Stocks that sport exceedingly cheap share prices are often more trouble than they're worth. However, the widespread sell-off among biotechnology stocks that started late last year and spilled over into 2016 has seemingly created some rather compelling value propositions for risk-tolerant investors.
Both Agenus (AGEN -4.90%) and Amarin Corp. (AMRN -18.13%) are currently trading for under $5 per share. And while share price alone is never a good way to determine if a stock is cheap or expensive, it looks like these two may be great bargains at current levels.
The Street's average 12-month price targets for suggest that these two beaten down biotechs could essentially triple in value over the next year. Clearly, the market hasn't bought into these hyper-growth scenarios -- at least not yet. With this in mind, let's take a deeper look at these two biotechs to check out if their jaw-dropping value propositions indeed hold water.
Agenus is an undervalued immuno-oncology play
Agenus' oncology platform consists of both checkpoint inhibitors and heat shock protein-based autologous vaccines. Because vaccines have a checkered history as cancer treatments, though, investors are mostly looking toward Agenus' diverse array of checkpoint inhibitors to create value going forward.
On this front, the biotech has launched an early stage trial for AGEN1884, a CTLA-4 antagonist antibody, in solid tumors, and is reportedly close to initiating a second trial via its partnership with Incyte for the GITR agonist antibody INCAGN1876. Beyond AGEN1884 and INCAGN1876, Agenus sports several additional checkpoint inhibitors that are presently in pre-clinical studies, including six others being developed under its partnership with Incyte. As such, there's a relatively good chance that the company will have multiple early stage trials under way for its broad checkpoint inhibitor platform by either late 2016 or early 2017.
The bad news is that Agenus is well behind the big pharma leaders in this increasingly crowded space, and its last reported cash position of $148.2 million isn't great for a company looking to initiate a broad array of costly clinical studies within the next twelve months. After all, the biotech's net loss ballooned to $31.8 million in the first quarter of 2016, up from $18.8 million for the same period a year ago.
If the company reports encouraging results from its lead checkpoint inhibitors later this year, though, its stock should benefit in a big way -- a sentiment the Street clearly shares in light of Agenus' rich 12-month price target of $10.4 (an implied upside in excess of 300% from current levels).
Amarin's highly refined fish-oil pill is picking up steam
Analysts are also hot on the Irish biopharm Amarin because of a court ruling that allows the company to talk to doctors about the possible benefits of its fish-oil pill, Vascepa, for patients with only moderately high triglyceride levels (as opposed to only severely high levels). In effect, this much larger target market is expected to cause Vascepa's sales to surge over the next 18 months. As a result, the Street thinks that Amarin's stock could appreciate by a whopping 357% by 2017.
Perhaps the real test of this jaw-dropping valuation scenario, though, will be the forthcoming interim data readout for the ongoing REDUCE-IT trial, designed to assess Vascepa's ability to lower the rates of heart attacks and strokes in patients with elevated triglyceride levels. In a nutshell, this interim data readout, which is expected to take place between September and October of this year, could determine the length of Vascepa's commercial runway. After all, there's no real point of prescribing a cholesterol-lowering medicine that doesn't reduce the rates of serious cardiovascular events. On the flip side, if Vascepa does prove to be an important breakthrough in terms of improving long-term cardiovascular outcomes, its sales would almost certainly fall in line with current forecasts.
Like Agenus, Amarin is also in a less-than-desirable cash position, exiting the first quarter with only $81.4 million remaining in the bank. That sets up an interesting situation for the drugmaker heading into this pivotal interim data release. Basically, Amarin is most likely going to raise additional funds if this interim analysis is positive and results in a marked appreciation in its share price. However, if this analysis fails to show a positive cardiovascular benefit, this tiny drugmaker might be heading toward a bankruptcy filing based on its limited cash runway and already depressed share price.
Are these two biotechs worth buying right now?
There's little doubt that both of these stocks are risky. The bulk of Agenus' value proposition, after all, hinges on it carving out a profitable niche in the highly competitive checkpoint inhibitor space, and subsequently garnering milestone payments from its partnerships with larger pharmas such as Incyte. Amarin, on the other hand, is arguably an all-or-nothing type stock, given that the company's entire valuation is tied to the success -- or failure -- of a single product. All told, I like Agenus at these levels as a speculative immuno-oncology play because of its diversified checkpoint inhibitor program that gives the company multiple shots on goal. However, Amarin's risk profile is simply a little too spicy for my taste at this point, despite the Street's overtly bullish 12-month price target.