3 High-Risk, High-Reward Biotech Stocks

3 High-Risk, High-Reward Biotech Stocks August 24, 2016
By Mark Terry, BioSpace.com Breaking News Staff

The biotech industry is a pretty volatile business, and in terms of investing, it tends to be high-risk/high-reward. Note, for example, Medivation shareholders who found their shares jumping 19 percent overnight upon news that Pfizer had acquired it this week.

But it’s definitely work noting the “high risk” part of the equation. That said, Brian Feroldi, writing for The Motley Fool, takes a look at three biotech companies that investors with a tolerance for risk and a long-term mindset should take a look at.

Acadia Pharmaceuticals

San Diego-based Acadia Pharmaceuticals focuses on drugs for central nervous system (CNS) disorders. The highlight from its recent second-quarter financial report was the approval and launch of Nuplazid (pimavanserin) in the U.S., the first and only drug approved by the U.S. Food and Drug Administration (FDA) to treat hallucinations and delusions associated with Parkinson’s disease psychosis.

The company has also been floated as a potential acquisition target of Cambridge, Mass.-based Biogen (BIIB). It’s a bit of a unicorn, with all of its fortunes tied up in Nuplazid, which is also being evaluated for hallucinations and delusions related to Alzheimer’s disease. It’s also in the often challenging transition from clinical stage to commercial.

Feroldi writes, “Sales of Nuplazid got off to a slower-than-hoped-for start, but that’s no surprise since the company is still giving out free samples while it establishes reimbursement agreements. Acadia’s market cap is about $3.5 billion right now, and I see huge upside potential from there if Nuplazid can live up to its full potential.”

Acadia is currently trading for $35.10.

Radius Health

Radius Health , headquartered in Waltham, Mass., has a pipeline product to treat osteoporosis that is particularly promising, abaloparatide-SC. On May 31, Radius announced that the FDA had accepted its New Drug Application (NDA) for the drug. It had submitted a Marketing Authorization Application (MAA) for the drug to the European Medicines Agency (EMA) in November 2015, which was validated in December. The decision by European regulators is expected late this year or early in 2017. It has also been rumored to be an acquisition target of a number of companies, including Shire , Pfizer , Amgen , and Eli Lilly & Co. (LLY).

Feroldi writes, “Peak sales estimates for abalopratide are tough to judge given the huge patient population, but some analysts peg its potential in excess of a billion dollars annually. That suggests there could be upside from today’s valuation if regulators give the drug the green light.”

Radius Health is currently trading for $57.40.

Sarepta Therapeutics

And finally, Cambridge, Mass.-based Sarepta Therapeutics . Although the company works on rare diseases, most of the attention is focused on eteplirsen for Duchenne Muscular Dystrophy (DMD). This year has been quite the roller coaster for the company. In January, the FDA was scheduled to review its NDA for eteplirsen, but postponed it because of weather. In February, 109 members of Congress sent a letter to the FDA urging it to accelerate approval of a DMD drug—any DMD drug. In March, 36 DMD experts signed a letter to the FDA urging it to approve the drug.

But that’s still dragging out. The FDA announced on May 25 that it was delaying its decision (again). But when clinicaltrials.gov, the website that provides information about clinical trials, indicated Sarepta’s Phase III ESSENCE trial for DMD had started recruiting patients, stock jumped.

DMD is a muscle wasting disease caused by mutations in the dystrophin gene. It is a progressive disease that usually causes death in early adulthood, with serious complications that include heart or respiratory-related problems. It mostly affects boys, about 1 in every 3,500 or 5,000 male children.

The primary problem with the drug appears to be the clinical trial’s structure—very small with no controls. Plenty of the criticism of Sarepta seems appropriate, while at the same time, drug after drug for DMD has been rejected. There’s a very obvious and dramatic unmet medical need, and at the moment, eteplirsen is the only one in sight. Anecdotally the drug seems to work, but it doesn’t seem as if Sarepta has proven that to the FDA in a way that meets the usual bar set for drug approvals.

Feroldi writes, “Sarepta’s share price has been unbelievably volatile over the past year given the never-ending string of news, but the company’s current market cap of roughly $1.3 billion will look tiny if everything goes according to plan.”

Sarepta is currently trading for $27.48.

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