George Soros is one of the globe's most successful stock pickers, but his short-term trading style and willingness to take on risk might not be right for many investors. Those who don't mind the roller-coaster ride that can come from owning risky companies, however, might find that keeping tabs on Soros' stock buys, such Kite Pharma (NASDAQ:KITE) last quarter, can be a source of new investment ideas.
Reasons for optimism
While value investors like Warren Buffett tend to shun high-growth stocks such as biotechs, Soros is more than willing to sprinkle some of them into his portfolio.
Soros picked up more than 660,000 shares of Kite Pharma when shares were trading in the $20s, ostensibly through participating in the company's IPO. That investment has panned out nicely, as the stock price has roughly doubled in the fourth quarter.
Kite's rapid run-up stems from rising optimism that its immunotherapy drugs for the treatment of cancer can make a big impact someday.
In August, Kite reported that its early stage trial of KTE-C19 as a therapy for aggressive non-Hodgkin's lymphoma showed promising results.
In that study, which was conducted by the National Cancer Institute but funded by Kite, eight of 13 patients with advanced B-cell malignancies experienced complete remission of their disease when treated with KTE-C19. Another four patients experienced partial remission, and the final patient's disease was stable. That success prompted an advisory committee to the European Medicines Agency to recommend in November that KTE-C19 be granted orphan drug designation in the European Union. If the EMA grants KTE-C19 that status, then it will enjoy additional patent protection if it is eventually approved. The drug already has a similar designation in the United States, and the company plans to ask the Food and Drug Administration to grant KTE-C19 breakthrough status as well. Approval of this request could expedite the company's development and approval timeline.
Although KTE-C19 has shown considerable promise, investors are right to approach the company cautiously. After all, the KTE-C19's study was a phase 1 trial in which the drug was evaluated in a very small group of patients. Before regulators will weigh in on whether to approve the drug, KTE-C19 will need to succeed in both midstage and late-stage trials, too. Unfortunately, there's no guarantee that will happen. Only about 7% of cancer drugs that enter phase 1 trials advance all the way through trials to commercialization; those aren't very good odds.
Investors could get more news on the continuing KTE-C19 trial next year. But a lot can happen to Kite's share price in the meantime, especially since an argument can be made that the company's $2 billion market cap is getting pretty pricey.
Kite does not have any revenue and has reported a net loss of $29 million through the first nine months of this year. Thanks to its IPO and a follow-on stock offering this month, Kite has plenty of cash on the books, but clinical trials are very expensive, and as more of its drugs enter human trials, expenses will grow.
Although reengineering the body's immune system to fight disease is endlessly intriguing, there are many question marks on this one, including whether Soros held on to his stock or took his profit on the run-up. Regardless, I'm going to stick this investment idea into the wait-and-see column.