Many of Wall Street’s biggest and most successful stocks have become so through innovation. It’s too late to get in on the ground floor of the companies that are already established leaders in their field, but there are plenty of smaller, highly innovative companies that could see excellent returns as they gain prominence. Of course, that is not certain: such shares often entail quite a bit of risk.
However, for those who don’t mind that risk, it’s worth considering companies that meet the parameters. In that spirit, let’s discuss two things in healthcare that could provide breakthroughs and deliver market-beating returns along the way: Iovance Biotherapeutics(NASDAQ: IOVA) And Recursion pharmaceutical products(NASDAQ: RXRX).
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Iovance Biotherapeutics is a cancer-focused biotechnology. The company develops therapies based on tumor-infiltrating lymphocytes (TILs). TILs are a type of disease-fighting cells that can recognize and destroy cancer cells, and they exist naturally in all of us. Iovance harnesses the power of TILs by extracting them from each patient, crafting personalized treatments and placing them back into the patient.
It’s not a simple procedure, but it has already produced some exciting results. In February, Iovance received approval from the U.S. Food and Drug Administration for Amtagvi, the first therapy for advanced, previously treated melanoma (a form of skin cancer). The company estimates a potential U.S. market of 20,000 annual cases for Amtagvi. Iovance will also seek regulatory approval in other countries, including Canada, some in Europe and Australia.
Iovance’s financial results are not yet impressive. Third-quarter revenue was $58.6 million, but that was exponentially better than the $469,000 reported in the same period last year. Iovance also made progress on operating income; the net loss per share of $0.28 was much better than the net loss per share of $0.46 recorded in the prior year quarter.
TIL therapies like Amtagvi take time to manufacture; about 34 days in fact. So the company is likely just starting to enter the US market for its latest drug. With the approval of other countries, the addressable market will expand significantly.
Moreover, Iovance has a rich pipeline. It is looking for many label extensions for Amtagvi, while developing other brand new TIL treatments. Iovance Biotherapeutics’ innovative approach to cancer treatment could be very lucrative and ensure it delivers excellent performance in the long term.
Developing drugs is difficult and expensive. The process has become slower even with technological advances, a phenomenon known as Eroom’s law (the converse of Moore’s law). Recursion Pharmaceuticals is trying to change that with the help of an operating system (OS) powered by artificial intelligence (AI).
The company built a virtual laboratory where various clinical compounds are continuously tested in a human gene library; the most promising are chosen to undergo clinical trials. The company claims to spend much less time and money selecting products for clinical trials.
Recursion currently has several products in Phase 2 trials for which it will release data over the next year. One of them, REC-994, had positive results in a phase 2 study of cerebral cavernous malformations, in which clusters of irregular blood vessels form in the nervous system. The drug can cause serious health problems, so it will be a while before it or other candidates among the Recursion candidates can be approved.
If it proves successful across the board, Recursion will likely be able to license its operating system to other drug developers, in addition to making money from its own drugs. The company’s goal to significantly reduce the time and money required to develop drugs could be incredibly lucrative.
Investors should never dive headfirst into a stock without considering the downsides, no matter how innovative a company seems. Here are some of the risks associated with investing in these two biotech stocks.
Iovance’s approach is exciting, but the 34 days required to produce Amtagvi is a significant drawback. The company could also face clinical or regulatory setbacks, a risk that is greater for smaller drugmakers.
The same can be said about Recursion Pharmaceuticals: the company still doesn’t have a single drug on the market, despite how promising its platform seems.
These two stocks have significant upside potential. But even for those who can handle the volatility, the increased risk means investors may initially want to take a small position in one or both stocks. Investors can always add more shares over time if (or if) Iovance and Recursion prove themselves.
Consider the following before purchasing shares in Iovance Biotherapeutics:
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Prosper Junior Bakiny has no position in any of the shares mentioned. The Motley Fool holds positions in and recommends Iovance Biotherapeutics. The Motley Fool has a disclosure policy.
2 Innovative Stocks That Can Deliver Outrageous Returns was originally published by The Motley Fool
