2 Sizzling-Hot Biotech Stocks to Buy

By Markets Fool.com

Image source: Flickr userwww.stockmonkeys.com.

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Biotech stocks are prone to pops and drops depending on the latest trial results, but the former may be in store for biotech upstarts Celator Pharmaceuticals and Flexion Therapeutics .

Both are heading to the FDA with phase 3 data in hand that shows they've improved drugs commonly used in standard of care. If the FDA agrees they've built better mousetraps, each could have a nine-figure drug on the market by the end of next year.

Image source: Celator Pharmaceuticals, Inc.

Revamping AML treatment

For more than 20 years, patients diagnosed with secondary acute myeloid leukemia, or AML, have been treated with the chemotherapy drugs cytarabine and daunorubicin in a regimen known as 7+3 because of its dosing schedule.

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In the 7+3 regimen, cytarabine is given for seven days, and daunorubicin is given for three days. The 7+3 approach has proven to be more effective than other regimens, but many patients don't respond to it, and sadly, most patients end up relapsing. As a result, there's a big need for new treatment options.

To address that need, Celator Pharmaceuticals created a liposome encapsulated 5:1 reformulation of cytarabine and daunorubicin -- Vyxeos -- that appears to work much better than 7+3.

In phase 3 trials, Vyxeos improved overall survival to 9.56 months from 5.95 months for 7+3. Importantly, it extended overall survival for patients while also delivering comparable safety to 7+3.

Management plans to file Vyxeos for FDA approval by the end of Q3, and if it delivers on that timeline, an FDA decision could come by the middle of 2017. Assuming the FDA gives Vyxeos an OK, it has a very good shot at displacing 7+3.

"The overall survival advantage seen with CPX-351 compared to 7+3, along with a superior response rate and no increase in serious toxicity indicates that we'll likely have a new standard of care for treating older patients with secondary AML," said Jeffrey E. Lancet, M.D., senior member and chief of the Leukemia/Myelodysplasia Program at Moffitt Cancer Center and the principal investigator for the study.

If Lancet's thinking is correct, Vyxeos would leap to the front of an indication valued at $900 million annually, and since Celator Pharmaceuticals' market cap is only about $700 million, this company's shares may still have room to run despite their rapid run-up since reporting Vyxeos results in March.

Image source: Flexion Therapeutics, Inc.

Better relief for osteoarthritis pain

12 million patients in the U.S. visit their doctor because of knee pain associated with osteoarthritis every year, and often, these patients are treated with injections of corticosteroids.

Unfortunately, the pain-reducing effect of those injections fades for most patients within a few weeks, and since injections are typically administered quarterly, there's an opportunity to improve upon this treatment.

Fortunately, Flexion Therapeutics may have just done that.

The company developed Zilretta, a sustained-release formulation of the commonly used injectible corticosteroid TCA. In trials, Zilretta demonstrated it controls pain longer and more effectively than placebo and immediate-release TCA.

In February, Flexion Therapeutics reported data from its phase 3 study showing that Zilretta demonstrated "statistically significant and clinically meaningful pain relief" at weeks 1 through 16 versus placebo. On average, patients taking Zilretta saw a 50% reduction in pain from baseline over weeks 1 through 12. Additionally, secondary endpoints showed that Zilretta patients outperformed TCA on pain, stiffness, and function scores.

The findings suggest that if Zilretta is approved, it could displace the use of corticosteroid injections in many patients. Because corticosteroid injections are given to 5 million people in the U.S. every year, and Flexion Therapeutics' research suggests the market could support quarterly dosing of Zilretta at a list price of about $500 per injection, this drug could become a billion-dollar blockbuster.

Tying it together

Celator Pharmaceuticals and Flexion Therapeutics have already cleared some big obstacles in the path to FDA approval, but there's still a chance the FDA review of these drugs results in a rejection rather than approval. I don't think that's likely, but it's a possibility. Since rejections could cause shares in these companies to tumble, they're best suited for risk-tolerant investors. Investors who can stand the risk might find that these companies reward them handsomely.

The article 2 Sizzling-Hot Biotech Stocks to Buy originally appeared on Fool.com.

Todd Campbell has no position in any stocks mentioned.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him onTwitter where he goes by the handle@ebcapitalto see more articles like this.The Motley Fool has no position in any of the stocks mentioned. 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.