Biotechnology stocks can provide investors with incredible returns but also incredible risk. Investors need to carefully examine areas of need and then evaluate companies within that area of need. Breast cancer represents one area of need as it is one of the most common and deadliest forms of cancer all over the world. In 2011, there were an estimated 230,000 new cases of invasive breast cancer diagnosed in the U.S. alone. And it was expected in 2011 that roughly 40,000 women would die because of breast cancer. Right now, there are 3 strong companies racing to find a treatment for this deadly form of cancer and I believe all 3 companies can offer investors attractive returns. These 3 companies were selected based upon the following criteria:
- Market Cap Of At Least $150 Million
- Average Trading Volume Of At Least 1 Million Shares
- Strong Fundamentals And Adequate Cash Position
- Focus On Breast Cancer
Celldex Therapeutics (CLDX)
Celldex Therapeutics is a biopharmaceutical company focused on the development, manufacture, and commercialization of human healthcare treatments. The company's flagship product is CDX-011, currently being tested to treat metastatic breast cancer.
The past 52 weeks have been a breakthrough period for the company and investors as the stock skyrocketed from a sub $4.00 level to as high as $12.49.
As shown in the chart, investors have enjoyed a wild ride to the top as the company enters a crucial Phase III trial for CDX-011. Technically speaking, the stock appears to be consolidating toward the upper band of the chart, indicating that a future move up may be coming.
CDX-011 is an antibody drug conjugate. This drug conjugate was licensed from Seattle Genetics (SGEN) and happens to be the same one used in the newly approved lymphoma drug Adcetris. The antibody connects with cancer cells that contain a protein GPNMB. This protein has been shown to be present within some of the most aggressive forms of breast cancer. Once the antibody is connected, CDX-011 releases a toxic chemotherapy payload.
Last year, Celldex made all its investors smile with an annnouncement that the Phase II trial for CDX-011 had encouraging results. The announcement revealed that the trial had shown delayed tumor growth and had prolonged survival in patients with advanced and aggressive forms of breast cancer when compared to those only using a single-agent chemotherapy. CDX-011 treated patients had a median survival rate of 12.5 months versus just 5.4 months for the patients in the control arm.
Investors are now wondering what the next steps will be for Celldex in regards to its CDX-011 treatment. In December 2012, Celldex met with the FDA to discuss the next steps. The end result is that Celldex intends to begin a randomized study in order to file for accelerated approval. Celldex intends to begin the study in the later part of 2013.
In addition to the product, it is important to look at fundamentals, as the company needs to stay afloat until it can receive approval and then begin selling its treatment. During the company's last annual income statement filing, the company reported revenue of almost $11.2 million. The company did report an operating loss of $58.1 million, however most of that (85%) was due to research development costs which are to be expected with a biotechnology company that is this far along in its trials. A big positive for investors is that the company has total current assets of $85.1 million, including $24.9 million in cash and $59.1 million in short term marketable investments. This essentially means that the company won't need to issue additional shares and thus investors won't need to worry about dilution for some time.
Clearly Celldex is on the right path but it will face some competition as there are still 2 other companies vying to bring the best breast cancer treatment to the market.
Galena Biopharma (GALE)
Galena Biopharma is a biotechnology company focused on discovering therapies that address unmet medical needs using targeted biotherapeutics. The company is pursuing the development of cancer therapeutics using peptide-based immunotherapy products. Its flagship product is Neuvax, used in the treatment of breast cancer and other tumors.
The past 52 weeks have been strong and investors have been rewarded for their patience. As the chart below shows, the company has rallied from a 52 week low of $1.04 to a high of $2.60 and currently trades at approximately $2.30 per share.
As the chart shows, investors have enjoyed the past 52 weeks. The strength has come from Gale's continued development and progress towards developing a marketable treatment for breast cancer.
On December 7, 2012, Galena presented the final results of the Neuvax Phase I/II trials at the 35th annual CTRC-AACR San Antonio Breast Cancer Symposium. The results were extremely encouraging. Trials SN-33 and SN-34 enrolled clinically eligible patients who were rendered disease-free after completion of standard of care multi-modality therapy. Neuvax exhibited an excellent safety and tolerability profile, and demonstrated a durable response out to 60 months. There were 3 key takeaways from the results:
- Maximum toxicity for all innoculations primarily Grade 1 and some Grade 2 toxicities, with injection site reactions and fatigue most common. No serious adverse events or cardiotoxicity were reported.
