Biotech has vastly outperformed all three of the major indexes over the past year. Taking a look at a one-year chart of the Biotech (IBB), Dow (DIA), S&P (SPY), and Nasdaq (QQQ) ETFs, the clear winner by a landslide is IBB with over 23% gains for the year, its closest competitor being the Nasdaq itself at about 10.5%.
The 5-year chart is a blowout with IBB beating QQQ by over 35%. Biotech wins out on almost every time frame, including the 10 year and even since the Nasdaq bubble popped 13 years ago. Here's a rundown of what I think are some of the more exciting, though volatile companies out there in this sector. Some you have probably heard of, and others that if you haven't yet, you will hear about now.
These stocks were picked not for their stable growth potential, but for their revolutionary potential in different fields, including stem cell and oncology. It is doubtful that all of the following stocks under the microscope here will succeed with flying colors. In fact, more likely than not one or more of them will fail and go bankrupt. But the chances that at least one of them will succeed are decent, and if so, whichever one does will likely induce permanent smiles on its investors' faces and all the more so the people whose lives will be directly changed and/or saved by the treatments developed.
This $140M company has certainly made its investors happy this year. Up over 280% on the year and its phase III trial proceeding for its breast cancer vaccine NeuVax, Galena Biopharma (GALE) is one of many new companies treading financial water in the field of cancer vaccines. They've been around since 2003 and have spent over $108M developing their treatments with no expected revenues until at least 2016 when topline results on their NeuVax phase III trial are expected to be published.
NeuVax is a post standard-of-care treatment for node-positive breast cancer that expresses the protein HER2. It is designed to prevent recurrence rather than treat breast cancer directly. Phase I-II results were positive, with only 5.6% of patients showing a recurrence of the disease, compared with 25.9% recurrence in the control group.
The down side is runs like these with a company with no revenues are more often than not very tenuous. With an average burn rate of $18M a year since '09 and expected to rise as the phase III trial gets underway, no stable revenue stream until 2016 at the earliest and probably later than that, the only way this company will keep treading water is through equity financing (stock dilutions), an expensive collaborative agreement with Big Pharma where they will give up almost all future revenues in exchange for a pittance and having their hand held through the clinical trial process, or in the best case scenario for stockholders, being acquired. There's no way to tell which way GALE will go from here if you're not planning to hold it for the rest of the decade, because there's no way to tell which of these three paths the company will take.
But if you've been long since last year, it's a moot point.
Advanced Cell Technology (ACTC) is sort of like a mirror image of Galena. While Galena has had a very nice upward trend line since opening up for trading, ACTC looks like a ski slope. Before I get to why, let me say that the technology they are working on is financially very attractive. Advanced Cell is working on a stem cell derived cure for dry macular degeneration. Those who have this disease end up with a blank spot in their field of vision corresponding to whatever they focus on. In other words, whatever they look directly at disappears. Advanced Cell is in the middle of a phase I/II trial injecting stem cells into the retina to cure the condition.
The reason dry macular degeneration is such an attractive investment field is that 11 million people have this condition in the US, and there is no cure for it. That's a huge market. The model here is Regeneron (REGN) Pharmaceuticals, which more than tripled after its wet macular degeneration drug Eylea was approved a little over a year ago. Regeneron's chart is eye-popping and is sure turn anyone who missed buying it green in the face. The Yahoo all time chart shows the picture most clearly:
The reason that ACTC is not the most attractive stock at present (though this says nothing about the near future) is their finances. Since inception, the company has an accumulated deficit of $272M (page 5). They have been lax in the past about finding new cash sources until the last minute, resulting in a bloated 2.2B shares outstanding with a market cap that does not warrant those kinds of numbers, and they are still stuck in phase I/II.
I see a reverse stock split in the future to get the price out of the penny mire, but it is worth keeping an eye on. Things will look up for Advanced Cell if and when they report positive results on their trials. The only reason to buy now is that their stock price is so low at below 6 cents and right at its 52 week low that it can't hurt to put a quarter in the slot and see what you get. Of course you may end up with hundreds of times less shares than you started with if a reverse split does occur.
