Former President Jimmy Carter made headlines last year when his deadly cancer was forced into remission by one of the newest cancer treatments, Keytruda, made by Merck & Co. (ticker: MRK).
The new immunology PD-1 treatment allowed his body to seek out and destroy cancer cells that would normally have been able to hide. Two years ago, the metastatic melanoma that had spread to Carter’s brain would have been a death sentence. But a handful of immunotherapy treatments are making a difference, and there is a groundswell of second-generation treatments under development that are expected to arrive over the coming years.
“Cancer is a great place overall to invest in,” says health care analyst Eric Schmidt of Cowen & Co. in New York. Here are some tips from analysts on investing in cancer research.
Consider cancer research a long-term investment. It’s no secret that the biotech sector has taken a hit since July. When Turing Pharmaceuticals and its bad-boy former CEO, Martin Shkreli, raised the price of the drug Daraprim from $13.50 to $750 per pill, even Hillary Clinton started tweeting about price gouging, which triggered more drops in biotech stocks.
Although the industry is still sound, the market was due for a correction, according to some analysts. “We’ve had very few fundamental setbacks for the industry, but I think it’s fair to say that in retrospect there maybe was too much money chasing biotech because it was one of the few areas of the economy that was working,” Schmidt says.
While sentiment is still pessimistic, the long-range outlook looks favorable because there is such a dire need for cancer treatments. “The volatility of these stocks, on a monthly or (quarterly) basis is extraordinary, but on the bigger picture — one year, five years or 10, these stocks are up and to the right, so I think this is a good place to invest,” Schmidt says.
Consider the latest cancer therapy companies in two groups — and diversify. Large pharmaceutical companies are bringing the first wave of drugs to market today, while smaller biotech companies are working on second- and third-generation drugs that could come to market over the coming years, says Brad Loncar, CEO of Loncar Investments in Lenexa, Kansas.
Loncar created a cancer immunotherapy exchange-traded fund (CNCR) that has holdings in 30 companies, including large pharmaceutical and smaller, growth-oriented biotechnology companies. Top holdings include Merck, Celgene Corp. (CELG), Amgen (AMGN), Pfizer (PFE) and Bristol-Myers Squibb Co. (BMY).
Smaller biotech companies working drugs that will hopefully come to market over the coming years are Juno Therapeutics (JUNO), Kite Pharma (KITE), NewLink Genetics Corp. (NLNK) and Cellectis (CLLS), Loncar says.
Check experience and the track record. Look for firms that have enormous domain expertise in oncology, that are plugged into the oncology community and opinion leaders and experts in academia, especially if they have been developing drugs for many years and have had success with the Food and Drug Administration.
“Companies in my universe that fit that bill would be Celgene on the large end of the spectrum, mid-cap company Incyte Pharmaceuticals (INCY), and some of the names we like on the smaller end of the spectrum, Agios (AGIO) or Kite Pharma,” Schmidt says. “Those two don’t yet have programs or drugs that are approved for patients, but they’re getting close, and we can see the light at the end of the tunnel.”
Smaller companies carry higher risk, but they may give larger returns. But be careful, says Gregg Gilbert, Deutsche Bank managing director and pharmaceutical research analyst. If you choose a small company that has a large breakthrough, the return on investment could be huge, but the risk will be high, he says — the stock price will likely dive should the drug not make it to the market.
Companies with even greater upside — and downside — can be found by sifting through the database of thousands of drugs in clinical trials to find a low-priced gem with a lot of promise in phase 1 or phase 2. Some experts say there is only a 10 percent chance that a drug will make it through clinical trials. “Predicting how a drug is going to perform in a clinical trials is a high-risk exercise,” Gilbert says.
All large pharma companies are not the same. Those with a low risk tolerance may find it more palatable to invest in company that is diversified into different treatments — one that has a cancer portfolio as well as a diabetes drug, for instance.
Let’s examine BMY and MRK. Bristol-Myers is much more focused on cancer research than is Merck, which has a more diversified portfolio and pipeline. It’s also bigger. “From a market cap standpoint, Merck is $140 billion and Bristol is about $100 billion,” Gilbert says.
But if you’re simply betting on a cancer breakthrough, Bristol-Myers is unquestionably more focused on oncology than Merck, says Gilbert, who is bullish on both companies for the long term.
“The trick is just trying to identify how big these things can become and how much they matter as a percent of the total at a given company,” he says.
Make sure the company is sound and reactive. Check if the company is focused, heavily involved, tied to the community, able to have its ear to the ground to act upon the latest trends — either on the basic science side or from clinicians treating patients, or talking to the FDA about regulatory pathways for new drugs, Schmidt says.
A strong focus on oncology would be key. “And most investors are going to need to kick the tires a little bit on the individual products,” he says.
At the end of the day, it comes down to whether the individual drug that someone is developing is going to work or not. Schmidt says. “If you’re able to do due diligence on the product itself and the data it’s producing in clinical trials, even better.”
More from U.S. News
Avoid These 8 Rookie Investing Mistakes
9 Growth Funds That Will Turbocharge Your Portfolio
8 ETFs for Investors Who Love Value
How to Invest in Cancer Research originally appeared on usnews.com