Good news from the Food and Drug Administration (FDA) can send biotech stocks into the stratosphere. And bad news can bring their share prices crashing down. Our Foolish trio is optimistic about Mirati Therapeutics (MRTX), Novavax (NVAX -2.24%) and Heron Therapeutics (HRTX -3.12%).
Fashionably late to the KRAS party
Patrick Bafuma (Mirati Therapeutics): One company that has to be champing at the bit to get FDA approval is Mirati Therapeutics, with its lead drug adagrasib. The biotech is seeking approval as a second-line treatment for non-small cell lung cancer (NSCLC) with a specific mutation within the KRAS gene. That mutation is present in approximately 14% of NSCLC patients. And with around 235,000 newly diagnosed NSCLC patients in the U.S. each year and 2.2 million worldwide, that treatment opportunity alone is huge.
The FDA will make a decision on adagrasib by Dec. 14, but with each day that goes by, Amgen (AMGN -0.20%) gets a chance to extend its lead. The $130 billion pharma crossed the finish line on May 28, 2021, for Lumakras, its drug with a mechanism of action similar to adagrasib. Since its approval, Lumakras has racked up sales of $236 million worldwide, as the oncology community has welcomed this type of drug into clinical practice.
The longer it takes for approval of Mirati's drug, the more difficult it will be to change clinicians' prescribing patterns. And while Mirati just announced favorable phase 1/2 clinical data at a recent conference for adagrasib in colorectal cancer (CRC), Amgen will have its own announcement for phase 1b CRC data early next week for Lumakras.
The good news for investors is that Mirati had $1.2 billion in cash at the end of June, enough to get it well into 2024. And with the opportunity for targets of this particular KRAS mutation estimated to be over $4.5 billion a year by 2028, the market seems big enough for two therapies.
With a multibillion-dollar opportunity and over $1 billion in cash, at a $4.7 billion market cap, Mirati might be on the shopping lists for big pharmas as well.
The COVID booster market is huge
Taylor Carmichael (Novavax): Last month, Novavax submitted its application to the FDA for Emergency Use Authorization (EUA) for its COVID-19 vaccine as a booster. The chances are high that the biotech will soon see its label expanded.
It has already happened around the world, with medical authorities in Japan, Australia, and New Zealand giving a thumbs-up to the Novavax vaccine as a booster. Last week, a scientific review board for the European Medicines Agency recommended that the European authorization for Novavax's vaccine be expanded to include booster shots.
While COVID has fallen off the radar for a lot of investors, it's still a massive market with vaccinations expected to ramp higher in the winter. That's because COVID is showing signs of being a seasonal event, with hospitalizations dramatically increasing in the colder months.
Novavax is currently studying an Omicron-specific vaccine (NVX-CoV2515) against its original vaccine (NVX-CoV2373). This phase 3 trial began in May, and initial results are expected later this year. So far, the company's initial vaccine is showing strong immune response against Omicron and other variants.
Novavax has a $2.4 billion market cap, and the biotech is sitting on $1.4 billion in cash. The company projects over $2 billion in revenue this year. It has a strong platform in both COVID and flu vaccines, and its combo vaccine candidate is already in clinical trials, with a phase 3 study expected to begin next year. It's looking like Novavax might be first to market with a COVID/flu combo vaccine. If so, the stock will be a lot higher than it is today.
A top short-squeeze candidate
George Budwell (Heron Therapeutics): Heron Therapeutics is a small-cap biopharma with FDA-approved products in the fields of non-opioid pain relief in the acute setting, as well as drugs to prevent acute and delayed nausea and vomiting following chemotherapy.
The company's value proposition centers mostly around its opioid alternative known as Zynrelef. While Zynrelef's commercial launch has been very slow, Wall Street still thinks this drug could hit $500 million in sales by the middle of the decade. Meanwhile, Heron will have to rely on its other value drivers to keep it headed in the right direction.
The good news is that Heron could add another key element to its overall value proposition this month. The FDA is expected to hand down a decision on the regulatory fate of HTX-019 by Sept. 17. HTX-019 is under review by the agency as a potential agent to prevent post-operative nausea and vomiting. This indication probably won't be a game-changer for the company from a revenue standpoint. But it should be another valuable contributor to its overall growth in the years to come.
What should investors look out for? One of the main reasons Heron is an intriguing name to follow leading into this upcoming regulatory decision is its sky-high short interest. At last count, short-sellers held a stunning 39.4% of the biotech's outstanding shares. Shorts have pounced on Heron's stock over Zynrelef's slower-than-expected commercial uptake, the company's less-than-stellar balance sheet, and its lack of a needle-moving catalyst. An approval for HTX-019 could significantly lower its appeal as a short target.
