Trying to time the market is an exercise in futility, but picking up these three biotech stocks when they dipped to 52-week lows in 2018 has helped a lot of portfolios outperform in 2019.
All three of these drugmakers have the potential to launch drugs worth billions in annual sales or they launched one already. Here's how they turned their luck around.
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|Company (Symbol)||Gain Since 52-Week Low||Market Cap|
|Denali Therapeutics (NASDAQ: DNLI)||127%||$2.7 billion|
|Acadia (NASDAQ: ACAD)||112%||$3.9 billion|
|Moderna (NASDAQ: MRNA)||109%||$8.8 billion|
1. Denali Therapeutics: Crossing a tough barrier
Denali shares fell to a new low last summer for no particular reason other than it was probably overpriced to begin with. This biotech is developing a slate of experimental therapies for neurodegenerative disorders, which is an extremely risky business.
Grizzled biotech investors know that brain-wasting disorders such as Alzheimer's disease are the Afghanistan of drug development. Companies big and small have poured countless resources into this space for decades with nothing to show for it but heavy losses and thousands of disappointed patients.
There are plenty of unexplored targets in the brain that could play a role in brain-wasting disorders, but getting antibodies across the blood-brain barrier is a lot harder than it sounds. Denali's candidates employ a fancy new transport technology that envelops brain-bound drugs so they can slip through. Healthy volunteers have already tried two of Denali's candidates, an LRRK2 inhibitor and a RIPK1 inhibitor, and it looks like they safely transported the drug as promised.
Denali Therapeutics stock has surged in recent weeks as investors anticipate human proof-of-concept data from a Parkinson's disease study with its LRRK2 inhibitor, DNL201. In November, Sanofi (NASDAQ: SNY) handed Denali $145 million upfront for rights to develop DNL747, an experimental RIPK1 inhibitor. Sanofi will pay for clinical trials with amyotrophic lateral sclerosis (ALS) patients and Alzheimer's disease patients. Denali gets to sit back and collect milestones, and a double-digit royalty percentage on any sales DNL747 might produce down the road.
2. Acadia: An expensive drug launch
This biotech launched Nuplazid in 2016 to treat psychosis caused by Parkinson's disease, and Acadia has big plans to expand its addressable patient population. Unfortunately, the company doesn't have any operating profits to pay for those plans.
Annual Nuplazid sales rose 79% in 2018, to $224 million, but sales, general, and administrative (SG&A) expenses climbed to $265 million. Runaway expenses and a disappointing Nuplazid launch caused Acadia to lose $244 million last year and $802 million over the past three years.
An estimated 50,000 Americans are diagnosed with Parkinson's every year and around half experience delusions or hallucinations that make life extra difficult for their caregivers. Nuplazid's a first-in-class drug that dials down serotonin 2a receptor activity specifically, which should have implications for patients with psychosis caused by schizophrenia and dementias such as Alzheimer's disease.
Acadia's also moving Nuplazid into a phase 3 trial for major depressive disorder, and the company acquired rights to develop a rare-disease drug that's about to enter another phase 3 study. An expansion to any of these indications could more than double sales and allow operations to quit bleeding money.
3. Moderna: An exciting start
Moderna started out last December with a huge $6 billion market cap and very little data to support it. A lack of enthusiasm allowed the stock to stumble immediately after its stock market debut in December.
Luckily, a flurry of activity in 2019 has investors flocking back to the pioneer of messenger RNA (mRNA)-based therapies. The mRNA in Moderna's drugs should trick cells into making useful proteins, which is the easy part. The hard part is getting it there in the first place because the immune system quickly gobbles up any free-floating mRNA.
Since its initial public offering in December, Moderna's produced positive phase 1 data for mRNA-1653, a human metapneumovirus and parainfluenza vaccine, and also began giving mRNA-1944 to people infected with the Chikungunya virus.
Moderna began treatment with ovarian-cancer patients by giving them intratumoral injections with a triplet cancer therapy and filed applications to begin clinical trials with two more new drug candidates. It's hard to keep count, but Moderna has at least 20 new drug candidates in clinical-stage or pre-clinical-stage development.
More gains ahead?
Acadia thinks there are around 400,000 Parkinson's patients dealing with psychotic episodes, but after nearly three years, the company's still bleeding money. Acadia's racked up an accumulated deficit of around $1.5 billion, and investors shouldn't be surprised if it devours more.
Denali runs a fairly tight ship that finished 2018 with $612 million in cash and securities after losing just $46.4 million. Until we have some human proof-of-concept data for its neurology candidates, though, it's probably best to tread lightly.
Moderna and Denali can continue soaring if their ongoing human proof-of-concept studies read out positive results in the months ahead. Both drugmakers also earn heaps of collaboration revenue that could grow exponentially if results encourage their partners.
Moderna and Denali are tempting, but there's still a very real chance their ongoing proof-of-concept studies fail to impress and leave you with some heavy losses. For now, it's probably best to keep Denali and Moderna on your watchlist instead of in your portfolio.
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