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The biotech sector tends to scare a lot of investors, and for good reason. The failure rate is high, the cash needs can be huge, and regulatory decisions can make or break an investment.
So which biotech stocks do we Fools think are worth the risk? We asked a team of investors to weigh in and they highlighted Madrigal Pharmaceuticals (NASDAQ: MDGL), Cambrex (NYSE: CBM), and Pieris Pharmaceuticals (NASDAQ: PIRS).
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A potential top acquisition target for 2018
Keith Speights (Madrigal Pharmaceuticals): I'm going to step out on a limb just a bit with my pick. Madrigal Pharmaceuticals doesn't have any drugs on the market yet. It doesn't even have a pipeline candidate in late-stage testing. But I think this small biotech could be a big winner.
Actually, the stock already is a big winner. Madrigal ranked as the No. 3 healthcare stock of 2017, with a whopping 516% gain last year. So far in 2018, the stock is up well over 50%. Why such excitement over a clinical-stage biotech? Madrigal claims a very promising drug for treating nonalcoholic steatohepatitis (NASH).
The company reported impressive results in December from a phase 2 study of MGL-3196. Three-fifths of patients taking MGL-3196 attained a 30% or more reduction in liver fat, which has been found to have a high correlation with improvement in NASH. Patients taking a higher dose of MGL-3196 experienced an even greater reduction in liver fat. The statistical improvement over placebo came with a p-value of less than 0.0001. If you're not a statistics guru, just know that means Madrigal can be really confident in the statistical significance of its phase 2 results.
NASH could very well be the next huge market for the biopharmaceutical industry. I think that the potential for MGL-3196 probably has big drugmakers drooling over Madrigal. It wouldn't surprise me to see this biotech scooped up soon.
A "picks and shovels" stock in the biotech gold rush
Chuck Saletta (Cambrex): Speculators hoping to strike it rich these days look for gold in the potential cures to modern illnesses offered by biotech companies. Yet just as many prospectors bombed out during the California gold rush, many biotech companies are destined for trouble -- either their research doesn't pan out, or their financing doesn't last long enough to bring their research to market.
Enter Cambrex, a biotech company that specializes in helping other healthcare companies get their active pharmaceutical ingredients (APIs) developed and manufactured. What they're essentially doing is acting like the merchants who sold picks and shovels to prospectors during the gold rush. Everybody with a medicine needs it manufactured, but there are costs and regulatory compliance issues associated with doing so, making outsourcing that work to a specialist a great choice for many companies.