These three Motley Fool contributors think now could be the perfect time for biotech investors to add Spark Therapeutics(NASDAQ: ONCE), Esperion Therapeutics (NASDAQ: ESPR), and Celgene Corp.(NASDAQ: CELG) to portfolios. Why? An overreaction to trial data could mean Spark's shares are on sale, Esperion Therapeutics has big news fast approaching, and Celgene may be one of biotech's best bargain-bin buys.
Here's why these biotech stocks may be right for you.
Perfection is the enemy of the good enough
Chuck Saletta (Spark Therapeutics): Spark Therapeutics recently saw its shares take a nosedive on news that its candidate for hemophilia A treatment worked, but not flawlessly. Patients involved in its clinical trial saw a substantial reduction in the bleeding associated with hemophilia, but there was one serious adverse reaction to the treatment that resulted in hospitalization.
A person points at a buy button on a screen displaying an ascending stock price chart.
IMAGE SOURCE: GETTY IMAGES.
The clinical results were strong enough that the company is planning to advance to a phase 3 clinical trial later this year, but the side effects were enough to spook investors. With strong efficacy to the treatment seen in the earlier trial, there's reason to believe Spark will see successes in its phase 3 trial. Still, it needs to understand the causes of the adverse reactions and address them to better assure that its compound will get the green light to ultimately be approved for regular treatment.
With no fatalities in the earlier clinical trial and the adverse reactions appearing to have been treatable, there's good reason to believe that Spark Therapeutics can ultimately find a path to approval. It may need to limit its patient population based on some still-to-be-determined clinical factor and include adverse reaction monitoring in its treatment protocol. Still, if the end game is effectively a cure for hemophilia A, patients will likely flock to the treatment despite the short-term adverse reaction risks.
With its shares down substantially on word of the adverse reactions in the clinical trial, the market may be seriously discounting whether there's any value in Spark's treatment in the future. An investor buying now may be getting an opportunity to get in while the news is bad -- with upside potential if the treatment eventually wins approval. Nothing is certain when investing in biotech, but if the news improves, chances are that this opportunity may be fleeting.
Closing in on key data
Todd Campbell (Esperion Therapeutics): There are 78 million Americans with elevated bad-cholesterol levels, including 13 million people with atherosclerotic cardiovascular disease (ASCVD) who could benefit from new medications that further lower their bad-cholesterol levels.
Currently, oral statins are commonly used to combat high cholesterol, but millions of people still fail to reach their cholesterol targets, and many people can't tolerate statins because of side effects, such as muscle weakness. In cases where statins inadequately control bad cholesterol levels, add-on therapies can be used, including Zetia, a blockbuster oral drug, or PCSK9 inhibitors, which are costly, injected therapies.
Soon, Esperion Therapeutics will report results from its two remaining phase 3 trials for bempedoic acid, an oral drug that reduces cholesterol production upstream of statins. So far, bempedoic acid's trials show it can reduce bad cholesterol by an additional 20% when it's used alongside statins.
Data from one of the two remaining trials will show if it's safe and effective when its combined in a single-pill formulation with Zetia. Results from that trial are expected later this month. The second trial is evaluating its use in ASCVD patients on maximally tolerated statin therapy. Results from that trial are expected in September.
Assuming the results from these trials confirm what's been reported so far, Esperion Therapeutics plans to file for FDA and EU OK in Q1 2019 and Q2 2019, respectively. If it's eventually approved, it could provide a low-cost, oral alternative to PCSK9 inhibitors. The Zetia combination pill data is particularly important because a win could position it as the go-to second-line treatment for people with stubbornly high cholesterol. Prior to losing patent protection, Zetia was a $4 billion drug, so there could be a significant market opportunity for bempedoic acid in the second-line setting.
Granted, there's no guarantee its trials will pan out, or that regulators will approve it, or that doctors will prescribe it. Nevertheless, the addressable patient population is massive, and that could make it a smart move to add Esperion Therapeutics to portfolios before it releases its data.
Irrational underexuberance
Keith Speights (Celgene): Former Federal Reserve Board Chairman Alan Greenspan famously referred to what he perceived as the overvaluation of technology stocks during the heady dot.com days as "irrational exuberance." I think investors currently have "irrational underexuberance" for Celgene.
The biotech's share price has crumbled over the last 12 months, although there's been a bit of a rebound since early July. But Celgene still trades at a measly 8.7 times expected earnings. Its price-to-earnings-to-growth (PEG) ratio is a ridiculously low 0.54.
There are a few legitimate reasons for investors' pessimism. Celgene botched its regulatory filing for potential blockbuster multiple sclerosis drug ozanimod earlier this year. It experienced a painful late-stage clinical failure in 2017. The company continues to be heavily dependent on Revlimid, a blood cancer drug that will face generic competition by 2022.
However, Celgene is on track to file again for approval of ozanimod in early 2019. Market research firm EvaluatePharma ranked the biotech's pipeline as the third-best in the industry, with promising candidates like fedratinib, luspatercept, and liso-cel potentially on the way. Celgene also claims blockbuster drugs Pomalyst and Otezla in its lineup, which continue to generate solid growth. I think the combination of these current winners and several great pipeline candidates should reduce Celgene's reliance on Revlimid.
Sure, Celgene has some pipeline risks. But its pipeline is getting increasingly less risky, in my view. I think a little more exuberance is in order for this big biotech stock.
Chuck Saletta has no position in any of the stocks mentioned. Keith Speights owns shares of Celgene. Todd Campbell owns shares of Celgene and Esperion Therapeutics. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Celgene. The Motley Fool has a disclosure policy.
