As Biotech Trade Gets Wonky, I'm Eyeing Two Clinical-Stage Companies
Here's why I'm taking a leap of faith in these two companies, despite the slide in this category of drug developers.
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Investing in biopharma and biotech is getting a bit tricky.
The SPDR S&P Biotech exchange-traded fund XBI has started to rebound a bit in recent trading sessions this week. But that's after falling just over 15% from XBI's early November highs. What's more, the decline has been bifurcated. My commercial-stage small- and mid-cap biotech and biopharma holdings have held up quite well. Some like Mirum Pharmaceuticals MIRM and Corcept Therapeutics Incorporated CORT have even managed solid rallies amid this decline. But at the same time, some of my clinical-stage names like Rocket Pharmaceuticals RCKT and Intellia Therapeutics, Inc. NTLA have been treated like the proverbial red-headed stepchild in market action.
So, most of the new funds I am putting into the sector -- as some of my covered-call positions expire in the money -- is being put toward commercial-stage companies. But some clinical stage stocks seem clearly oversold at this point. Let's take a look at those:
Small cap company Kura Oncology, Inc. KURA is one name I'm into. This oncology-focused concern has a couple of candidates that have promise both as monotherapies and as a part of combination therapies.
Just before Thanksgiving, Kura Oncology entered into a collaboration deal with Japanese drug maker Kyowa Kirin. This collaboration made a lot of sense as it provided Kura with a $330 million upfront payment and a partner that will handle all the regulatory and commercialization work outside of the U.S. Kura is also eligible for more than $1.1 billion in potential commercial, developmental and regulatory milestone payments -- of which, just over $400 million could be paid out over the next two years if developmental timelines are met. Kura will split profits in the U.S. and get tiered royalties on any global sales.
Analysts like the deal overall, with nearly a dozen analyst companies reissuing "Buy" ratings since the agreement was announced. The market had a different opinion as the collaboration deal took any buyout potential out of the equation. The stock has been cut in half to around eight bucks a share since the deal was disclosed. With the upfront payment and its existing net cash, the stock now basically sells for the cash on the balance sheet. That made it an easy decision for me to execute some covered call orders against KURA this week.
I have also recently rolled my options forward around my covered-call position in Viking Therapeutics, Inc. VKTX and added some shares at much lower entry points. The shares have been pummeled over the past few months. There are three basic reasons for the decline. First sentiment on the clinical stage space has been miserable recently. In addition, growth in the weight loss GLP-1 market seems to be slowing recently, triggering selloffs in market leaders Novo Nordisk NVO and Eli Lilly LLY. Other companies are also advancing their own new GLP-1 candidates.
But the GLP-1 market is huge and still growing. It currently supports multiple products on the market and is likely to continue to do so for the foreseeable future. Viking continues to advance its pipeline which also includes a promising MASH candidate in addition to its GLP-1 efforts. Viking is also well funded, trading far under analyst firm price targets, and still makes a lot of sense as a potential buyout target given its wholly owned asset and the markets the company is targeting.
At the time of publication, Jensen was long CORT, MIRM, RCKT, KURA, VKTX and XBI.
