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3 Biotech Stocks That Soared This Week: Are They Buys?

Keith Speights, The Motley Fool

Biotech stocks can enjoy solid gains for lots of reasons. Acquisitions activity, pipeline progress, rivals' problems, regulatory approvals, and even a good old short squeeze are several factors that can light a fire beneath a biotech stock. For three biotech stocks, the fires burned really hot over the last week.

Cascadian Therapeutics (NASDAQ: CASC), Geron Corporation (NASDAQ: GERN), and Madrigal Pharmaceuticals (NASDAQ: MDGL) ranked as three of the best-performing biotech stocks this week. Here's what sent the stocks soaring -- and whether any of these biotech stocks are good picks for investors now.

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Cascadian Therapeutics

Cascadian Therapeutics was by far the biggest biotech winner of the week. Its share price skyrocketed more than 90% after the company announced that Seattle Genetics (NASDAQ: SGEN) is buying it for $614 million.

Seattle Genetics liked what it saw in Cascadian's lead candidate, tucatinib. Cascadian is evaluating the tyrosine kinase inhibitor in a pivotal phase 2 clinical study for treatment of HER2-positive metastatic breast cancer. Seattle Genetics CEO Clay Siegall said that he thinks "there may be opportunities for tucatinib in other tumor types, such as HER2-positive metastatic colorectal cancer." In addition to tucatinib, Cascadian has a checkpoint kinase 1 (Chk1) inhibitor in pre-clinical testing.   

The acquisition by Seattle Genetics was unexpected. However, Cascadian stock had risen more than 50% in January before the announcement of the deal. Seattle Genetics plans to commence a tender offer for shares of Cascadian on Feb. 8. The transaction is expected to close in the first quarter of this year.

Geron Corporation

Geron stock jumped close to 25% this week. But Geron didn't announce an acquisition as Cascadian did. The biotech didn't report a clinical update, either. In fact, the last press release from Geron was on Dec. 12. So what was the catalyst driving Geron stock higher?

I suspect my colleague George Budwell hit the nail on the head with his recent take on what's going on with Geron. Geron's lead candidate is imetelstat, which is licensed to Johnson & Johnson (NYSE: JNJ). In October, Geron stated in its quarterly regulatory filing that the U.S. Food and Drug Administration requested additional efficacy and safety data for imetelstat. That news caused Geron stock to fall -- and for short-sellers to pounce on the stock.

However, J&J's latest pipeline update from Jan. 23 still shows that the big pharma company plans to file for approval for imetelstat for treating myelofibrosis in the not-too-distant future. It's likely that short-sellers rushed to cover their short positions, leading to a short squeeze that sent Geron stock higher this week.

Madrigal Pharmaceuticals

Madrigal Pharmaceuticals stock gained over 20% this week. The stock received a boost from Madrigal's announcement on Jan. 30 that it would present phase 2 results for MGL-3196 at the International Liver Congress meeting in France on April 13.

The announcement from Madrigal didn't provide any additional results from the phase 2 study that the company hasn't already reported. However, investors are very excited about the potential for MGL-3196 in treating non-alcoholic steatohepatitis. Madrigal's announcement reminded them of just how effective the drug could be. The company also noted that results from 36-week endpoints should be available in the second quarter of 2018.

NASH presents a huge potential market. There are currently no FDA-approved treatments for the liver disease. Great expectations for MGL-3196, based on earlier reports of positive results in the phase 2 NASH study, have caused Madrigal stock to explode, rising more than 800% in just the past six months. 

Are they buys?

Are any of these hot biotech stocks smart picks for investors after this week's big gains?

The answer is a definite "no" for Cascadian Therapeutics. With the Seattle Genetics acquisition unlikely to be derailed, there's no reason to expect any significant movement in Cascadian stock's price now.

What about Geron? Assuming a short squeeze is truly under way, the stock could go higher. And if imetelstat wins FDA approval, Geron should be a big winner. However, Geron remains a very speculative play. I don't recommend buying it at this point, but Geron is a small biotech stock to watch.

Madrigal is also still a risky stock. However, I think the risk-reward proposition continues to be favorable for the biotech. Thanks to its huge run over the past six months, Madrigal's market cap now stands around $2 billion. But if MGL-3196 delivers on its potential, Madrigal should be worth considerably more. In my view, there are probably quite a few big drugmakers that are practically drooling over the possibility of acquiring Madrigal. It's possible that MGL-3196 doesn't live up to its hype. I think, though, that buying a small position in Madrigal could pay off.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Johnson & Johnson. The Motley Fool recommends Seattle Genetics. The Motley Fool has a disclosure policy.