After a mixed year, biotech stocks are back in favor. Indeed, after a year of huge gains that even raised speculation of a bubble, biotech sector had a mixed year in 2014. But the correction was due. And it has also helped in filtering out the best from the rest in the biotech sector.
In the first two months of 2015, biotech sector has registered a robust performance. Year-to-date, the NYSE ARCA Biotech Index (NYSE: BTK) has gained nearly 14.50%, while the NASDAQ Biotechnology (NASDAQ: NBI) is up more than 12%. This compares to gains of just 2.8% for the S&P 500 for the same period.
So what has changed between last year and now? As I noted, 2014 was a year of much needed correction in the biotech sector. A number of stocks with weak fundamentals had benefited from bullish investors’ sentiment on the whole biotech sector. Last year, investors had the opportunity to step back and reassess.
In 2015, one of the most talked about biotech stock has been Gilead Sciences Inc. (NASDAQ: GILD). GILD in fact has been one of the most talked about biotech stock for a few years now. Last year, despite the pressure on the biotech sector, GILD returned more than 28%. The gains were mainly driven by the strong performance of GILD’s hepatitis C franchise, with its two drugs reaching blockbuster status.
Hepatitis C is indeed a hot area right now and another stock that investors are talking about right now is Achillion Pharmaceuticals Inc. (NASDAQ: ACHN). The company’s hepatitis C treatment has shown a great deal of promise, although a FDA approval remains some distance away. Achillion shares are up more than 3% this year. In the last one year, ACHN shares have gained more than 250%.
Another biotech stock that has been doing well over the past year is Pharmacyclics Inc. (NASDAQ: PCYC). On Wednesday, shares of the biotechnology company surged more than 16% after Bloomberg, citing people with knowledge of the situation, reported that PCYC is exploring strategic options including a sale. PCYC’s Imbruvica has seen strong sales since its launch and interest from a major pharma won’t be surprising, given that they are looking to boost their pipeline.
Apart from the three companies I have mentioned, there is another small medical technology company that is seeing increasing interest from investors. This company operates in the brachytherapy treatment space, which is a very effective treatment option for early stage prostate cancer.
A recent paper from the Journal of Clinical Oncology notes that approximately 70% of men diagnosed with prostate cancer present with low-or-intermediate-risk disease. The paper further notes that among the men, who choose to proceed with treatment, the outcomes are similar with prostatectomy, external beam radiation therapy (EBRT), or brachytherapy. Despite this, the Journal notes, prostate brachytherapy has seen a decline in the past decade.
The reasons for decline are varied from an increase in the number of robotic prostatectomies to negative press. However, the case for brachytherapy treatment is getting stronger lately. Back in August, 2014, Ben Y. Durkee, MD, PhD and Mark K. Buyyounouski MD, MS at the Department of Radiation Oncology, Stanford University made a case for prostate brachytherapy in the Affordable Care Act era.
Indeed, brachytherapy offers numerous advantages over other treatment options. It is as efficient as other treatment options, has fewer side effects and is cost effective. Given these factors, sooner rather than later, brachytherapy will become the treatment of choice for early stage prostate cancer.
One of the most promising companies in the brachytherapy space is IsoRay Inc. (NYSEMKT: ISR), a Richland, Washington-based company engaged in the development, manufacture and sale of Cesium-131, a radioisotope used in brachytherapy.
ISR’s Cesium-131 has numerous advantages over other radioisotopes. It has superior energy and the shortest half-life, which makes it an effective treatment option not just for prostate cancer but also for other forms of aggressive cancer.
IsoRay’s sole focus over the past decade has been to increase awareness of Cesium-131 among the patient and the medical community. And it has been successful in this regard as evidenced by the company’s shares performance in 2014. Last year, ISR shares were among the top performers on the NYSEMKT, gaining more than 190%.
The gains came on the back of some successful peer-reviewed studies that highlighted the effectiveness of Cesium-131.
On Wednesday, ISR announced its financial results for the quarter ended December 31, 2014. At the end of the quarter, the company had $20 million in cash on its balance sheet and no debt. This is very unusual for an early-stage company like IsoRay. However, the financial situation highlights the astuteness of the management, which took advantage of the surge in stock price last year and completed a secondary offering.
Given ISR’s robust cash position and current burn rate, the company will not need any additional cash for at least the next five years. This completely takes out the dilution risk, which is usually associated with early stage companies like IsoRay.
On the operating front, the company has not been doing too badly either. It remains committed to diversifying its product offerings through institutional-based studies. ISR also remains focused on expanding the use of Cesium-131 to aggressive forms of cancer even as prostate cancer remains the key area.
ISR’s management currently expects the company to gain some market share as well as see some revenue growth, which is a positive. In the past couple of years, ISR’s prostate revenue had seen a slowdown due to weakness in the national prostate cancer treatment market. However, that seems to be changing now, especially after some positive reports such as the one published in the Red Journal in August last year.
Meanwhile, IsoRay is continuing with its strategy of increasing awareness of Cesium-131 through peer-reviews. On Wednesday, the company noted that it is pleased with the release of the third peer-reviewed publication, which supports the use and success of Cesium-131 for prostate cancer. Importantly, one of the studies has data going back to nearly a decade.
Recently, the University of Pittsburg Medical Center (UPMC) released a report that covered a 9-year effort on using Cesium-131 for low and intermediate prostate cancer.
Commenting on the progress made by IsoRay, Chairman and CEO Dwight Babcock, had this to say, “Clinical evidence provided through protocols performed by major medical centers that prove utilizing Cesium-131 is either equal to or better than the current standard of care alternatives, with patients enjoying an improved quality of life, remains the key to IsoRay's success. These studies also aid in generating awareness and ultimately general adoption by community hospitals and physicians, which will in turn drive consumers to our product offerings. To this end IsoRay is totally committed and given this growing acceptance and interest in our now published results, we remain committed to our strategic sales and marketing objectives, which we believe will contribute to long term growth and achieving profitability."
All these developments are certain to have a positive impact on ISR shares, which after last year’s significant rally, have seen a pullback. Year-to-date, ISR shares are down more than 4% and are currently trading at around $1.40. It must be noted though that with no debt and $20 million in cash on its balance sheet, ISR shares look very cheap.
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