Two Cancer Stocks Take Shots On Goal
Oncology is king in biotech. Patients must be put on one drug, and then another, followed by another, as the disease progresses and becomes resistant. Multiple drugs will always be necessary, meaning multiple opportunities for drug companies. In this interview with The Life Sciences Report, analyst Echo He, formerly with the Maxim Group, serves investors two cancer drug picks that have been battered but are hot for a comeback.
The Life Sciences Report: The American Society of Clinical Oncology (ASCO) annual meeting was held in Chicago a few weeks ago. Did you feel like a theme emerged from the conference?
Echo He: People attending ASCO are looking for specific, targeted treatment solutions, and for data that show significant improvements in efficacy over previously approved drugs. Drugs that are likely to be effective, but not significantly more effective, tend not to generate very much excitement. But when people find out about a drug that can improve therapy in a significant way, especially in a well-designed and a good-size trial, they pay a lot of attentionï¿½even to drugs in early-stage, Phase 1 trials. Improved efficacy was the main theme, in my view.
TLSR: Does that imply people are looking for drugs meeting needs that have not yet been met?
EH: Not necessarily. In some areas there are already effective treatments. Investors are looking for drugs that could take that effectiveness to a new level. It does not matter if there are existing drugs: People give a lot of attention to better drugs.
TLSR: I’m sure you spoke with buysiders at ASCO. What was the mood of these investors? Are they still excited about biotech stocks, or did you note caution?
EH: Usually, the people who go to ASCO are more specialized, and are believers in biotech. These specialist investors would be longer-term holders of stocks they like. I don’t think their moods swing much. To them, it doesn’t matter if the stock market goes up and down. They are looking for new discoveries and drugs that have value, and probably wouldn’t be affected by the short-term setback of the stock market in biotech.
TLSR: What differences do you see in the tone between generalist and specialist biotech investors?
EH: Generalists tend to chase momentum. If you’re looking at a changed mood, you would be talking about generalists. They look at the overall stock market trend and trading volume. The mood of the generalist correlates to the stock marketï¿½up or down.
TLSR: So biotech specialists tend to be focused on fundamentals and regulatory events, whereas generalist investors are looking at the stock price most of the time.
TLSR: There are some companies you wanted to talk about today. Start with the one you like most, and tell me your investment theory.
EH: Let’s talk about Ariad Pharmaceuticals Inc. (ARIA:NASDAQ) first. Its market cap is slightly over $1 billion ($1B), and it has one drug on the market right now called Iclusig (ponatinib), which targets chronic myelogenous leukemia (CML). This stock is very familiar to a lot of investorsï¿½specialists, generalists and some retail investors, too. Iclusig was approved in late 2012 as a third-line CML treatment. Longer follow-up data showed the drug caused a higher-than-previously-reported rate of vascular occlusion events, so the U.S. Food and Drug Administration (FDA) temporarily suspended the drug’s U.S. marketing effort. That was reported in November 2013, and it caused the stock to decline quite significantly. Then, in January 2014, the drug was allowed to be remarketed in the U.S., with a much narrower indication and under a revised label approved by the FDA. This has been a setback for Ariad.
TLSR: But you like the company. You have a price target of $11 on the stock, and that is almost, but not quite, a double from current levels. Tell me what you like about it.
EH: First of all, Iclusig is already approved, both in the U.S. and Europe, although for a much narrower indication. The drug seems to be very effective compared to standard-of-care treatment, which is Novartis AG’s (NVS:NYSE) Gleevec (imatinib mesylate). Two second-generation drugs with similar mechanisms of action are out in the market too. From the trial data reported at ASCO, it seems that Iclusig will likely have similar efficacy to the second-generation drugs, which means the efficacy is much stronger than Gleevec. Iclusig is considered by clinicians to be a third-generation drug, and its efficacy stands.
TLSR: Are you thinking that, because of the thrombotic events, Iclusig will never be a first-line therapy?