Let's face it, we all wish we could have bought and held a stock that ended up rising 50 or 100 times in value over the last decade. Unfortunately, capturing that type of gain typically means investing while the company is still small and its outcome is uncertain. Trillium Therapeutics (TRIL), Vaxart (VXRT 7.99%), and Twist Biosciences (TWST 4.99%) have ambitions so big, they could produce these life-changing returns from the big-risk, big-reward portion of a diversified portfolio.
1. Trillium Therapeutics
Jan Skvarka, who Trillium introduced as CEO near the end of 2019, has said the company's long-term goal is to challenge chemotherapy. That's a bold statement, but the early results from the company's two drug candidates hint at the possibility. Many companies are working on treatments that prevent cancer's ability to mask itself from the human immune system, but Trillium's TTI-621 and TTI-622 are the best so far at doing so by themselves while also signaling the body to attack the disease. When a drug works by itself like this it's called a monotherapy. Although they are only in a phase 1 clinical trial, the drugs have proven themselves safe and produced best-in-class results as monotherapies even at low doses.
Management has scheduled an update for the end of April, when shareholders hope to learn what dosage and which disease targets the company will pursue in phase 2 trials. For now, shareholders have endured a 50% drop in the stock as shares of risky companies have been punished as interest rates rise. If Trillium succeeds, the stock could climb so high that 10 years from now shareholders won't even see the drop on a stock chart.
Vaxart is another small biotech with big ideas. The company wants to disrupt the market by converting some of the best-selling injectable vaccines into tablet form. It's had some success. The company's tablet-based influenza vaccine performed as well as Sanofi's (SNY 0.65%) market-leading FluZone in tests against the H1N1 strain of the virus. The company has partnered with a unit of Johnson & Johnson (JNJ 0.42%) to develop a vaccine against multiple influenza strains.
Despite producing what it called "positive" results from its phase 1 study of a VXA-CoV2-1 -- its vaccine against COVID-19 -- shares tumbled 60%. The drug met the phase 1 goal of determining a safe dosage, but Wall Street was looking for more indications that the tablet would prevent the disease. Specifically, VXA-CoV2-1 didn't produce the same type of antibody response as the COVID-19 vaccine from Pfizer and Moderna. However, the company's influenza vaccine didn't produce many of those antibodies and it was still effective. In the case of Vaxart, Wall Street could be in for a big surprise when efficacy is measured. If so, shareholders might see a quick rebound to new all-time highs as both the potential for a COVID-19 vaccine and the broader tablet platform are incorporated.
The pandemic has ushered in a golden era of drug research. News that was once relegated to corners of the internet only frequented by science-nerds has become mainstream. After all, developing a COVID-19 vaccine is the most attention the science community has gotten since the Space Race. Much of the research requires DNA, and that can be hard to get. Labs are usually able to order the material online, unless they require thousands of genes. That's where Twist Bioscience comes in.
The company has developed a platform to manufacture synthetic DNA using a miniaturization technique that cuts costs for large batches of genetic material. It's the reverse of the genome sequencing market, where a customer provides genetic material and gets back a data file. For Twist customers, sending in a file results in a shipment of genetic material. An example was customer AstraZeneca, which used the process to discover several antibodies when developing its COVID-19 vaccine. Demand is high. The market for synthetic DNA could triple over the next five years to almost $20 billion.
Despite being nearly cut in half in 2021, the stock is still up more than 400% since the pandemic began. That's thanks to growth. The company's revenue has grown from $25 million in 2018, when it went public, to $101 million over the past 12 months. It had served 1,500 customers by the end of December, 50% more than the end of 2019. Management's guidance for this year of $110 million to $118 million represented only 26% year-over-year growth at the midpoint. That's relatively slow for a stock trading at almost 50 times sales. Still, Twist is expanding manufacturing capacity as it stretches toward a goal of $500 million in revenue. If Twist can get there in the next few years, the current valuation shouldn't be a problem.
A risk worth taking
Few small biotechs ever realize what they set out to accomplish. For drug developers, the statistics are startling. In oncology, only 3.4% of drug candidates end up gaining approval, according to the American Council on Science and Health. Vaccines fare better at about 33%.
It's a common refrain for investors: Reward doesn't come without risk. In a diversified portfolio, taking that risk can sometimes be worth the life-changing payoff if the company succeeds. For those looking to roll the dice in the biotech space, Trillium, Vaxart, and Twist might be good candidates to beat the odds.