The biotech stock bubble got a bit deflated this week as the biotech industry ETF tumbled more than 4% on Wednesday. The drop-off in share prices was widespread across the industry, but some stocks were punished more than others. Among those that fell the most were Esperion Therapeutics (NASDAQ:ESPR), Novavax (NASDAQ:NVAX), and Ziopharm Oncology (NASDAQ:ZIOP). Since each has previously been a top performer, and all three dropped more than 10% Wednesday, let's take a closer look and see whether any of them are worth owning in portfolios.
No. 1. Esperion Therapeutics
First up is Esperion Therapeutics, a clinical stage biotech company that's working on a next-generation cholesterol-busting drug known as ETC-1002.
So far, 2015 has been a great year for Esperion investors. Shares in the company soared by 154% year to date through Tuesday. Investors have sent shares in Esperion skyrocketing higher because the company has rolled out midstage trial data for ETC-1002 that shows that combining it with statins resulted in a drop in cholesterol levels that was between 17% and 24% more than they fell when taking statins alone.
That has some thinking that ETC-1002 has blockbuster potential. After all, statins are the most prescribed medications in America, and some 71 million Americans suffer from high cholesterol. Investor enthusiasm also likely stems from the fact that Esperion's founder, Roger Newton, is also the co-inventor of Pfizer's (NYSE:PFE) massively successful statin, Lipitor. Lipitor is the best-selling drug ever launched, racking up more than $125 billion in sales before its patent expired in 2011.
Can Newton capture lightening in a bottle twice? Perhaps. Given that the drug put up solid numbers in midstage trials, that Esperion has a proven leader in Newton, and that the company just completed a secondary offering that raised $189.9 million for its coffers (giving it plenty of cash that it can use to finance its phase 3 trials), speculative investors might want to take a shot at owning it for the long term.
No. 2. Novavax
Next up is Novavax, another clinical-stage biotech stock that's been a top stock this year. Through Tuesday, shares in Novavax had climbed 56% this year on enthusiasm for its vaccine research program, which includes potential treatments for RSV, seasonal flu, and Ebola.
Novavax has a lot of intriguing vaccines in its pipeline, and it expects to report a slate of data this year. Results from a phase 2 trial for seasonal influenza are expected in Q2, and results from three RSV trials should be announced in the second half of the year. The company also plans to report phase 1 results for its Ebola vaccine midyear.
All that news means that Novavax has a lot of irons in the fire, but it also means that Novavax is spending a lot of money. In Q4, its research-and-development costs jumped by 87% to $30.5 million, and its general and administrative costs increased 24% to $5.1 million. That fourth-quarter spending means its expenses are tracking at an annualized $142.4 million pace. Since the company has a truckload of news that could cause shares to pop or drop and is spending a lot of its cash, I'm less willing to take a risk on this one.
No. 3. Ziopharm Oncology
Ziopharm Oncology's 146% year-to-date jump is nearly as good as Esperion's; however, Ziopharm's research is pretty early stage.
With the help of Intrexon Corp. (NASDAQ:XON) and the MD Anderson Cancer Center, the company is developing immunotherapies for the treatment of cancer. Ziopharm's focus is on chimeric antigen receptor approaches that help a patient's immune system's T cells more easily find and kill cancer cells. This CAR-T approach has captured investors' attention like a firestorm this year, causing shares in a slate of clinical-stage CAR-T developers to surge higher.
Making cancer cells more visible to the immune system could result in more targeted treatment regimens that result in better efficacy and safety. However, research into CAR-T is in its early years, and oncology drugs have a less-than-perfect track record of success in clinical trials.
Overall, just 7% of cancer drugs that enter phase 1 end up making it to commercialization, which makes for some pretty steep odds for Ziopharm to overcome. Since I'm unsure whether Ziopharm's approach will prove to be better than the approaches its competitors are studying, and since we're still years away from any shot at commercializing a Ziopharm drug, I'm willing to sit on the sidelines for now and see how this one plays out.
Tying it together
Biotech is one of the most volatile industries, and it's notoriously risky. That means any of these companies could come up short, causing shares to further plummet. It will be years before we know whether these companies have a hit, or a dud, on their hands. For that reason, while Esperion Therapeutics is the one I'm most inclined to want to stash away in my portfolio as shares drop, its shares are something only the most speculative of investors should consider.