Saying "I told you so" is one of the sweetest joys of investing, and in fact it's so sweet that an entire discipline of investors has sprung up around being able to say those four delightful words. Of course, I'm talking about contrarian investors, who try to make big bucks by correctly betting on beaten-down stocks that everyone else is ditching.
In that spirit, I'll be discussing a pair of contrarian biotech picks today. It goes without saying that both of these companies are unprofitable, and both have had recent setbacks. But if you're willing to take a gamble with long odds on either one, you'll be getting a stellar deal for your money. So let's dive in.
Image source: Getty Images.
Bluebird Bio
Little has gone right for Bluebird Bio (BLUE -1.46%) recently, but there's definitely a contrarian case for buying its shares today.
Between a temporary clinical trial suspension with its LentiGlobin gene therapy for sickle cell disease (SCD) early last year, and this year's announcement of a longer-than-expected regulatory review of its gene therapies for beta thalassemia and cerebral adrenoleukodystrophy (CALD), the stock has lost more than 90% of its value in the past three years.
But for biotechs, cash is king, and Bluebird still has $442 million in the bank, only $46 million of which is restricted. That means it has unrestricted liquid assets of around $396 million, which is less than its market cap of approximately $369 million.
Importantly, the company plans to spend less than $400 million in cash this year, and its $152 million in long-term debt makes up for the vast majority of its total debt of $181 million.
So, its debt load is manageable, at least for now. Plus, it'll hopefully launch its beta thalassemia and CALD therapies in the U.S. later in 2022, assuming that it can actually navigate its regulatory issues successfully.
If it does, its revenue will skyrocket from its trailing-12-month total of $53.6 million. And it'll provide a significant reward for those who were brave enough to invest. The risk, even for contrarians, is that Bluebird might fumble with its new product launches, necessitating fundraising by taking out more debt or issuing new stock.
Kodiak Sciences
In the last 12 months, shares of the ophthalmology biotech Kodiak Sciences (KOD 1.55%) are down by more than 93%.
Most recently, its late-stage clinical trial for a drug to treat neovascular, age-related macular degeneration failed to meet the study's efficacy endpoint. The company is still developing the medicine, called KSI-301, for several other indications, one of which will report data from its pivotal clinical trial in the third quarter this year.
Thankfully, it has $731 million in liquid holdings, which is far less than its market cap of about $435 million. Last year, its research and development (R&D) expenses were only $217 million. And it has a scant $79 million in debt. Therefore, rumors of Kodiak's demise are quite premature, and it's ripe for contrarian speculation.
Finally, Kodiak's valuation looks quite appealing for bargain hunters. Kodiak's price-to-book value (P/BV) ratio is around a modest 0.6, much like Bluebird's.
BLUE Price to Book Value data by YCharts
When a stock's multiple to book value is lower than one, it means it is trading for less than the value of the company's assets. That's a pretty low valuation -- and yet another reason why this stock is a good contrarian pick.
The trick is that there's no guarantee that any of Kodiak's three surviving, late-stage clinical trials are going to avoid the same fate of its macular degeneration therapy. Furthermore, commercialization of any medicine is still years away, so contrarians will need to be willing to hold onto their shares for quite some time.