- At 24 months, 94.3% of Neuvax patients were disease-free compared to 86.8% of patients on the control arm.
- At 60 months, 89.7% of Neuvax patients were disease-free compared to 80.3% of patients on the control arm.
Because of the outstanding Phase II results and a meeting with the FDA, Galena was granted a Special Protocol Assessment for a Phase III clinical trial in adjuvant therapy of women with low-to-intermediate HER2 expression breast cancer. The results of this trial should be expected in 2014.
Now although the science and potential treatment sounds promising, we must also look at the fundamentals to make sure the company can last. On December 4, 2012, Galena announced that it had signed an agreement with Teva Pharmaceuticals (TEVA) to commercialize Neuvax in Israel. This is great for the company and investors as it will ease the financial burden on Galena and hopefully prevent a lot of dilution in the future.
Financially speaking, the company ended 2012 with approximately $36.1 million in cash. This is much better than the end of 2011 when the company only had $11.8 million. Additionally, the company has very little long-term debt at only 51,000. On the income side, the company still isn't generating any income which is understandable as it is still in development mode and has no marketable products and a $180 million market cap. Now for 2012, the company had an operating loss of $21.2 million. Should the company have a similar loss in 2013, the company's current cash position will be more than adequate to cover it. So the company should be able to get through the current year without issuing any more shares to raise capital. Hopefully in 2014, when the company may need to raise more capital, they will be doing so at much higher share prices.
Now while things are looking great Galena, let's not forget that there is still 1 more company which actually might be in the lead for a breast cancer treatment.
Pfizer Inc. is a research-based, global biopharmaceutical company. The company focuses on primary care, specialty care and oncology, established products and merging markets, animal health, consumer healthcare, and nutrition. Although the company focuses on many different products, we are going to focus on their potential therapy for breast cancer called Palbociclib.
During the past 52 weeks, Pfizer investors have enjoyed a spectacular ride. As the chart below shows, shares have climbed from a low of $20.83 to a high of $30.99 and currently trade just a few pennies off the 52 week high.
Pfizer had an incredible 2012 and made a lot of their investors extremely happy with their performance. Investors may be wondering what will continue to drive the share price higher and one possibility is their new potential breakthrough therapy for breast cancer called Palbociclib.
Palbociclib is an experimental pill for advanced forms of breast cancer. On April 10, 2013, the FDA designated this pill as a breakthrough therapy. This will allow Pfizer to speed up development and receive a review much quicker than going through the normal process. Palbociclib is being evaluated as an initial treatment for the biggest subgroup of postmenopausal women who breast cancer is locally advanced or has spread elsewhere in the body. About 60 percent of women with such advanced breast cancer have tumors classified as ER+, or estrogen-receptor positive, but HER2-, or lacking an excess of the growth-promoting protein HER2. Pfizer is currently conducting a late-stage study of Palbociclib at multiple centers, comparing its effects when used in combination with letrozole with the effects of letrozole alone.
Receiving the breakthrough therapy designation should make investors feel very good about the prospects, especially when its being managed by one of the biotech giants in Pfizer. However, lets turn our attention to the fundamentals to make sure they make sense for an investment. For the year ended December 30, 2012, Pfizer had $61.4 billion in available cash. This is an increase from the prior year of roughly $600 million. At the same time, the company was able to retire and reduce their long term debt by roughly $4.2 billion. On the income side, Pfizer earned $14.57 billion dollars, compared to just $10.01 billion for 2011. So the company essentially increased their net income by 45%, which is extremely impressive for a company of this size.
So with the fundamentals lining up, and a breakthrough designation for one of the world's leading killers, investors have to like the prospects.
These three companies are not without their fair share of risks. For Celldex and Galena, the risks are associated with investing in smaller biotechnology companies. Cash is always a concern although both look stable in that department. Share offerings are commonplace with small cap biotech stocks and investors have to consider that risk. Additionally, since the stocks are essentially 1 hit wonders, should their flagship products fail in a trial, the stocks could see a fall of at least 50% in their respective share prices.
Pfizer doesn't face those risks as it is a diversified biotech giant. However, Pfizer faces competition risk from giants such as Merck (MRK), Johnson & Johnson (JNJ), and Novartis (NVS). Each of these companies spends billions trying to develop new products which are capable of taking market share aware from Pfizer and thus putting a dent in their future earnings.
Despite the risks, I think all 3 companies are set for a bright future. They all have the technical, fundamental, and science aspects, and with the market looking as strong as ever, these 3 companies should prosper.