Small to mid-cap biotechs are high-alpha and high-beta vehicles. In more direct terms, these stocks can generate returns significantly greater than benchmark indices like the S&P 500, but their journey also tends to be filled with sharp price movements in both directions. The core reason for the stomach-churning volatility is value.
As primarily research and development operations, these companies can't lean on their sterling fundamentals in turbulent markets; plus, they are well-known for their penchant for diluting existing shareholders to meet their long-term financial obligations.
So, to buoy their share prices, these companies have to convince shareholders that their R&D spend, which can be quite significant, will ultimately result in a commercial-stage product in the short term, and a viable economic moat in the long term. Deep value can be a tough sell, especially in a high-interest-rate market.
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Most investors in this segment of the market are thus looking for high-alpha opportunities to balance out the enormous risks associated with these stocks. Two of the most popular stocks in this category among social media users are Iovance Biotherapeutics (IOVA 7.73%) and Viking Therapeutics (VKTX 1.97%). Iovance is pioneering personalized anti-cancer treatments for areas of high unmet medical need. Viking is emphasizing the development of metabolic-disorder drugs that can compete in a crowded market.
Which of these high-risk, high-reward biotech stocks is the better buy? Let's break down their core value propositions, financial positions, and risks to find out.
Core value propositions and financial risks
Iovance is in the business of developing highly personalized anti-cancer treatments known as tumor infiltrating lymphocyte, or TIL, therapies for solid tumors. Industry insiders estimate this market will be worth approximately $5 billion by 2035. Most of the company's near-term upside potential will likely be tied to its organic growth prospects. After all, the odds of a buyout don't seem particularly high because of unfavorable market dynamics.
NASDAQ: IOVA
Key Data Points
Its lead TIL candidate is lifileucel, which is currently under review with the Food and Drug Administration for an advanced form of skin cancer, with a possible approval coming in the first quarter of 2024. Iovance estimates that its cash runway should last until 2025, potentially setting the stage for a capital raise in the first half of next year.
Viking, for its part, is pursuing a $7 billion to $10 billion 2035 market opportunity with its weight-loss drug VK2735. Although most analysts expect this market to be worth north of $170 billion in aggregate value by the mid-2030s, the bulk of these sales are anticipated to go to market leaders Eli Lilly and Novo Nordisk.
NASDAQ: VKTX
Key Data Points
Viking will thus have to compete against latecomers such as Amgen and Pfizer. Because the remainder of this market is still large enough to support multiple blockbusters, Viking's buyout odds are moderate to high. Weight-loss care has seen a couple of intriguing deals lately, and Pfizer's recent setback could spark additional acquisitions in the space.
Viking is nearing an inflection point in its R&D spend and business strategy. To move into late-stage testing, the company may choose the partnering route to extend its cash runway, or it could take a go-it-alone approach. In the latter instance, Viking ought to have a cash runway that extends into 2027 at a minimum.
Verdict
I know I haven't tackled the question of upside potential for either stock. My analysis is more risk-centered because of the high degree of uncertainty regarding both lifileucel and VK2735.
So which stock is less likely to lose you money over the next five to 10 years?
From this point of view, Viking stock is arguably the better pick. The company is in a modestly better financial position, plus the business development dynamics with its area of expertise are more favorable for a potential deal. That doesn't mean Iovance isn't a worthwhile growth pick for risk-tolerant investors, but its stock doesn't compare well from a risk standpoint relative to fellow small-cap biopharma, Viking.
