
By the end of the year, Trillum is expected to provide several key updates on TTI-621's ongoing phase 1 trial in a basket of blood cancers. This trial, in fact, is slated to wrap up by the end of the year. Trillium will also likely roll out a handful of preliminary data drops for TTI-622 -- even though this drug's phase 1 trial isn't scheduled to produce top-line data until early summer of 2022. The long and short of it is that investors should have a fairly solid idea of whether or not this novel immuno-oncology platform is worth advancing into larger trials by the end of the year.
And if Trillium does indeed have a best-in-class CD47 blockade platform, Pfizer or another oncology giant will almost certainly come calling with a sizable buyout offer, perhaps by the winter of 2021. The fact of the matter is that the trend among big pharma over the past several years has been to identify compounds with a well-differentiated mechanism of action early on in development, and then pay seemingly whatever it takes to add them to the pipeline (see Gilead and Pfizer's litany of recent acquisitions for just a few examples).
Trillium, for its part, undoubtedly has a unique anti-cancer platform capable of attracting a high-dollar tender offer. In fact, my hunch (and it's only a hunch) is that Pfizer will most likely be the first one in line with an offer if either of Trillium's lead compounds yields an attractive safety and efficacy profile. How big of an offer? Well, it's hard to imagine Trillium accepting anything lower than what Gilead paid for Forty Seven last year. In effect, I believe that Trillium's shares sport a 240% upside potential -- or better -- in 2021 via a buyout scenario; again, assuming the clinical side of this equation pans out.
That being said, this development biotech is a super-risky play due to the early-stage nature of its platform. Cancer drugs have a long history of flaming out in the clinic, and Trillium's CD47 blockade compounds could very well turn out to be duds. In other words, investors shouldn't buy more than they can afford to lose. What's more, it's probably best to keep any potential position on the small side until more data are available for public consumption.
