It's April, which means spring cleaning, rain showers, and, in non-COVID times, tax season. This April, many previous growth stocks have cooled, and the biotech sector is no exception. FibroGen (FGEN 14.59%), Novavax (NVAX 9.46%), and Editas Medicine (EDIT 9.93%) have all taken a beating for various reasons. Let's see if any of these biotechs have a chance to bloom in the future, or whether now is the time to sell your shares.
It usually is not a reassuring sign to see that, right before going in front of the U.S. Food and Drug Administration (FDA) for review, a company wants to clarify prior data in regards to cardiovascular safety. Likewise, it is not hard to imagine that if you give several people an experimental drug and see what happens and to whom -- i.e., you have made a guess at results before setting an endpoint -- then you could, in theory, test the data in any way that produces a favorable result. This type of study is called a post-hoc analysis, and can lead to data-dredging and, at worst, leaves a study open to manipulation. Therefore, I take clinical trials utilizing data drawn from a post-hoc analysis with a grain of salt for these very reasons.
Unsurprisingly, FibroGen barely eked out positive data in its post-hoc analysis for its lead compound, roxadustat, which is being studied for the treatment of anemia associated with chronic kidney disease. Previous studies were quite convincing that roxadustat increased hemoglobin levels and reduced the need for transfusions in chronic kidney disease patients. The proverbial "grand slam" would be if roxadustat improved mortality or helped avoid other serious adverse events; and this is where it gets interesting.
The company recently "provided clarification" that data initially suggesting that a composite of outcomes (the combination of mortality, stroke, heart attack, "unstable angina," and hospitalization for heart failure) was slightly better than current treatment regimens, was now no better than current treatments when they reexamined the data. Ruh-roh. That's not the best thing to do when you're getting ready to present your case to the FDA. All of this has caused FibroGen's stock to drop just over 60% from its 52-week high to its current market cap of approximately $1.8 billion.
FibroGen only receives royalties in the low 20% range for U.S. and EU roxadustat sales, so the damage may be manageable. However, this does cast some doubt onto its promising pancreatic cancer drug, pamrevlumab, for which the company utilized a surrogate endpoint -- "surgical eligibility" as an endpoint rather than something patients would likely care about like, say, living longer. Fortunately, in a double-blind, placebo-controlled trial, overall survival is the primary endpoint. I'm looking forward to the results of this study in the second half of 2022 before considering buying shares.
With the next possible COVID vaccine to earn authorization from the FDA on deck and international agreements to deliver 300 million doses, Novavax's success continues to boggle the mind.
The company has been public since 1995, yet without a single product more than 25 years later, the company still has a $13 billion market cap. Even more surprisingly, the company is up over 11 times from a year ago, yet is still down 45% from its 52-week highs. The company has come close to delivering a product a few times but ultimately fell short for various maladies. It tried to capitalize on swine flu, bird flu, Ebola, MERS, seasonal flu, and RSV. It completed a 1:20 reverse stock split in May 2019.
With so many failures in its past and vaccination rates climbing, I wonder if Novavax can not only limp across the finish line, but carve out a segment of the COVID vaccination market for itself after arriving late to the game. Based on the lack of past success over the last two and a half decades, I'll be skeptical of the company until it actually brings a product to the people.
Editas Medicine, despite being down 60% from its highs, is an intriguing company at a $2.6 billion market cap. It has exciting technology and big dreams. My concern is that its business is spread thinly across increasingly competitive markets.
For instance, in the rare eye disease market, Editas may be facing threats from Roche's (RHHBY 1.57%) Spark Therapeutics, Sanofi (SNY 0.02%), and Biogen's (BIIB 0.10%) Nightstar -- all of which have a considerable head start or products already on the market. Roche had even said that sales for Luxturna, its ophthalmic gene therapy for a rare inherited form of retinal dystrophy that can eventually lead to blindness, were disappointing -- just $80 million in 2019 after approval in 2017.
With the company spending $158 million on research and development (R&D) in fiscal year 2020 and over $750 million in cash and cash equivalents, it currently only has enough cash to get it through 2023. It is entirely possible the juice may not be worth the squeeze for the company's three ocular programs, especially since they have a late start.
In the sickle cell disease space, Editas is going it alone without a well-funded partner to compete against a Vertex Pharmaceuticals (VRTX -0.59%) and Intellia Therapeutics (NTLA 12.15%) collaboration, as well as bluebird bio (BLUE 19.86%). Not to mention that bluebird bio is much further in development, and Vertex has much deeper pockets. While three shots at the gene therapy goal is great news for patients, I am concerned Editas may be the odd one out among the three, and unable to catch up.
Lastly, Editas is also spreading itself rather thin across multiple specialties -- not only is it dabbling in the sickle cell disease market and rare eye disease market but also in neurologic disease and oncology. These are expensive projects that pull a company's focus in many directions. Multiple tangentially related projects does not inspire my confidence.
Cleaning out the portfolio
While April showers bring May flowers, I am concerned that none of these stocks will blossom any time soon. Editas is intriguing, but it has a concerning lack of focus and is not yet, to me, a clear leader in the gene therapy space. Novavax has had multiple chances to be a winner and could never quite capitalize, so for that reason, I am doubtful it can pull off a meaningful win for today's growth investors. FibroGen has blemishes on its record, but I would not toss it to the scrap heap just yet, at least not until there is more news for its upcoming pancreatic cancer drug.