1 Clinical-Stage Biotech Stock That Could Make You Into a Millionaire

By Markets Fool.com

Biotech stocks have the ability to absolutely crush it in short order, turning even small investments into respectable sums of money. Investors that caught lightning in a bottle withAcadia Pharmaceuticalsprior to the company releasing pivotal late-stage data for its Parkinson's disease psychosis drug, for example, could have easily turned $10,000 into a whopping $128,000 in less than three years:

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ACAD Chart

On the flip side, this industry is littered with tragic stories of cratering share prices after poor clinical trial results or regulatory outcomes. The lesson is that many biotechs -- especially those existing purely in the realm of clinical-stage entities -- are often all-or-nothing types of investments, making them only suited for investors with an extremely high risk tolerance.

For that rare breed out there, I think the tiny gene-therapy companyCelladonis a name that should be on your watchlist right now.

Cutting to the chase, Celladon is set to release top-line data for the midstage trial, CUPID-2, in late April. This purpose of this trial is to test if the company's flagship gene therapy, Mydicar, can reduce the rate at which patients are rehospitalized for heart related problems over a 12-month period, compared to individuals on placebo.

I'm keenly watching this stock heading into this data release because its value proposition is perhaps unprecedented, although its risks are equally as heart-pounding. Here's why.

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Celladon is going after a widespread disease with no real treatment options
The limited successes of gene therapies to date have been confined to the area of rare diseases, with few to no treatment options. Indeed,bluebird bio's gene-therapy Lentiglobin is indicated for a rare blood disorder.

Celladon, by contrast, is going after much bigger game, namely heart disease. Patients afflicted with the various forms of the disease have no good options treatment-wise, resulting in a high rate of hospital readmissions and mortality. According to the American Heart Association, for example, a staggering 387,000 people die from heart disease every year.

The burden on the American healthcare system is also enormous, with direct and indirect costs exceeding $320 billion annually.

So, a drug or therapy that could significantly lower the rate of hospitalizations for heart disease patients would be a huge step forward for medicine, and a welcome relief to the healthcare system in general. And that's what Mydicar aims to do -- giving it a commercial potential that is simply mind-boggling.

Mydicar's value proposition in a nutshell
Mydicar is presently in clinical testing for systolic heart failure. If CUPID-2's results are positive, Celladon plans on launching a follow-on trial aimed at patients afflicted with diastolic heart failure. Combined, these two indications would give Mydicar a target patient population of roughly 700,000 individuals.

Although Celladon fully plans on going after a much broader array of indications, we can use some fairly standard pricing and reimbursement figures for these initial target populations to illustrate Mydicar's potential.

Assuming a 35% penetration rate at peak and an average price tag of $29,500 per treatment (averaged across the EU and U.S. populations), Mydicar should top $7 billion in annual sales. What's really eye-popping is that some experts are estimating peak sales for these two indications could actually top $10 billion.

Turning our focus to how Mydicar's commercial potential could impact Celladon's shares, let's limit our focus to systolic heart failure (the most advanced condition), where the therapy is still projected to generate around $3.5 billion a year in peak sales.

Applying a conservative multiple of 5, we arrive at a forward-looking market cap of $17.5 billion for this single indication. All else being equal, that would yield a share price of around $735.

Putting this into context, Celladon's share price is presently trading at around $21, meaning that a $30,000 investment in this speculative stock could, if everything alights perfectly for the company, lead to a million dollar return. In the same breath, a negative result come April would turn that same $30,000 into mere lunch money -- and that lunch would probably come from a fast food joint.

So, why doesn't Celladon's market cap reflect Mydicar's value proposition?
The answer to this glaring question is simple: Mr. Market firmly believes that CUPID-2 will fail. And given the troubling history of gene therapies in general, there are ample reasons to believe the market is indeed correct in its assessment.

By the same token, the market took almost exactly the same position with Acadia predata release, with the biotech's shares scraping along at $3 to $4 per share. And bluebird bio's were struggling as well ahead of the data release for Lentiglobin, before ultimately jumping by more than 300%. Of course, these companies are few and far between, and the biotech industry is littered with companies that haven't been so lucky.

Clinical trial results are nothing if not unpredictable, but a positive turnout here could lead to one of the biggest rallies in the wild biotech arena yet. Stay tuned!

The article 1 Clinical-Stage Biotech Stock That Could Make You Into a Millionaire originally appeared on Fool.com.

George Budwell has no position in any stocks mentioned. The Motley Fool recommends Bluebird Bio. 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.