If this company succeeds in what it's trying to do, then it would make a great movie hands down, both for the suspense and for the breadth of their potential achievement. Northwest Biotherapeutics (NWBO.OB) has been on the verge of bankruptcy for years, but they've never quite made it there and it doesn't look like they will, as long as their DCVax-L cancer vaccine is in phase III clinical trials. They've been developing DCVax and its compatriot vaccines since 1996 and they have financed themselves through equity, debt, and loans for 16 years. Just last week they issued a public offering of 3 million shares at $4 a share, bringing NWBio's stock price down 38% in one day. Even technical traders can make a nice short-term profit off such a dive. But a company's got to do what a company's got to do. Their CEO, Linda Powers, has done everything in her power to keep the company going and make sure this vaccine has the financial room to fly.
DCVax-L is a therapeutic vaccine for one of the most malignant and deadly cancers known - glioblastoma multiforme - the worst kind of brain cancer. After standard of care is complete, including surgery, radiation, and chemotherapy, DCVax-L is prepared with the patient's own immune cells combined with the tumor tissue to activate them, and re-injected. Patients are enrolling now for phase III, and data from phase II are still being collected, with 9 of 19 patients still alive, some for over 45 months after surgery.
DCVax-L can potentially be applied to any cancer that can be surgically removed. But the real exciting part is DCVax-Direct, which NWBio is really cloak-and-dagger about. DCVax-Direct is designed specifically for inoperable tumors anywhere in the body, and is injected directly into the tumor. The vaccine has completed preclinical animal studies which showed a systemic immune response in mice and tumor regression in both tumors injected and tumors on the opposite side of the body from the injection site. How the immune cells are primed without a tumor sample is what the company is keeping secret, but a phase II trial is underway.
Basically, if DCVax-L is approved, then DCVax-Direct will have some breathing room, and will be the only treatment ever being tested for inoperable tumors of any kind, a first of its kind bona fide general cancer vaccine.
Neuralstem (CUR) is one of the few development stage biotech companies that is not entirely dependent upon clinical trials. Their patented technology allows human stem cells to be produced in commercial quantities and injected safely into the spinal cord. They have already licensed out the surgical platform and their stem cell manufacturing technology is the key for the whole stem cell industry. How much this is worth will only be determined in the future.
Neuralstem is a $75M company most known for its ALS stem cell treatment. They recently completed a phase I trial that showed that injection of stem cells was safe, that the cells survived transplantation over a prolonged period of time, and most importantly, one of the patients in the trial experienced a miraculous recovery from his encroaching paralysis, which shows the possibility that ALS can in principle be transformed from a terminal to merely a chronic illness.
Phase II is proceeding with partial funding from the National Institute of Health and results are a long way off, but even one patient that shows ALS can at least in principle be reversed is enough to excite even though approval is nowhere near immanent and the company has nearly a $100M accumulated deficit. CUR is up about 9% on the year, and whether it will go much higher depends, in the medium term, on who is interested in its patented technology, and in the long term, how many more miraculous ALS recoveries they can pull out of their hat and whether that can lead to an FDA approval and commercialization. Recent support can be seen at around $.90, resistance near $1.50, with the stock trading at a bit over a dollar.
Dendreon (DNDN) deserves its place in biotech history for developing the first FDA approved cancer vaccine, Provenge, for prostate cancer. The investment world was so wound up over the eventual FDA approval that the company had two false starts. One in 2007 began when the FDA came out with an unexpectedly positive advisory note for the drug, and DNDN went up over 500% in a few days, only to come crashing back down to earth two months later for endangering the scientific purity of its clinical trials with a premature press release.
The second false start was much worse. Actual FDA approval in 2009 shot DNDN shares all the way from $3.05 to over $54, with estimates in the billions for annual Provenge sales. When it became clear that Provenge was overpriced and hospitals were antsy over ordering it for fear of not being reimbursed quickly enough, those estimates plummeted, and DNDN came back to Earth again, currently trading at just over $5.
The truth is, all of the manic buying and selling of Dendreon during those two false starts was in no way even close to rational. It was all hype over the world's first FDA approved cancer vaccine and people were losing their heads. But if one takes a look at their stock price just before FDA approval, around $3, to where the stock is now at just over $5, then take out the craziness in between and the investment is not a bad one at all.
The lesson here is never count your revenues before they hatch. FDA approvals are good, but they are artificial, because they are mandated by government, which is not a market entity, and everything coming after an FDA approval with no revenues on the books yet is speculation by definition.
And with new phase II trials initiated with Provenge combined with other tumor shrinking drugs showing some real promise, DNDN may yet take another shot at the moon.