Investing in biotechnology companies can be highly rewarding, but also comes with unusual high risks. In this article, two biotechnology stocks with upcoming catalysts will be presented for investors seeking high potential rewards who have strong tolerance for risk.
Recent Biotech Highlights That Show Biotech Investment is Highly Risky/Rewarding
Two great examples of "big bust" and "jackpot" can be seen in light of recent developments in the biotech industry. At the end of January 2013, Celsion Corporation (NASDAQ:CLSN) dropped around 81% from $8.38 to $1.52 in a single day on failure of its flagship product, ThermoDox. On the positive side, Keryx Biopharmaceuticals, Inc. (NASDAQ:KERX) jumped 76.7% and closed at $6.06 on January 28, 2013 as its kidney disease drug met a late-stage trial goal.
Long-term biotechnology investors may also want to take a look at Celgene Corporation (NASDAQ:CELG). CELG is a global biopharmaceutical company engaged in the discovery, development and commercialization of therapies designed to treat cancer and immune-inflammatory related diseases. CELG had been on a bullish run since the beginning of the year, as it backed its 2015 guidance and predicted further growth into 2017. CELG was also bolstered by positive results that showed that patients taking Abraxane with the chemotherapy gemcitabine survived a median of 8.5 months, compared to 6.7 months for those only on the single drug. Abraxane may generate $2.1 billion in peak global sales for use in pancreatic cancer, Eric Schmidt, an analyst with Cowen & Co., estimated. With an enterprise value of $41.87B and a market cap of $42.60B, CELG is currently one of the best-performing companies in the biotechnology industry.
Theravance Inc. (NASDAQ:THRX) is a biopharmaceutical company that focuses on the discovery, development and commercialization of small molecule medicines across a number of therapeutic areas, including respiratory disease, bacterial infections, overactive bladder, and gastrointestinal disorders. THRX has built three development programs directed toward chronic obstructive pulmonary diseases (COPD) and asthma. The franchise attracted GlaxoSmithKline (NYSE:GSK), which decided to partner with the company on several programs.
By putting a first-in-class antibiotic VIBATIV, aka telavancin, on the market, THRX had already proven itself. According to the report from Prohost Biotech, "the greater part of THRX's value currently resides in its partnered respiratory program. This franchise provides improved treatments through more balanced and longer-acting combinations. The products are moving rapidly towards approvals with GSK -- an experienced partner that has the best selling long-acting inhaler, Advair. Two products on the verge of approval demonstrating better efficacy than current inhalers are promising either substantial growth, or a takeover, probably by its partner GSK." GSK had already completed an acquisition of 10,000,000 shares of THRX common stock.
Fundamentally, THRX has an enterprise value of $2.13B with a market cap of $2.23B. THRX has a total cash of $273.44M with a total debt of $172.50M. THRX generates a negative operating cash flow of -128.62M with a levered free cash flow of -4.48M. THRX has a negative profit margin of -17.90% and has a negative return on equity of -42.45%.
Technically, THRX closed at $22.79 with 2.43% gain on February 1, 2013. THRX had been trading in the range of $15.69-$31.87 in the past 52 weeks. The MACD (12, 26, 9) indicator had been showing a bullish trend, and the RSI (14) is picking up and indicating a bullish lean. THRX is currently trading above its 50-day MA of $21.91, but below its 200-day MA of $23.52.
Looking foward, THRX has a great potential for its respiratory program and two promising products pending approval. THRX is a buy for its potential and substantial growth with or without a takeover.
Threshold Pharmaceuticals, Inc.
Threshold Pharmaceuticals, Inc. (NASDAQ:THLD), a biotechnology company, focuses on the discovery and development of drugs targeting the microenvironment of solid tumors and the bone marrow of some hematologic malignancies (blood cancers) as treatments for patients living with cancer.
THLD's major hypoxia-activated prodrug product candidate, TH-302, is designed to specifically target the hypoxic microenvironment of tumors by selective activation of the prodrug to release a potent cytotoxin. TH-302 is currently under evaluation in two Phase III trials: one in combination with doxorubicin versus doxorubicin alone in patients with soft tissue sarcoma, STS; and the other in combination with gemcitabine versus gemcitabine and placebo in patients with advanced pancreatic cancer. As reported by ResearchViews:
"Both Phase 3 trials are being conducted under a special protocol assessment with the FDA. The FDA and the European Commission have granted TH-302 orphan drug designation for the treatment of STS. TH-302 is also being investigated in hematological malignancies and combination trials in solid tumors."
"Merck Serono, the pharma division of Germany's Merck KGaA, has initiated the global Phase III MAESTRO study, assessing the efficacy and safety of the investigational hypoxia-targeted drug TH-302 in combination with gemcitabine (Eli Lilly's Gemzar) in patients with previously untreated, locally advanced unresectable or metastatic pancreatic adenocarcinoma," as reported by thepharmaletter on January 29, 2013. THLD earned a $30M milestone payment from Merck (NYSE:MRK) under the terms of a license, and a co-development agreement with the German company, which includes an option for THLD to co-commercialize in the U.S. Under the terms of the deal signed last year, total potential milestone payments are $525 million.
Barry Selick, chief executive of Threshold stated:
"Initiation of the Phase 3 MAESTRO study is an important advancement in the overall development of TH-302 for the treatment of patients living with cancer. This marks the second Phase III study of TH-302 in addition to the ongoing Phase III pivotal trial in patients with soft tissue sarcoma. In addition, we continue to explore the potential breadth and activity of TH-302 against a variety of solid tumors and hematological malignancies in multiple ongoing earlier stage clinical trials."
Fundamentally, THLD has an enterprise value of $191.24M with a market cap of $257.07M. THLD has a total cash of $65.82M with zero total debt. THLD generates an operating cash flow of $20.18M with a levered free cash flow of -18.15M.
Technically, THLD closed at $4.57 with 1.08% loss on February 1, 2013. THLD had been trading in the range of $2.18-$9.28 in the past 52 weeks. The MACD (12, 26, 9) indicator is showing a bearish trend, and the RSI (14) is nearly neutral at 49.87. THLD is currently trading above its 50-day MA of $4.47, but below its 200-day MA of $6.15.
Looking forward, THLD has a lot of upside potential if any one of its two Phase III trails for TH-302 provides positive results. With a smaller market cap, a lot of volatility can be expected for any major development news.
Note: All prices are quoted from the closing of February 1, 2013 and all calculations are before fees and expenses. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.