The iShares Nasdaq Biotechnology ETF and the SPDR S&P Biotech ETF are both in negative territory for the year. That likely means 2018 will be a down year for biotech investors.

So, which biotechs have caught our attention in light of the recent carnage? We asked some of our biotech contributors to weigh in, and they called out Novavax (NASDAQ:NVAX), Lexicon Pharmaceuticals (NASDAQ:LXRX), and Supernus Pharmaceuticals (NASDAQ:SUPN). 

Too Cheap to Ignore

Brian Feroldi (Supernus Pharmaceuticals): Just a few months ago, Supernus Pharmaceuticals was a red-hot biopharma that could do no wrong. The company's stock was soaring thanks to huge revenue and profit growth on the back of two successfully epilepsy drugs called Oxtellar XR and Trokendi XR. The company's pipeline also looked promising because of two hopeful treatments for attention deficit hyperactivity disorder called SPN-810 and SPN-812 were in late-stage trials.

Unfortunately, Wall Street's love affair with Supernus' stock has worn off in recent months because of a handful of setbacks. Shares are currently down more than 36% from their all-time high. 

What can explain the dramatic dropoff? I think three primary factors are to blame.

First, Supernus' revenue missed Wall Street's revenue expectation in the second quarter. Second, high-growth stocks have been sold off in the back half of 2018. Finally, the company reported good-but-not-great clinical data for SPN-812 in early December. 

If Supernus' growth days were over then I'd agree that the pummelling makes sense. However, a look at the data suggests the opposite is true. Supernus' revenue and profits are projected to by grow 15% and 28%, respectively, in 2019. SPN-812 and SPN-810 are still moving forward and could be on the market within a year or two. Success with either drug should lead to revenue and profit growth acceleration. In other words, Supernus' investors should have reason to believe that the company's future is still looking bright. 

Supernus certainly isn't a risk-free investment but I like that it is pumping out revenue and profit growth while it is also investing in its future. With shares currently trading hands for about 16 times next year's earnings estimates, I think it is a fine time for biotech investors to get in.

A Calculated Risk

Keith Speights (Novavax): Clinical-stage biotech stocks are too risky for most investors. Sometimes, though, the risk-reward proposition for one of these stocks looks very tempting. I think that's the case with Novavax.

Novavax stock has soared in 2018, pushing its market cap to more than $800 million. The nice gains stemmed from growing investor excitement over two of the biotech's pipeline candidates -- respiratory syncytial virus (RSV) vaccine ResVax and influenza vaccine NanoFlu.

ResVax is currently in a phase 3 clinical study for maternal immunization of infants. Top-line results from the study should be announced in the first quarter of 2019. Market research company EvaluatePharma ranks ResVax among the top five vaccines in development and projects 2024 sales of $668 million if approved.  

Novavax is currently evaluating NanoFlu in a phase 2 clinical study. Top-line results from this study are also expected in 2019 Q1. Novavax hopes to rapidly advance the promising nanoparticle-based vaccine into a pivotal study if the phase 2 results are positive. 

The company is also looking at a combination RSV-flu vaccine based on ResVax and NanoFlu. Although this vaccine is only in early preclinical development, EvaluatePharma thinks that Novavax could have one of the top-selling vaccines in the world if it's successful.

Yes, Novavax remains a risky stock. Clinical setbacks would crush the biotech's share price. But with a pretty good chance of good news right around the corner, I think Novavax is a calculated risk that could pay off big.

This Next-Generation Diabetes Drug Developer Is Flying Under the Radar

Sean Williams (Lexicon Pharmaceuticals): Sometimes you just have the beat the same drum a little louder to be heard. That's what I'm doing in December with small-cap biotech Lexicon Pharmaceuticals.

Over the trailing six-month period, Lexicon has been a head-scratching disaster, with its share price down more than 40%. The decline is puzzling, and my best guess would be that a lack of sales growth in Xermelo, a medicine approved to treat carcinoid syndrome diarrhea in combination with somatostatin analog therapy, is responsible. Sales of Xermelo grew just 19% year-over-year to $6.3 million in the Lexicon's third quarter. 

But the thing is, Xermelo is just Lexicon's gravy, so to speak. The meat and potatoes of this growth story is sotagliflozin, an inhibitor of glucose transport proteins SGLT1 and SGLT2. In plainer English, this is an experimental medicine designed to improve glycemic balance for type 1 and type 2 diabetics by allowing them to block glucose absorption and excrete excess glucose through their urine.

What makes sotagliflozin so unique is that it offers this dual inhibition. There are around a half-dozen successful SGLT2 inhibitors approved and pharmacy shelves today. However, SGLT2 inhibitors only treat type 2 diabetes – between 90% and 95% of all diabetes cases involve type 2 diabetes – and provide inhibition in the kidneys. Lexicon's lead drug also adds the ability to block absorption via SGLT1 in the intestines. The idea being that it could further improve glycemic balance. Not to mention, sotagliflozin could be prescribed to type 1 and 2 diabetics.

Lexicon also has some much-needed help along the way. It's partnered with Sanofi (NYSE:SNY)to help develop sotagliflozin. Lexicon is primarily handling the development of the drug for type 1 diabetes, with Sanofi taking the lead for type 2 diabetes trials. Having already met its primary endpoint in a pivotal-stage type 1 diabetes study, Lexicon's lead drug looks to have a path to success. When combined with Sanofi's knowledge in launching new products, I believe it'll be a winner.

How much of a winner? Topping $1 billion in peak annual sales isn't out of the question if sotagliflozin is approved in both indications. With Lexicon valued at less than $800 million in market cap, it looks to be a screaming deal for patient investors.

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