Are These Top Biotech Performers Still Worth Buying?
Sherrie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Only a handful of stocks have gained 200% in 2013, and five of those stocks are in the biotechnology industry. Perhaps you already own one, or maybe a couple of these stocks? Maybe you are considering an investment? Well, let's take a look at the top 5 biotech performers, and determine whether larger gains will be realized.
No. 5: Cancer Stock on the Move
Celldex Therapeutics (NASDAQ: CLDX) has seen a 200% gain this year after 33% of patients being treated with its breast cancer drug CDX-011, showed a response, compared to zero percent in the chemotherapy arm of the trial.
If analyst upgrades and initiations of coverage count as catalysts, then Celldex has had a busy year. But in reality, the majority of the company’s gains have occurred because expectations for CDX-011 were unusually low prior to its positive data.
Now, the company awaits results from a Phase 3 trial for its glioblastoma (brain cancer) product, rindopepimut, which I estimate has peak annual sales of $600 million.
Combined, Celldex has two late-stage successful products with peak revenue potential of $1.3 billion, and a solid pipeline. As a result, I think Celldex, with a market cap of $1.6 billion, is still extremely attractive. Although, I would expect a much slower pace of gains moving forward.
No. 4: Success After Failure
Keryx Biopharmaceuticals (NASDAQ: KERX) failed to meet key endpoints in a 2012 Phase 3 study for its colorectal cancer drug perifosine, but has since rallied higher with new data in 2013. During this year, Keryx has traded higher by 208%, as its kidney disease drug Zerenex met its late-stage trial goal of reducing phosphate levels in blood.
According to analysts, the company’s drug, Zerenex, could generate $800 million in peak global sales and $300 million in U.S. sales.
However, this is not a company that excites me. I have watched since Zerenex’s data was announced earlier this year, and peak sales estimates have risen from $150 million, to $200 million, and now $300 million in the U.S. Unfortunately, for the company, nothing has changed with advanced kidney disease demand. Hence, I don’t think Zerenex will meet the newly inflated peak sales expectations, and with a market cap of $660 million, I think the company is fairly valued.
No. 3: A Cardiovascular Stock to Watch
The majority of Cytokinetics’ (NASDAQ: CYTK) 226% gains in 2013 have been created since June. First, its strategic collaboration with Amgen was expanded to include Japan for the commercialization of small-molecule therapeutics for the treatment of heart failure. Then the company was selected to present results from its Phase 2 heart disease study at a prominent European event. To many, this signaled that its experimental drug for acute heart failure is working.
While we have made several advancements in treating cancer and other diseases, there are several disorders in the cardiovascular realm that remain unmet medical needs. Cytokinetics is trying to capitalize on this market, with several late-stage products. With a $340 million market cap, I think the risk is worth the reward.
No. 2: Continuing To Rally
ACADIA Pharmaceuticals (NASDAQ: ACAD) comes in second with gains of 294%, as the stock continues to rally in response to data for its Parkinson’s disease psychosis drug pimavanserin. For the most part, gains in 2013 have been slow and steady, after the company proved that pimavanserin reduced psychotic events.
Back in March, the company disclosed that Phase 3 testing would not be required, which means the company is now seeking an FDA approval. Thus, the company prepares to reach a wide market with peak annual sales potential of $2 billion. As a result, I think the $1.45 billion company still presents a significant amount of upside and is a prime takeover target.
No. 1: Priced For Perfection
Clovis Oncology (NASDAQ: CLVS) has become the top biotech performer of 2013, with gains of 350% behind data that was presented at ASCO for its product CO-1686, which treats lung cancer.
The big stock moving news was that patients are simply responding to CO-1686, and are doing so without a maximum dose being identified. This means that responses could be even greater, as higher doses are administered. Moreover, there is nothing to compare to CO-1686, as no drug has shown any response in treating lung cancer patients with T790 mutations, which further adds to the excitement.
In addition, CO-1686 showed significant tumor shrinkage at multiple organ sites, including the brain and liver. This was an added bonus, as investors did not anticipate a response at other sites. While all of this data is particularly encouraging, Clovis’ market cap has rallied to more than $2 billion, and CO-1686 is only a Phase 1/2 drug.
Therefore, with what could be several years until an FDA approval, I think most, if not all, immediate upside is most likely priced into the stock. Hence, I would be careful buying at these levels.
There is only a handful of stocks that have returned gains of 200% in 2013, and five of those stocks are in biotechnology. This is consistent with the norm and is why investors often seek biotech stocks for their portfolio. While many of these performances become value traps, I think that this year, collectively, looks to be a particularly promising group.
Sherrie Stone 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!