3 Biotech Stocks to Be Thankful for This Year

Anyone who has been holding onto shares of Loxo Oncology Inc. (NASDAQ: LOXO), Nektar Therapeutics (NASDAQ: NKTR), or Spectrum Pharmaceuticals, Inc. (NASDAQ: SPPI) will have plenty to say when it's their turn to share at the dinner table this Thanksgiving.

Surprisingly positive trial results for experimental cancer therapies helped shares of all three of these biotechs soar in 2017. Here's a closer look at what helped these stocks generate massive returns this year.

Three doctors giving thumbs-up signal.
Three doctors giving thumbs-up signal.

Image source: Getty Images.

1. Loxo Oncology, Inc.: On target

Surprisingly good results for this clinical-stage biotech's lead candidate caused its stock to soar in June, and it's still up about 142% this year. While the results were impressive, I'd say the company should be just as thankful for a recent deal with Bayer (NASDAQOTH: BAYRY) and pioneering work from Merck and the FDA earlier this year.

Earlier this year, Merck's Keytruda earned the first FDA approval for a cancer indication that doesn't specify a body part, and Loxo's lead candidate is headed down the path the big pharma helped clear. Larotrectinib shrank tumors for a stunning 38 out of 50 patients with a variety of cancers that exhibit one genetic aberration in common, tropomyasin receptor kinase (TRK) fusions.

More recently, the company inked a massive collaboration deal that should give larotrectinib and follow-on candidate LOXO-195 all the financial firepower they'll need to succeed. Germany's Bayer handed Loxo $400 million up front for limited rights to both candidates. In a nutshell, the partners will split expenses and potential profits in the U.S., with Bayer picking up the full tab in all other regions. The terms also leave Loxo eligible to receive double-digit royalties on any eventual sales of the drugs outside of the U.S., plus up to $650 million in potential milestone payments.

Now that Loxo's pockets are bursting with up-front cash from Bayer, getting an application for larotrectinib in front of the regulators is a top priority. The company thinks it could have a submission ready by the end of the year, and the FDA has already granted the program a breakthrough designation, which should speed up the review process enough that a late 2018 launch isn't outside the realm of possibility.

Person holding a thank-you card.
Person holding a thank-you card.

Image source: Getty Images.

2. Nektar Therapeutics: You're welcome, Bristol-Myers

This biotech stock has given investors a 250% gain to be thankful for in 2017. Earlier this year, investors cheered successful results that suggest the company's pain relief candidate NKTR-181 effectively reduces chronic back pain without the euphoria that makes opioids terribly addictive. Data from a long-term safety study due near the end of the year will give us a better idea of its chances of becoming a blockbuster pain medication.

More recently, Nektar's robust pipeline delivered encouraging results from the first clinical trial with NKTR-214 in combination with Opdivo from Bristol-Myers Squibb (NYSE: BMY). Opdivo is a drug that prevents cancer cells from exploiting an emergency shut-off switch on immune cells that try to attack them. Nektar's NKTR-214 boosts the activity of those immune cells, and it looks like the combination solves a big problem for the big pharma.

Demand for effective new lung cancer treatments is so strong that Bristol-Myers Squibb stock tanked last year when its star therapy Opdivo failed to show a significant survival benefit in a lung cancer study. The failure was blamed on a protocol that included patients with tumors that didn't express a high level of Opdivo's target, PD-L1. Adding NKTR-214 to Opdivo shrank tumors for three out of four advanced-stage lung cancer patients with tumors that didn't express PD-L1. The combo even drove one of these patients' disease into complete remission.

With such a small dataset, you'll want to keep an eye open for more news from the 38-patient study. If the experimental combination continues to succeed, NKTR-214 could easily generate more than $1 billion in annual sales for Nektar.

3. Spectrum Pharmaceuticals, Inc.: Overcoming resistance

Signs that this company's commercial-stage disappointments are finally gaining steam pushed the stock up partway through the year. While that's certainly good news, this stock's 482% explosion so far in 2017 is mostly attributable to exciting results from 11 patients treated with an experimental lung-cancer drug candidate.

Spectrum's poziotinib thrilled investors because it looks like a potential solution to a family of genetic mutations that help tumors resist popular therapies that inhibit epidermal growth factor receptor (EGFR) activity. AstraZeneca launched Tagrisso to help patients overcome one type of EGFR inhibitor resistance just two years ago, and sales of the drug are already on a $1 billion annualized run rate.

Spectrum's poziotinib looks like it does Tagrisso's job plus a lot more, which means a successful launch could lead to over $1 billion in annual sales. That said, the drug is in early-stage clinical trials, and we still don't know how long we'll need to wait before the company will be ready to submit an application to the FDA.

Reports of tumor shrinkage among all 11 patients treated should convince the FDA to sign off on a pivotal trial for poziotinib, but it looks like the company isn't going to wait for a meeting with regulators. Spectrum recently started an 87-patient trial that looks suspiciously similar to studies that have led to accelerated approvals of breakthrough cancer therapies in recent years. If the FDA later decides to allow the new trial to support an application, poziotinib could be ready to launch as soon as the end of next year, although sometime in early 2020 would be reasonable.

Hand reaching for money used as bait in a mousetrap.
Hand reaching for money used as bait in a mousetrap.

Image source: Getty Images.

Know the risks

Although all three of these biotech stocks have generated huge returns for their shareholders this year, further gains are far from guaranteed. Loxo Oncology doesn't have any products to sell yet. If larotrectinib falters, it could be years before the company is this close to commercializing a product again.

In the first nine months of the year, Spectrum recorded $99.8 million in revenue, but its operations still lost $55 million during the period. The company's recent market cap of about $2.1 billion would come crashing down if a surprise upset takes the shine off poziotinib's early data.

Nektar received $150 million up front from Eli Lilly for rights to NKTR-358 this year, but it still reported a $35 million loss in the first nine months of 2017, and it's carrying around $250.3 million in debt. An unexpected disaster for NKTR-214 could quickly turn this year's thankful investors into next year's Scrooges.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.