There is probably no industry as prone to jaw-dropping pops and drops as biotechnology, so it might not be surprising that these three low-price biotech stocks are racking up remarkable returns so far this year.
Although each of these companies has intriguing news that is driving investor optimism, low-price stocks are often cheap for a reason. With that said, let's learn more about these three surging stocks and see whether they're worth considering for portfolios.
No. 1: Exelixis (NASDAQ:EXEL) -- up $119% year to date.
After a dismal showing in 2014 that included a key late-stage trial failure and a halving of its share price, Exelixis has been on a tear this year.
The company's shares have more than doubled as investor optimism climbs ahead of phase 3 results for the company's cancer drug Cometriq in kidney cancer patients and a planned FDA decision on cobimetinib, which Exelixis is co-developing with Roche Holding (NASDAQOTH:RHHBY).
Exelixis expects to release the kidney cancer data at some point this quarter. Meanwhile, earlier this month, the Food and Drug Administration awarded fast-track status for Cometriq in this indication, which could accelerate the timing of an eventual agency decision. If that data is solid and the FDA approves the drug for use in kidney cancer, then any eventual sales could go a long way to shoring up Exelixis' financials.
Exelixis could also find itself on increasingly solid ground if the FDA gives it and Roche the go-ahead to market cobimetinib. In February, the pair scored an FDA priority review for cobimetinib as an adjunct therapy to Roche's Zelboraf in advanced melanoma patients with a mutuation to the BRAF gene.
Obviously, some dates are coming up this year that could be critical to Exelixis' long-term outlook. As a result, this is a highly speculative make-it-or-break-it play that is best suited for speculative investors -- at least until these events have occurred.
No. 2: Corcept Therapeutics (NASDAQ:CORT) -- up 108% year to date.
Corcept markets Korlym, a therapy for endogenous Cushing's disease that helps regulate overactive cortisol production in patients who are ineligible for, or failed to respond to, surgery. The drug won FDA approval in 2012, so it's been around for some time, but the addressable market is small.
Last year, Korlym sales totaled $26.6 million, up from $10.3 million in 2013, and management expects sales between $47 and $53 million for 2015. That's solid growth, but Corcept's market cap is already roughly $650 million, so the company likely needs another win to justify another big move higher.
Corcept hopes to deliver such a win by expanding Korlym's label to include triple-negative breast cancer in patients in which cortisol is overexpressed. Following intriguing results in a small study at the University of Chicago, Corcept is launching a phase 1/2 trial to see whether Korlym can control disease progression. Data from this trial should be available this year; if it's positive, a phase 3 trial could begin in 2016.
Since there are 40,000 cases of triple-negative breast cancer annually, more than half of whom overexpress cortisol, this could eventually move the needle. However, Corcept's cash dropped from $54.9 million exiting 2013 to $24.2 million exiting 2014, which could indicate it doesn't have a ton of financial legroom.
For now, the company believes that rising Korlym sales will allow it to break even without the need for a dilutive capital raise, but investors should still keep an eye on Corcept's cash burn this year.
Also, investors should know that cancer drugs often fail in human clinical trials, so there's no guarantee Korlym will deliver a win in its triple-negative breast cancer studies. Regardless, this is an intriguing stock that risk-tolerant investors might want to watch.
No. 3: Array BioPharma (NASDAQ:ARRY) -- up 59% year to date.
Array BioPharma's shares skyrocketed after the company announced in January that it would acquire global rights to Novartis' encorafenib, a BRAF inhibitor in phase 3 trials as a melanoma therapy.
The deal is the second Array has inked with Novartis as part of the latter's restructuring. Previously, Array BioPharma agreed to regain the global rights to its phase 3 drug binimetinib.
Those agreements could significantly accelerate Array BioPharma's commercialization efforts, and they appear to have been executed at attractive terms given that Novartis will cover a good chunk of research costs and hand over $85 million in cash to Array.
Including these two compounds, Array BioPharma has a handful of phase 3 cancer studies under way and the potential to file for its first FDA approval at some point next year -- assuming phase 3 trials for encorafenib in melanoma pan out.
If Array BioPharma can successfully commercialize these drugs, then its current $1 billion market cap could be a bargain, but there's plenty of risk here, too.
As part of its agreement with Novartis, Array needs to line up a well-heeled development partner or face the proposition of EU regulators taking over and selling its European rights. That could mean Array BioPharma will soon announce it is cozying up with a partner, but the devil will be in the details of such a licensing agreement. Regardless, over the next 12 to 18 months, Array could be one of the more intriguing small-cap plays in cancer and one that speculative investors might want to monitor.
Tying it together
All three of these soaring stocks are small-cap companies that could be heading toward a big opportunity or a stumble ahead. For that reason, investors should approach them with caution. Of the three, Exelixis' potential to deliver a big win or a big loss this year makes it too risky for me. Corcept already has revenue coming in the door, but it seems fairly valued here. So until new data is reported, I'm content to sit on the sidelines on the company. Finally, Array BioPharma could offer the best shot at upside, depending on the terms of any licensing deal it makes on its cancer drugs, so that one might be the most worthy of a closer look.