3 Boom-or-Bust Biotech Stocks to Buy in 2018

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Can Summit Therapeutics (NASDAQ: SMMT), Jounce Therapeutics (NASDAQ: JNCE), and TG Therapeutics (NASDAQ: TGTX) overcome the odds of clinical trial failure? All three are high-risk clinical-stage companies without any revenue or profit yet, but each has data expected from key clinical trials in 2018 that could send shares soaring.

Hopes are high that positive results could pave the path to speedy approval, but 90% of clinical trials fail, and that makes buying these stocks a risky bet. Let's learn more about these three boom-or-bust upstarts and why they could pop or drop in 2018.

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The next big thing?

Sarepta Therapeutics (NASDAQ: SRPT) Exondys 51 is the only drug approved to treat Duchenne muscular dystrophy (DMD) in the U.S., and it can only be used in about 13% of DMD patients. New treatment options that can address everyone with DMD are needed, and Summit Therapeutics will find out later this year if it has a shot at doing that.

Summit Therapeutics is developing ezutromid, a drug that works differently from Exondys 51. While Exondys 51 skips mutations to boost production of dystrophin, a muscle-building protein, ezumtromid increases production of utrophin, another protein that has a similar muscle-building roll.

In healthy people, utrophin is produced in the early stages of muscle development, however, it shuts off as muscles mature and dystrophin takes over. Since DMD patients don't produce enough dystrophin, boosting utrophin production may slow disease progression.

Recently, the company presented 24-week interim phase 2 study results that were intriguing, and final results from its 48-week trial are expected in Q3 2018. At the 24-week mark, ezumtromid patients had increased utrophin expression and a reduction in muscle damage. If that data holds up, then regulators might consider awarding ezutromid an accelerated approval.

That could be a big win. Despite only being used to treat a small percentage of DMD patients and only being on the market a little over a year, Exondys 51's selling at an annualized pace north of $228 million. An eventual approval wouldn't be bad news to Sarepta Therapeutics, though. It licensed rights to ezutromid in 2016, so if it's successful, both it and Summit Therapeutics investors could be rewarded.

While ezutromid has the potential to be a nine-figure drug, investors might want to keep some of their optimism in check. After all, Exondys 51's approval was far from a lock, and it remains to be seen how regulators might view an increase utrophin production as a surrogate endpoint worthy of approval.

Can one plus two equal three?

The launch of a new class of drugs called PD-1 inhibitors is revolutionizing how oncologists treat solid-tumor cancers. These drugs, including Bristol-Myers Squibb's Opdivo, block the expression of a protein that cancer cells use to evade the immune system. PD-1 drugs have had so much success treating cancer that their sales total in the billions of dollars per year.

However, as good as PD-1 drugs are, they don't work for everyone, and that means there's an opportunity to create combination drug therapies that improve their efficacy.

One drug that could be combined with PD-1 therapy is Jounce Therapeutics' JTX-2011, a monoclonal antibody that binds to and activates the inducible T-cell co-stimulator (ICOS) protein found on the surface of certain T-cells. By activating ICOS, JTX-2011 may stimulate an immune response that makes PD-1 inhibitors more potent.

Jounce Therapeutics expects to unveil some data from an ongoing trial evaluating JTX-2011 plus Opdivo soon. It also has data coming from a trial evaluating JTX-2011 on its own. In total, these trials are evaluating JTX-2011 across six different solid tumor types, including non-small-cell lung cancer. The ability to treat multiple tumor types is particularly intriguing because it suggests that if JTX-2011's trials are positive, it could win widespread use.

Jounce Therapeutics licensed JTX-2011 to Celgene in 2016, and if it ever makes it to market, Jounce and Celgene will split any profit on it 60/40. In addition to the profit split, Jounce is eligible to receive up to $2.3 billion in potential development and sales milestones as part of their collaboration. There's no telling how JTX-2011 data will read out, but if it's good, there's also a shot at an acquisition, because Celgene already owns 2.8 million Jounce Therapeutics shares.

Stud or dud?

TG Therapeutics is developing drugs that are more selective and potent in hopes of improving response rates in B-cell cancer and autoimmune disorders, including multiple sclerosis. This year, data from trials evaluating two of its drugs could lead to FDA approvals.

Its lead drug is TG-1101, or ublituximab, an anti-CD20 drug that's been designed to enhance antibody-dependent cell-mediated cytotoxicity better than prior-generation CD20 drugs, including the multibillion-dollar drug Rituxan.

Recently, TG Therapeutics reported that combining ublituximab with the top-selling chronic lymphocytic leukemia (CLL) drug, Imbruvica, resulted in an objective response rate (ORR) of 81% in CLL patients. That bests the 45% ORR for Imbruvica when it's used as a monotherapy. As a result, management thinks that if this study continues to produce positive data, it can file for approval as soon as Q3 2018.

The company also has a phase 3 study wrapping up that's evaluating ublituximab in combination with another one of its drugs, umbralisib, in refractory CLL. The two-drug combination, dubbed "U2," is competing head-to-head against Gazyva and chlorambucil, a chemotherapy. If U2 outperforms the Gazyva arm, then TG Therapeutics hopes to ask for an accelerated approval by the end of 2018. Gazyva sales were approximately $73 million last quarter, at current exchange rates, so an approval could be profit-friendly.

TG Therapeutics also has two phase 3 studies planned for ublituximab in multiple sclerosis. On Friday, it reported updated phase 2 results showing sustained B-cell depletion through week 24, a complete elimination of T1 Gd-enhancing lesions, and no relapse in 97.5% of subjects at week 24. Because MS is a multibillion-dollar indication, ublituximab's opportunity in that indication is big, too.

Overall, no one knows how these trials will pan out for Summit Therapeutics, Jounce Therapeutics, and TG Therapeutics trials. They could fail miserably. If so, shares could crash. Nevertheless, risk-tolerant investors might want to consider them, because the upside opportunity if they succeed is substantial.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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