2 Clinical-Stage Biotech Stocks to Buy

By Markets Fool.com

Image source: Kite Pharma.

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Few drugs make it all the way from laboratory test tubes to pharmacy shelves, and that makes investing in clinical-stage biotech stocks incredibly risky. However, risk-tolerant investors may be handsomely rewarded if late-stage programs under development atGalapagos NV (NASDAQ: GLPG) and Kite Pharma (NASDAQ: KITE).pan out. Can these two clinical-stage biotech stocks overcome the odds?

Big partner, bigger indication

Conducting clinical trials is expensive and risky, but some of the cost and risk can be mitigated by teaming up with deep-pocketed industry leaders that have been there and done that.One biotech that's doing that is Galapagos NV.

Galapagos is working withAbbVie Inc. (NYSE: ABBV)on cystic fibrosis drugs. The two companies are developing multi-drug combination therapies that may help restore the effective transport of chloride across cell membranes to 90% of cystic fibrosis patients, thereby delaying or preventing organ damage that significantly shortens patients' lives.

As part of their deal, Galapagos can receive up to $600 million in milestone payments, and AbbVie and Galapagos will split profits 50-50 in co-promotion territories. Galapagos will receive mid-teens to 20% royalties in other territories. Insightinto the efficacy of their program could be available later this year when data from a phase 2 trial of GLPG 1837 is released.

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Galapagos is also working with Gilead Sciences on filgotinib, a JAK1 inhibitor that the two companies think could eventually capture a big share of the multi-billion dollar rheumatoid arthritis market. Gilead Sciences licensed rights to filgotinib last year. As part of that deal, Galapagos received $725 million upfront, including $425 million that bought Gilead Sciences 15% ownership in Galapagos. The companies will split profits equally in co-promotion territories, and Galapagos can receive royalties of 20% or more on sales in other territories.

Filgotinib's phase 3 trial in rheumatoid arthritis recently began, and additional trials in Crohn's disease and ulcerative colitis are planned.

Image source: Galapagos NV.

Overall, Galapagos' partnership with two of the most successful biotechs in the industry is confidence-inspiring, especially given Gilead Sciences' equity stake, and for that reason, it's one of my favorite clinical-stage stocks to buy.

A fast-approaching new cancer treatment

Kite Pharma (NASDAQ: KITE) thinks it can curb certain forms of cancer by helping the immune system find and destroy cancer cells better.

Its most advanced therapy is KTE-C19, a drug that reengineers patient T-cells so that they can bind to CD19 proteins that are expressed on the surface of blood cancer cells, including diffuse large B cell lymphoma (DLBCL) cells. Results from a mid-stage study that could support an FDA approval are expected before the end of 2016.

Although cancer trials are notorious for disappointing investors, evidence suggests KTE-C19 may be the exception. In June, Kite Pharma updated investors on phase 1 results of KTE-C19 in DLBCL. After receiving one single treatment of KTE-C19, there were three complete remissions at the nine-month mark in patients who were refractory to chemotherapy. Overall, the objective response rate was 71% in the seven-person study.

Kite Pharma's potential to reshape cancer care is significant because response rates are typically low in this tough-to-treat patient group;however, investors should keep their enthusiasm in check. After all, there's no guarantee that the phase 2 trial will confirm the efficacy observed in KTE-C19's prior trial -- and if it doesn't, shares could fall sharply.

Nevertheless, if phase 2 results do lead to an FDA filing for approval, then this drug could begin adding meaningful revenue to Kite Pharma by this time next year. That's why it ranks as another top clinical-stage stock to buy.

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Todd Campbell owns shares of Gilead Sciences.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 owns shares of and recommends Gilead Sciences. The Motley Fool has the following options: short October 2016 $85 calls on Gilead Sciences. 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.