Over the trailing 12-month period most biotech stocks lost money. But, losses are part of the game when a biotech company is attempting to build a product portfolio from scratch. If you can correctly identify a successful (but money-losing) developing portfolio before it becomes a big hit, your returns can double many times over.
With that in mind, we asked three of our healthcare analysts to each identify a money-losing biotech stocks that could outperform over the long run. Here's what they had to say.
Nearly 90% of biotechnology stocks are currently losing money, meaning most investors within the sector need to be willing to make a leap of faith based on preclinical and clinical trial data. One such company that's currently losing money that caused me to press the buy button is small-cap Exelixis (NASDAQ:EXEL).
Last year Exelixis was among the worst-performing biotech stocks after its COMET-1 study involving Cometriq (Cometriq is approved to treat a rare form of aggressive thyroid cancer and is Exelixis' only approved drug and indication) failed to meet its primary endpoint of improved overall survival in metastatic castration-resistant prostate cancer patients. Shares lost more than half of their value on that news alone, and the company was forced to cut a significant number of employees to lower its cost structure.
However, two big catalysts are in the offing that should have investors' attention.
First, the METEOR trial, a study examining Cometriq as a treatment for advanced kidney cancer patients, is due out sometime in the next couple of weeks or months. Results from this late-stage study had been expected by Q2 2015 initially, but a delay in trial events (i.e., deaths and disease progression) has pushed the data release outward, possibly into Q3 2015. Some, like myself, view this push as a potentially positive sign that Cometriq is meeting its primary endpoint of improving progression-free survival in the intent-to-treat group. For what it's worth, Cometriq has regularly hit its PFS targets in prior studies.
We also have the Aug. 11, 2015 PDUFA date for the BRAF V600 mutation-positive metastatic melanoma combo of Exelixis' cobimetinib and Roche's (NASDAQOTH:RHHBY) Zelboraf. Having met its primary endpoint and delivered more positive data at ASCO, I'm feeling there's a good shot this combo therapy will be approved by the Food and Drug Administration.
It could still be a while before sales are fully ramped up for Cometriq or cobimetinib, but the catalysts are a-plenty for Exelixis in 2015!
Agios Pharmaceuticals (NASDAQ:AGIO) just extended its winning streak with its Celgene-partnered lead drug. In an expanded Phase I trial in patients with tough-to-treat blood cancers, Agios' AG-221 charted a 40% response, with 16% going into complete remission.
As a clinical-stage biotech, Agios burns cash. It posted a net loss of $5 million last quarter, which is actually down when compared to a net loss of $12 million for the same quarter last year. But its drugs designed to starve cancer cells of key enzymes hold so much promise that powerhouse Celgene jumped in with an almost unprecedented $150 million deal a few years ago.
Agios is ultra high-risk. It's one of those stocks that require patience, not to mention buckets of antacids, to own. But if I didn't already own it, I'd still buy it. I believe in the pipeline, the management, and the rock-and-roll process it uses to test drugs.
Agios' top dog is Dr. David Schenkein, who led the project that became Velcade -- a game-changing $2 billion cancer blockbuster -- when he was at Millennium Pharmaceuticals. Schenkein is a big advocate for adaptive trials. These trials continually check data and use accumulating information to alter the direction of the study. Not only does that give drugs a better chance to show their worth, it can really speed up the process. That's why Agios is now set to roll its top drug into a Phase III trial by the end of 2015. Following in 2016 will likely be another Celgene-partnered drug that posted great results recently, AG-120.
Sure, Celldex Therapeutics (NASDAQ:CLDX) lost over $118 million last year and another $30 million in the first quarter of this year. And yes -- Celldex shares have dropped nearly 30% from their high in March. None of that dampens my bullish long-term view on this biotech, though.
Celldex's cancer vaccine Rintega looks to be the real deal. The FDA awarded Breakthrough Therapy Designation for Rintega as a treatment for adult patients with EGFRvIII-positive glioblastoma in February. A couple of weeks ago, the biotech announced very promising results from a mid-stage study of the drug, with brain cancer patients experiencing improved overall survival and long-term progression-free survival after taking Rintega.
At its current price, Celldex has a market cap of around $2.4 billion. If Rintega ultimately gains regulatory approval for both newly diagnosed patients and recurrent patients with EGFRvIII-positive brain cancer, annual sales could reach the $1 billion ballpark. With that kind of potential, Celldex's stock could have plenty of room to run.
Granted, Rintega must actually get that regulatory approval first. Celldex announces results from a phase 3 study focusing on newly diagnosed patients later this summer that will be huge for Rintega's future. I like Rintega's chances, though. Celldex's stock will probably be volatile for a while, but I suspect it will be a winner over the long run.