In our bodies we have cancer-killer cells called "natural killer" cells, or NK cells. These cells are part of our innate immune system. When an NK cell comes across a malign cancer cell in the human body, the NK cell attacks it and destroys it. Scientists believe that this natural cancer-killer might unlock secrets to help us fight cancer.
Small, cutting-edge biotech companies want to harness these NK cells and grow them into effective cancer therapies. And in 2020 the market got rather excited about this scientific field. Shares of Fate Therapeutics (FATE -6.82%) ran up 374% in 2020, while NantKwest (NASDAQ:NK) jumped 262%. Here's why you should buy one stock but probably not the other.
Image source: Getty Images.
The upside is high, but it's still very early
Fate Therapeutics is highly valued right now, with a market cap of $8 billion. The company has no drugs in pivotal trials yet. It has a large pipeline, but all its drugs are coming out of phase 1 trials. While there are some exciting things going on at Fate, that high a price tag for the company scares me off. The company's therapies are several years away from a possible approval from the Food and Drug Administration (FDA). Any number of discouraging things can happen on the way to the finish line. Investors are likely to find a cheaper price down the road.
The stock I bought is NantKwest. It's a lot cheaper than Fate, with a market cap of $1.4 billion. Like Fate, NantKwest is pursuing NK therapies, and it too has a large pipeline of drugs. A year ago the stock jumped 70% overnight after it presented at the J.P. Morgan Healthcare conference. The company had complete responses in multiple tumor types, including pancreatic cancer, triple negative breast cancer, and head and neck cancer. NantKwest actually has a head start on Fate, and has several drugs in phase 2 trials. So why is the company way behind in valuation?
The perils of being too early
Several years ago, it was NantKwest that was receiving all the hype. NantKwest was founded by Dr. Patrick Soon-Shiong, the "richest doctor in the world" at the time. Soon-Shiong is a multi-billionaire entrepreneur who has made a lot of money selling cancer drugs in the past. This excited the bankers, and NantKwest had a $2.6 billion initial public offering (IPO), the largest ever for a biotech at the time. At a J.P. Morgan healthcare conference in 2016, Soon-Shiong announced "Moonshot 2020," and collaborations between his company and Amgen and Celgene.
Despite all this hype (or maybe because of it), the stock has been a disaster. Investors in the IPO are still under water. In retrospect, anyone buying this stock in 2015, without any human trials, was engaging in a whole lot of speculation. Shareholders immediately lost money. And the stock was dead money for years.
Now, however, it's a different story. Investor interest is spiking again. But this time, that's because there is positive data in phase 1 and phase 2 human trials. To me, it appears that Soon-Shiong was right all along. Natural killer cells are indeed a very promising area of research. While the stock has not delivered (yet), the company is delivering (albeit later than promised). The 5-year chart tells us why the stock is so cheap, and the 1-year chart illustrates rising excitement over scientific results.
Data source: YCharts.
Mr. Market, who is very excited about Fate Therapeutics, might want to take another look at NantKwest. The company has been leading the way in NK research for a long time, and its pipeline is the most advanced, with several phase 2 trials ongoing.
NK therapies plus a T-cell platform
Another thing that excited investors in 2020 is when Dr. Soon-Shiong announced a reverse merger of his public company NantKwest with his private one, ImmunityBio. His private company is focused on finding T-cell therapies from the adaptive immune system. And it has a bladder cancer drug, Anktiva, reporting fantastic data from a phase 2/phase 3 trial -- 72% of patients saw their tumors eliminated.
After the reverse merger is complete next year, NantKwest will be known as ImmunityBio and trade under the ticker IBRX. And in the second half of 2021, the company plans to file a new drug application with the FDA for Anktiva.
So NantKwest investors have a wide-ranging platform of NK drugs that will increase in value as the market starts to appreciate the science. And investors now own the rights to a breakthrough T-cell therapy for bladder cancer that's on the verge of filing for FDA approval. Not bad for $1.4 billion.
