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The 3 Best Biotech Stocks of 2018 So Far


This year is nearly halfway over, and there are already several huge biotech winners.

Shares of Innovate Biopharmaceuticals (NASDAQ: INNT) , Arrowhead Pharmaceuticals (NASDAQ: ARWR) , and Endocyte (NASDAQ: ECYT)  have more than tripled in the first six months of 2018. What caused these biotech stocks to skyrocket -- and are they still buys now?

Scientist wearing mask and holding test tube with biotech icons in foreground

Image source: Getty Images.

1. Innovate Biopharmaceuticals: A monster year in more ways than one

How does a year-to-date return of around 3,260% sound? That's what Innovate Biopharmaceuticals stock has generated so far this year. And the company didn't begin public trading until Jan. 30, 2018, when then-privately held Innovate Biopharmaceuticals merged with Monster Digital, an importer of memory storage and sports cameras. This unusual match gave Innovate an easy way to begin trading on the Nasdaq exchange.

The biotech stock took off immediately. Innovate Biopharmaceuticals executives made presentations at several industry conferences in the following months. They highlighted the company's progress with its lead candidate, larazotide acetate, in addressing intestinal barrier dysfunction and reducing inflammation associated with diseases like celiac disease, nonalcoholic steatohepatitis (NASH), and ulcerative colitis.

Innovate plans to initiate a phase 3 clinical study of larazotide acetate in treating celiac disease later in 2018. The biotech is also beefing up its profile for the NASH indication, adding several NASH experts to its scientific advisory board.

Investor interest in NASH has intensified, with considerable speculation that other clinical-stage biotechs with experimental NASH drugs could be acquired . While Innovate's primary focus, for now, is in treating celiac disease, I have no doubt that the potential for the company's lead candidate in treating NASH is a major factor behind the huge jump in its stock price this year.

2. Arrowhead Pharmaceuticals: Gene silence is golden

Arrowhead Pharmaceuticals stock has soared more than 260% so far this year. The biotech's share price marched steadily upward from the get-go in 2018, but Arrowhead really kicked into high gear in May after providing its second-quarter update to investors.

It might be an exaggeration to say that investors didn't care about Arrowhead's financial numbers. However, the real attraction in the biotech's Q2 announcement was an update on its pipeline. Arrowhead has two phase 1 clinical studies in progress, targeting treatment of the rare genetic disease alpha-1 antitrypsin de´Čüciency (AATD) and hepatitis B. The company also hopes to advance two other therapies into early clinical testing.

The stock received another boost just two weeks ago. Arrowhead announced that it had completed enrollment in its phase 1 study evaluating ARO-AAT in treating AATD. The biotech also stated that two planned cohorts in the study at a 400 mg dose of its therapy were no longer needed because lower doses were more effective than expected. That news excited investors, even though the results were still early.

Arrowhead's focus is on using RNA interference (RNAi) to silence gene expression and thereby regulate the production of proteins. RNAi has been a promising field for more than a decade, but the approach gained a lot more attention after Alnylam Pharmaceuticals  achieved clinical success with its RNAi therapy, patisiran, in treating genetic disease hereditary transthyretin-mediated (hATTR) amyloidosis.

3. Endocyte: A pipeline on the move

Endocyte stock floundered for most of January and February. The biotech then went on a tear and is now up close to 240% year to date.

The big story for Endocyte is its lead candidate, 177Lu-PSMA-617. In late February, the company announced that it was launching a pivotal phase 3 study of the radioligand therapy in treating prostate cancer. This news followed a successful end of phase 2 meeting with the U.S. Food and Drug Administration (FDA).

Endocyte was one of the winners at the American Society of Clinical Oncology (ASCO) annual meeting even before the conference started. The biotech announced data prior to the event from its phase 2 clinical study of 177Lu-PSMA-617 that showed high rates of prostate-specific antigen (PSA) response. PSA is a key biomarker for prostate cancer.

The company also hopes to advance another pipeline candidate into clinical testing. Endocyte likes the potential for its chimeric antigen receptor T cell (CAR-T) therapy and plans to submit for approval in Q4 of 2018 to begin phase 1 testing of the therapy in treating patients with osteosarcoma, a form of bone cancer.

Are they buys?

After racking up such huge gains in the first half of 2018, you might think it could be tough for these biotech stocks to keep the momentum going. That could be the case.

I don't think any of these stocks will be great picks for most investors. Clinical-stage biotechs face too many risks, especially those with only a small number of pipeline candidates. Buying the stocks of Innovate Biopharmaceuticals, Arrowhead, and Endocyte is closer to betting than investing because of these risks.

If I had to pick which stock might be the best bet of the three, I'd probably go with Endocyte. Initial phase 2 results for the company's radioligand therapy were solid. Endocyte also has more cash than Innovate or Arrowhead -- a key advantage for biotechs that don't have steady revenue coming in. Still, buying any of these biotech stocks, including Endocyte, isn't for the faint of heart.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alnylam Pharmaceuticals. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Personal Finance , Stocks
Referenced Symbols: PSA , ECYT , ARWR , INNT



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