Biotech stocks have long been known for their speculative nature, propensity for volatility and opportunity for making compounded profits, but what has been going on this year in biotech could be an indicator that should not be ignored. In fact, what has happened recently from a technical perspective within biotech - noted by the iShares Nasdaq Biotechnology Index (IBB, Financial) - is something that has not been seen since 2012, just before the biotech sector went on a nearly four-year bull run.
It is called a "golden cross,” which is when the short-term moving average crosses above the long-term moving average. But it is not just the fact there has been a crossover, it comes down to what the short and long-term timeframes are. Theoretically speaking, the longer the short and long-term timeframes are, the stronger the potential move could become.
In this case, we are talking two very long-term timeframes (the 50-day moving average crossing over the 200-day moving average), which could indicate - as it did in the past - there may be a much bigger bull trend in the works. The significance is this simple move could be a trigger for many technical traders. When you are talking biotechnology, those “volatility junkies” look for things just like this as a signal for the next market move. The fact the last confirmed golden cross opened the door for a nearly four-year uptrend for biotech could be music to investors’ ears.
Certainly the multibillion-dollar acquisitions within the space have helped to further fuel this bull market. Most recently, Gilead Sciences Inc. (GILD, Financial) won the bid to purchase Kite Pharma Inc. (KITE, Financial) for nearly $12 billion. The strong attraction to Kite grew from its advanced therapy candidate, axicabtagene ciloleucel. Its chimeric antigen receptor T-cell (CAR-T) therapy is designed to treat aggressive non-Hodgkin lymphoma and has also acquired priority review status from the Food and Drug Administration. The scramble for biotech stocks was not solely due to the acquisition, but more so what it could mean for the future climate of the industry.
In a conference call, Gilead CEO John Milligan discussed the Kite deal and made a comment about being “quite interested in things that would augment cellular therapy.” He also said Gilead would not be “going quietly after this deal,” with the company remaining “very active” when it comes to looking for more opportunities within the space.
This has gotten the juices flowing about what therapies could be next on the list for a company like Gilead, and the playing field could be wide open. Considering some biotech stocks have bottomed out recently, now may be a good time to start digging into the space to find another opportunity like Kite.
Although it is not a CAR-T company, a therapy from GT Biopharma Inc. (OXISD, Financial) has turned some heads. Not only is the treatment cost-effective, it is also effective. GT Biopharma calls the therapy TriKE, which is short for trispecific killer engagers. TriKE offers a platform to target ligands that can be incorporated and has the ability to stimulate endogenous NK cells.
In short, this process can bypass the need for cell transfers altogether and make way for a new generation of immunotherapeutics. Dr. Daniel Vallera, director of the section on molecular cancer therapeutics at the University of Minnesota Cancer Center, and his team developed this treatment. He is also part of a group developing GT Biopharma’s OXS-1550.
GT Biopharma also recently completed the acquisition of Georgetown Translational, which comes with its own pipeline of near-market therapies and a new management team. In a recent interview, the new CEO, Dr. Kathleen Clarence-Smith (whose previous position as chairman of Chase Pharmaceuticals helped lead to an acquisition by Allergan PLC (AGN) in 2016), explained the potential market value of three in-house therapies already under development.
In total, Clarence-Smith indicated that just from the three therapies coming on board (GTP-011, Pain Brake, and GTP-004), the company could see an opportunity to capitalize on upwards of over $800 million. It should also be noted they brought on a new chief medical officer, who was previously at Pfizer Inc. (PFE, Financial), to head up new research and development for the company.
New cancer treatments continue to gain attention. When you look at CAR-T therapies, you cannot ignore other companies like Novartis AG (NVS, Financial). The company’s CAR-T cell therapy, Kymriah, is the first FDA-approved cell therapy. Unlike TriKe therapies, the costs are high.
We are talking about something that could save lives however, so a one-time treatment like this probably does not have too big a price tag for those who will use it. Kymriah costs $475,000 for a one-time treatment, and the FDA actually made a rapid decision to clear the drug.
This is a clear sign doctors and the entire life science community feel very favorably about new and novel cell therapies. What could be a downside to Kymriah besides the cost is it has only been approved for use in people with difficult to treat or relapsed B-cell precursor acute lymphoblastic leukemia who are 25 years old or younger.
“There is a revolution taking place in the practice of medicine, particularly cancer therapy, and most of that innovation is taking place in the biotech companies,” Chris Sassouni, health care specialist and co-portfolio manager of the mid-cap growth investment team at Eagle Asset Management, said.
The overall cancer death rate in the U.S. fell 13% from 2004 to 2013, according to the SEER Cancer Statistics Review from September 2016.
With an obvious appetite for acquisitions, could these other cell therapy companies get added to the list of large biotechnology companies like Gilead? The current climate suggests novel cancer treatments are appealing and with the FDA already making swift decisions to get products to market, the race may be on. Also keep in mind Gilead has had an eye for early opportunity in the past.
Over five years ago, Gilead made a $10.8 billion deal for Pharmasset and a then-experimental hepatitis C treatment. This ended up becoming the fastest-selling drug in the world, Sovaldi. In a phone interview, Milligan said, “This is the one space that there are a lot of new areas to be explored and where we could be a leader as opposed to a late follower.”
This new opportunity for mergers and acquisitions could indicate companies dealing in this niche could be the ones to look out for as a new trail is blazed for novel therapies.
Disclaimer: The author owns ZERO shares in any companies mentioned within this article. The author is affiliated with MIDAM VENTURES LLC, a company which has an existing marketing and awareness contract with GT Biopharma (previously Oxis International Inc.) to provide marketing and awareness for (OXISD, Financial).
