Why Did These Three Cancer Treatment Stocks Rally?
Leo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Three smaller cancer treatment biotechs -- NewLink Genetics (NASDAQ: NLNK), ImmunoGen (NASDAQ: IMGN) and Insys Therapeutics (NASDAQ: INSY) -- recently rallied, thanks to fresh investor interest in their technologies. These three companies are all working on innovative ways to revolutionize cancer treatments, and could experience considerable upside growth if their pipeline treatments are approved.
Could immunotherapy replace chemotherapy?
NewLink Genetics focuses on two main platforms -- HyperAcute immunotherapy and IDO pathway inhibitors.
The HyperAcute platform specializes in novel biologic products that stimulate the human immune system to recognize and attack cancer cells. These biologic products are created from tumor-specific cancer cells and modified to stimulate a powerful immune system response upon entering the body. The goal is to train and strengthen the immune system to kill cancer cells on its own. This new approach could render traditional chemotherapy, which weakens the immune system, obsolete.
NewLink’s primary HyperAcute immunotherapy candidate is algenpantucel-L, a treatment for pancreatic cancer that is currently in Phase III trials. Two other candidates -- tergenpumatucel-L, aimed at non-small cell lung cancer, and NLG-12036, a melanoma treatment -- are in earlier trials.
Nowhere to run, nowhere to hide
NewLink’s IDO pathway inhibitor platform corners cancer cells in a unique way. IDO pathways are “escape routes” that cancers can use to facilitate the survival, growth, invasion and metastasis of malignant cells. By disrupting these routes, IDO pathway inhibitors could stop a cancer from spreading. These inhibitors are orally administered small molecule drugs which are intended to be used in combination with other cancer treatments.
NewLink has two IDO pathway inhibitors in its pipeline -- indoximod, which is being studied in combination with chemotherapy and immunotherapy, and NLG919, which will enter clinical trials in the near future.
NewLink reported second quarter earnings on August 7, but just like many speculative biotechs without marketed products, the numbers don’t tell much of a fundamental story. The company reported a net loss of $7.1 million, down from a loss of $6.3 million in the prior year quarter. Total grant revenues dropped from $590,000 to $232,000, as research and development expenses climbed from $4.7 million to $5.0 million.
The cancer smart bomb
Speaking of alternatives to chemotherapy and traditional cancer treatments, we should also consider a new class of treatments that kills cancer cells individually with “smart bomb” technology: antibody drug conjugates (ADCs). ADCs are injected with a toxic payload that is more potent than traditional chemotherapy toxins, and “trained” to hunt down specific cancer cells in a patient’s body. When an ADC comes in contact with a cancer cell, it unleashes the toxins to kill it, without harming other healthy cells.
ImmunoGen is one of the major players in this technology, which could displace traditional chemotherapy. Its technology, which includes the attachment method used by the ADC to link to a cancer cell, was used to develop Kadcyla, Roche’s blockbuster breast cancer treatment. ImmunoGen currently receives 5% royalties on Kadcyla sales.
ImmunoGen also has several other ADCs in development: one for lymphoma, one for head and neck cancer, and another one for lung and ovarian cancer. However, analysts at UBS expressed concerns about the toxicity of ImmunoGen’s ADCs, and the firm continues to have an $8.50 price target on the stock. ImmunoGen’s revenue -- generated by support fees, license and milestone fees, and clinical material reimbursement -- rose 29.8% year-on-year last quarter, but the company is still unprofitable.
Competition in the ADC market is heating up, and other major players to watch in this space include Seattle Genetics and Immunomedics, which I discussed in a previous article, and Celldex.
The ultimate painkiller
Last but not least, we should take a look at Insys Therapeutics, which rallied 14% to an all-time high on August 14 after its second quarter earnings impressed Wall Street. Insys develops cancer-supportive care treatments to help alleviate the symptoms caused by cancer and its traditional treatments.
Its primary product, Subsys, is used to treat severe, chronic pain that cannot be treated with traditional analgesics. Subsys is a narcotic pain reliever that is classified as a Schedule II controlled substance due to its potency and is used to treat cancer patients with persistent pain. Insys’ other approved product is Dronabinol SG, a generic version of Marinol, which is used to prevent the nausea and vomiting caused by cancer drugs. Dronabinol can also be used to increase the appetites of AIDS patients.
Last quarter, Insys earned $0.26 per share, or $4.5 million -- a stunning improvement from the loss of $0.68 per share, or $6.4 million, it reported in the prior year quarter. Revenue surged 437% to $18.8 million thanks primarily to strong sales of Subsys, which was approved last January. That astonishing year-on-year growth prompted analysts at JPMorgan to raise their price target on Insys from $18 to $27, indicating that investors can expect demand for Subsys to remain strong.
A Foolish Final Thought
Biotech investors who wish to follow the rapidly evolving world of cancer treatments should keep a close eye on the new technologies that NewLink and ImmunoGen bring to the table. Biologics and ADCs could be the keys to making painful chemotherapy a thing of the past. However, investing in these two companies is not for the faint of heart. Although their technologies are revolutionary, their financial fundamentals are weak and their stock prices are at the mercy of clinical trials.
Insys, on the other hand, has carved out an interesting niche in cancer treatments by providing supportive medications. Unlike NewLink and ImmunoGen, Insys is standing on solid ground, with robust top and bottom line growth. However, the company’s success is completely tied to a single product, Subsys, which could drag down the stock if it starts missing inevitably loftier Wall Street sales projections.
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Leo Sun has no position in any stocks mentioned. The Motley Fool recommends ImmunoGen. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!