Cancer

Source: Cancer Institute of Columbia

For the most part, biotech stocks have been having a great 2015. The iShares Nasdaq Biotech Index (NASDAQ:IBB), for instance, has essentially clobbered the broader markets so far this year:

IBB Chart

Per usual, however, biotech has also produced a number of spectacular losers that have cratered following negative clinical or regulatory news. Avalanche Biotechnologies (NASDAQ:AAVL) and Puma Biotechnology (NASDAQ:PBYI), for example, have both floundered in the first half of 2015:

PBYI Chart

As biotechs can rally at the drop of hat, though, these two stocks may actually be a good place to look for outsized gains going forward. Armed with this insight, let's consider the turnaround prospects for these two companies heading into the back end of the year. 

Avalanche got buried by its midstage gene-therapy trial for wet AMD
Not too long ago, Avalanche saw its shares appreciate nearly 400% from its IPO price of $17. After somewhat disappointing, and certainly confusing, results last month emanating from its closely-watched gene-therapy drug, AVA-101, for wet age-related macular degeneration, the biotech's share price has now fallen almost 70% year to date. 

G

Source: Wikimedia

Avalanche's collapse was triggered by the release of top-line data for AVA-101's midstage trial in wet AMD, where the therapy actually met its primary endpoint of maintaining visual acuity with fewer anti-VEGF injections. 

The funky part is that patients receiving AVA-101 saw their retinas thicken relative to the control group -- a finding that doesn't jibe with the hypothesis that AVA-101 is providing a therapeutic benefit. To top it off, management announced immediately following the top-line data release that the study wasn't powered to examine efficacy, leading to even more confusion among Avalanche's bewildered shareholders.  

Since then, Avalanche has basically maintained radio silence as the lawsuits have piled up and everyone waits for Regeneron's decision on whether to license AVA-101. Avalanche thus looks like a pass, at least until some of the uncertainty about AVA-101 is off the table. 

Worries abound over Puma's experimental breast cancer drug
Throughout much of its history, Puma Biotechnology has been a volatile stock due to the uneven clinical results being generated by its flagship breast cancer drug neratinib (PB272). Puma is testing neratinib in several clinical trials as a neoadjuvant therapy for patients with HER2+ breast cancer, as well as a treatment for patients with metastatic HER2+ breast cancer:

Puma

Source: Puma

The stock's recent nosedive began last May after the company presented neratinib's latest clinical data in the extended adjuvant setting for HER2+ breast cancer patients at the American Society of Clinical Oncology meeting in Chicago.

Basically, neratinib only slightly edged out the placebo by 2.3% in terms of improving disease-free survival, while also inducing severe diarrhea in around 40% of patients. Even after using anti-diarrhea medications, investigators reported that about 17% of patients still experienced severe bouts of diarrhea when taking neratinib.

All told, Puma is developing neratinib across a wide variety of indications, but it also hasn't exactly blown the doors off when it comes to showing a clear-cut clinical benefit relative to its risks. That's why this stock could continue to fall like a knife in the near term.   

Are either of these former stars worth the risk?
While it wouldn't be surprising if both Avalanche and Puma ended the year on a high note, there are simply too many other biotechs out there with far less risk right now. So, it might worthwhile to keep an eye on these former high fliers in case something changes, but they're probably best left out of your portfolio for the time being.

 

George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.