Share prices have fallen across the biotech industry lately, and while there's no telling when the drop will stop, there could be some bargains worth buying. We asked some of our top Motley Fool healthcare investors for some ideas that investors can investigate buying now, and they responded with Exelixis (NASDAQ: EXEL), bluebird bio (NASDAQ: BLUE), and Xencor (NASDAQ: XNCR). Read on to learn more about these companies and if they're right for your portfolio.
Possibly the top growth and value stock among cancer-drug developers
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Sean Williams (Exelixis): If you've been looking for a great opportunity to buy into one of the fastest-growing biotech stocks, and perhaps also one of the industry's top values, the latest correction could be your chance to grab cheap shares of Exelixis.
Cabometyx has been, and continues to be, the shining star of Exelixis' product portfolio. It's been gathering steam ever since it delivered the "clinical trifecta" in second-line renal cell carcinoma (RCC) -- a statistically significant improvement in overall survival, progression-free survival, and overall response rate. Since then, Cabometyx dazzled in first-line RCC studies via the phase 2 Cabosun trial, leading to its label expansion approval in December, and it has filed supplemental new drug application paperwork with the Food and Drug Administration following a successful phase 3 trial known as Celestial covering previously treated advanced hepatocellular carcinoma. While nothing is a given, an approval seems highly likely. Cabometyx appears well on its way to becoming a blockbuster drug.
Exelxiis also has an impressive, if not under the radar, pipeline that's comprised of internal compounds and combination studies. For example, while Exelixis and Bristol-Myers Squibb (NYSE: BMY) are often viewed as competitors, they also happen to be examining the combination of Cabometyx and immunotherapy Opdivo in first-line RCC, advanced hepatocellular carcinoma, and refractory genitourinary (GU) tumors. This latter study demonstrated a 42% objective response rate for metastatic urothelial carcinoma patients in phase 1. In other words, Exelixis has numerous channels with which to expand its sales horizon.
But best of all, Exelixis is relatively inexpensive when taking into account Cabometyx's success. The company's PEG ratio -- a measure of price-to-earnings divided by a company's growth rate -- of 0.93 simply doesn't do justice to how cheap this really is, even if a figure below 1 is considered "cheap." The company has a projected 33% compound annual sales growth rate through 2021, per Wall Street's estimates, and it could deliver in excess of $2 in EPS by 2021. If Exelixis isn't acquired by a growth-hungry big pharma company, it should, in my opinion, handily outperform from here.
This biotech's approaching the clinical-stage finish line
Todd Campbell (bluebird bio): Unlike Exelixis, bluebird bio doesn't have any drugs on the market yet, but that could change soon.
The company has pivotal data fast approaching for three gene therapies, and each of these new medicines could have 9-figure or higher revenue potential. Granted, it's anyone's guess if these trials will succeed, but if the data is good, this could be a very good time to buy bluebird bio because its share price has dropped 30% from its recent all-time highs.
We won't have to wait too long for data that could prove me right or wrong. Updated interim results for bb2121, a multiple myeloma drug being developed with Celgene (NASDAQ: CELG), should be available before June's high-profile American Society of Clinical Oncology (ASCO) meeting. If those results are positive, then all eyes will shift to the registration-enabling study of bb2121, which began enrolling patients in February. If that study is also a success, then the two companies plan to file for FDA approval next year.
Data could also be on deck for LentiGlobin in transfusion-dependent beta-thalassemia (TDT) ahead of the European Hematology Association Annual Meeting in June. If LentiGlobin's results are solid, then bluebird bio plans to file for EU approval of it before year's end.
Additionally, an application could be coming next year for Lenti-D, a cerebral adrenoleukodystrophy (CALD) gene therapy. CALD is a rare disease with limited treatment options, and management expects to have data available later this year that could pave the way to an eventual approval.
Clearly, bluebird bio is nearing an inflection point. It has multiple data read-outs this year that could cause shares to pop or drop, and that makes buying it risky. Nevertheless, I think the potential reward associated with even one of these drugs succeeding could make it worth adding to portfolios now.
Piggyback on the experts
Brian Feroldi (Xencor): There are literally hundreds of publicly traded biotech stocks for investors to choose from, and the majority of them are unprofitable. It would be a daunting task to look at them all individually, so I tend to rely on two primary shortcuts to narrow down the universe. First, I look for stocks that have already performed well since their IPO since I'm a believer that winners tend to keep on winning. Second, I favor companies that have already managed to attract the attention of the industry giants.
One company that checks both of those boxes perfectly is Xencor. This clinical-stage biotech has already more than tripled from its IPO price in 2013, and it has inked deals with the likes of Novartis, Alexion Pharmaceuticals, Merck, Amgen, Johnson & Johnson, and more. These partnerships have provided the company with much-needed funding in a non-dilutive manner. This is a major reason the company ended 2017 with more than $363 million in cash on its balance sheet, which is quite a bit when compared to last year's burn rate of just $49 million.
So, what makes Xencor so special? The answer is its XmAb antibody engineering platform. This technology allows the company to make small changes to the structural base of an antibody. Doing so improves the potency and half-life of the compound while simultaneously making it possible to treat diseases that couldn't be targeted using traditional methods.
Between its partnerships and internally developed products, Xencor has 11 XmAb programs currently in its pipeline. While Xencor is largely an early-stage biotech -- its lead compound XmAb5871 is currently just in phase 2 trials -- the company has already stated that it plans to advance the drug into a phase 3 program before the end of the year. The company also has a few other potential value-creation catalysts in the works that include data readouts from a phase 2 program and two phase 1 trials. If all goes well, I could easily see the stock continuing its winning ways in 2018.
While investors should realize that Xencor is a high-risk stock, I think its history of success, huge cash balance, and broad list of partnerships help it stand apart from the crowd. That why I think it's a great stock for biotech investors to check out right now.
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Brian Feroldi owns shares of Celgene. Sean Williams owns shares of Exelixis. Todd Campbell owns shares of Celgene. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Bluebird Bio, Celgene, and Exelixis. The Motley Fool has a disclosure policy.