Biotech stocks — as measured by the iShares Nasdaq Biotechnology Index ETF (IBB) — have soared 275% over the past five years. That’s nearly triple the Nasdaq’s performance.
But, naturally, there’s not too much unseen value among biotech stocks — just about anything with any degree of speculative upside is overvalued.
Yet somehow, Celldex Therapeutics, Inc. (CLDX) — a company with enormous catalysts that could send it doubling in 2016 — has flown under the radar.
A Wild Ride for CLDX
Since 2013, there has not been a more volatile biotech stock than CLDX. Celldex shares soared from a low in the mid-$2s to nearly $40 by 2013, then 12 months later, it was under $13. Currently, CLDX shares sit at $18 — again, a monster swing down from its 52-week high of nearly $33.
That said, the volatility in CLDX stock has nothing to do with data.
Celldex has two different late-stage drugs that have proven successful in treating aggressive forms of cancer where no other drug has succeeded. The problem is that investors have had to wait a long two years between hearing strong data to getting CLDX’s two lead candidates U.S. Food and Drug Administration-approved.
During this span, anti-PD1 and CAR-T technology has really overshadowed everything else for treating cancer.
However, Celldex specializes in drugs that treat aggressive forms of cancer in patients that present certain mutations, or express certain antigens. Neither anti-PD1s nor CAR-T will be challenging the revenue that CLDX creates from its brain cancer drug, Rintega, or its breast cancer drug, CDX-011.
A Big Catalyst for CLDX Stock on the Horizon
Celldex could have already submitted Rintega for FDA approval. Rintega has a Breakthrough Therapy designation by the FDA, and the drug had already proven itself successful in treating patients with recurring forms of glioblastoma (aggressive form of brain cancer).
However, that’s a small patient population, so CLDX chose to wait for data on its 745-patient trial before submitting Rintega for FDA approval. This way, Rintega will be approved to treat both the recurrent form of the disease and newly diagnosed patients at the same time, which also aids in marketing. Combined, this would be a billion-dollar or larger market opportunity.
Celldex will announce the data on that large trial early next year, and it is expected to be positive. With that breakthrough designation, it won’t take long for CLDX to get Rintega submitted to the FDA and approved, which means that Celldex will soon start creating actual revenue.
Beyond that, CDX-011 is an absolute gem. It has already been tested in several large trials, but looks best when treating patients with triple-negative breast cancer that express high levels of the protein gpNMB. In an earlier Emerge trial CLDX was testing all triple-negative patients.
While CDX-011 was successful in treating all triple-negative patients, it performed best in those with high levels of gpNMB. In that patient population, CDX-011 nearly doubled the overall survival of patients and slowed the progression of tumors. Importantly, these are patients who no longer responded to any other treatments, those who had failed two or more prior treatments.
That said, Celldex’s ongoing Metric study for CDX-011 is only testing patients with that high expression of gpNMB. CLDX expects to complete enrollment next year and will then present data. If positive, as most assume, the trial could very well be stopped early and CLDX will submit the drug for FDA approval.
Why CLDX Stock Will Double Next Year
In other words, CLDX has one drug that will be FDA approved sometime early next year and another than could be submitted for FDA approval later in 2016. This means the waiting game is almost over!
Healthcare analyst Dr Kanak Kanti De figures that peak sales for Rintega and CDX-011 could top $1.5 billion on a risk-adjusted basis. That’s a somewhat conservative figure, with many on Wall Street predicting blockbuster sales for both drugs. Nonetheless, CLDX stock trades at just roughly peak sales.
According to data from MorningStar, the biotechnology industry trades at 8.3 times sales. Therefore, with CLDX having data and a likely FDA approval for at least one drug over the next year, a move in its P/S ratio from 1 to 2 seems plenty feasible, and that would thereby cause CLDX stock to double.
The good news is even if Celldex doubles, it is still very cheap relative to the IBB and overall industry. In retrospect, that’s why CLDX stock is not only one of the best biotech stocks for next year, but also well beyond that.
As of this writing, Brian Nichols was long CLDX and IBB.
