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Cancer Drug Stocks Off To a Strong Start

21 January 2015 in Trading Ideas

A plethora of positive study data has provided an early-year lift to the stocks of companies focused developing cancer medications.

The Battling Cancer motif is up 7.0% over the past month, during a stretch when the S&P 500 has dropped 2.6%.

Over the past 12 months, the motif has gained 16.1%; the S&P 500 is up 12.0%.

The motif has been helped, in part, by the upward trajectory of its largest holding Celgene, a 27.5% weighting in the portfolio.

Celgene shares are up nearly 6% already this year after the company issued a bullish forecast for its cancer drug Revlimid to kick off the much-watched JPMorgan healthcare conference last week, along with offering up a generally positive fourth-quarter forecast and long-term financial outlook.1

The company said it expects fourth-quarter earnings of $1.01 a share, topping analysts’ estimates and rising 33% from a year earlier.

Celgene projected that sales of its core drug Revlimid will climb about 14% to $5.6 billion to $5.7 billion in 2015, as the company gains wider approval to treat more types of cancer, and ongoing global expansion. Revlimid is used to treat multiple myeloma and types of lymphoma.

By 2020, Celgene expects $20 billion in total revenue and EPS of $12.50, with its hematology franchise topping $14.8 billion.

Another motif component off to a positive start this year is Immunomedics, who earlier this month named a new chief medical officer, which prompted a bullish call from Wells Fargo that suggested the stock could rise by more than 50%.2

Wells Fargo expects that 2015 could be a transformative year for the company, with positive Phase III epratuzumab data in systemic lupus erythematosus (SLE) and an IMMU-132 partnership.

Wells Fargo said it’s encouraged by epratuzumab’s Phase II profile considering: rapidity of response in a short, 12-week blinded study; signals of statistical significance on a novel composite responder index, dose response; and decrease in corticosteroid use in the long-term extension.

During its Phase 1 and Phase 2 trials in 2014, IMMU-132 demonstrated broad activity in six tumor types and a favorable safety profile. Early triple-negative breast cancer (TNBC) data appears promising, Wells Fargo said, and a broad global partnership in the first half of 2015 could offer additional near-term upside with the potential for a partner to advance into a pivotal program later in 2015.

Finally, shares of Kite Pharmaceuticals have started flying this year after a couple of positive developments surrounding its cancer treatments.

On Tuesday, Kite announced the European Commission designated KTE-C19 as an orphan medicinal product for the treatment of diffuse large B cell lymphoma.3

Kite CEO Arie Belldegrun said the orphan drug designation for its KTE-C19 was “another important milestone for Kite Pharma and for the progress of our lead program.”

The orphan drug designation provides regulatory and financial incentives for companies to develop and market therapies that treat a life-threatening or chronically debilitating condition where no satisfactory treatment is available.

On the heels of that announcement, the company said it cemented plans with Amgen to develop the next generation of Kite’s chimeric antigen receptor T-cell therapies for cancer. Amgen is paying $60 million upfront and up to $525 million in milestone payments.

“The Amgen deal is a significant positive for Kite,” Credit Suisse Jason Kantor wrote in a report. “Amgen is an ideal partner because of its extensive work in the field of targeted T-cell therapies.”

Investors’ long-term expectations for these companies have been raised, but for now, the short-term optimism is carrying the day.

 

1Brian Deagon, “Celgene, Bristol-Myers Cancer Drug News Lifts Stocks, investors.com, Jan. 12, 2015, http://news.investors.com/technology/011215-734365-celgene-bristol-mayers-cancer-news-jpmorgan-conference.htm, (accessed Jan. 15, 2015).

2Chris Lange, “Is Immunomedics Worth 50% More?,” 247wallst.com, Jan. 7, 2015, http://247wallst.com/healthcare-business/2015/01/07/is-immunomedics-worth-50-more/, (accessed Jan. 15, 2015).

3Brian Deagon, “Kite Pharma Gets Stock Price Increase Post Amgen Deal, investors.com, Jan. 6, 2015, http://news.investors.com/technology/010615-733399-kite-pharma-stock-price-increase-from-amgen-cancer-deal.htm, (accessed Jan. 15, 2015).

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