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2 High-Flying Biotech Stocks With Even More Room to Grow

George Budwell, The Motley Fool

Stocks that rapidly skyrocket in value rarely come across as compelling buys. But seasoned investors are well aware that buying stocks trading near or at their 52-week highs is, in fact, a strategy proven to generate above-average returns on capital. The underlying reason is simple: Winners tend to keep on winning -- often because they sport some type of key competitive advantage over their rivals.  

With this theme in mind, I think investors shouldn't shy away from buying shares of either Atara Biotherapeutics (NASDAQ: ATRA) or CRISPR Therapeutics (NASDAQ: CRSP) right now -- even though both of these biotech stocks are currently trading close to their all-time highs. Here's why. 

Four scientists working in a lab

Image source: Getty Images.

The next step in immuno-oncology

The immuno-oncology revolution kicked into high gear at the end of 2017, thanks to the back-to-back approvals for Gilead Sciences' (NASDAQ: GILD) and Novartis' (NYSE: NVS) respective cell-based cancer therapies. While these two regulatory approvals marked a watershed moment in the annals of immuno-oncology, the fact remains that this high-growth market still has a lot of growing up to do.

Gilead's and Novartis' pioneering cell therapies, after all, are both time- and labor-intensive to manufacture, require patients to visit clinics specializing in this novel form of treatment, and are known to be associated with potentially life-threatening side effects. As a result, researchers at numerous biotech companies have been racing to develop so-called "off the shelf" or allogeneic cell therapies that can solve these fundamental problems.

Atara Biotherapeutics, a mid-cap biotech, is presently the leader in this ongoing effort. Atara is the only company with a late-stage allogeneic cell therapy asset in active development, and even more intriguing, Atara is also on track to release top-line data from this pivotal trial early next year. The product candidate in question is called tabelecleucel, and this experimental therapy is currently being evaluated in two late-stage trials as a treatment for Epstein-Barr virus-associated post-transplant lymphoproliferative disorders in patients who fail to respond to Roche's rituximab.

The big deal here is that if the data from these two pivotal trials look anything like tabelecleucel's extremely impressive midstage results, Atara should easily be the first to market. If so, Atara will undoubtedly be a top takeover target next year, given the exceptionally strong interest in this technology from Gilead, Novartis, and many others.

In all, I think Atara remains a downright bargain at these levels due to its lengthy head start in the off-the-shelf cell therapy race, despite the fact that its shares have already gained stately 146% so far this year.

A top gene-editing play

Gene editing is widely expected to play a key role in the march toward personalized medicine. Up until a few years ago, however, the standard gene-editing platforms like zinc finger nucleases and TAL effector nucleases were proving to be far too labor-intensive to be used in a wide variety of settings or human diseases.

In 2012, this situation changed literally overnight when a peer-reviewed paper demonstrated that a bacterial system that appears to provide a form of immunity against invading viruses called CRISPR-Cas9 could be used in animal cells to rapidly rewrite DNA sequences in a cost-efficient manner. Some researchers are now hopeful that CRISPR-Cas9 can revolutionize human medicine, agriculture, and even industries that rely on genetically modified microorganisms. And that's where CRISPR Therapeutics comes into the story.

CRISPR Therapeutics presently sports the one of the most advanced CRISPR-Cas9-based clinical candidates in the industry right now. While human clinical trials have reportedly been going on in China for awhile now, CRISPR and its partner Vertex Pharmaceuticals (NASDAQ: VRTX) have a sizable lead over other CRISPR contenders in the United States with their experimental treatment for sickle cell disease and beta-thalassemia, CTX001.

Unfortunately, the FDA recently placed CTX001 on clinical hold due to the unresolved safety and efficacy questions swirling around this particular gene-editing platform. The good news, however, is that this clinical hold didn't impact the therapy's status in the European Union, where it's scheduled to enter human trials later this year. Moreover, the FDA simply appears to be doing its due diligence on a novel platform. 

Even so, there are two overarching concerns regarding CRISPR-based systems as they pertain to human clinical trials. First off, there have been questions over whether humans have a built-in immune response that could trigger severe side effects, and negate the therapeutic impact of CRISPR-modified cells. Second, two recent papers illustrated how this system naturally selects for cells with a mutated gene known to lead to uncontrolled cell growth -- i.e., cancer. 

Fortunately, these concerns appear to be overblown. The Chinese trials have been going on for long enough that any major safety issues probably would have been discovered by now. And the cancer threat seems to only be a factor when this system is used to delete DNA sequences (DNA correction). By contrast, CRISPR Therapeutics and Vertex's lead product candidate is designed on a process known as "gene disruption" that doesn't seem to come with an elevated risk of cancer. 

All told, I'm still bullish on this next-generation gene-editing stock because of its prospects to revolutionize human medicine within the next few years, and the market appears to share my sentiment based on the stock's 162% appreciation just halfway through 2018.

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George Budwell has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool owns shares of CRISPR Therapeutics. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.