3 Stocks to Buy That Could Be the Next Biotech Breakthrough

In general, biotech stocks are not ideal for conservative investors. The companies in search of the next medical breakthrough are inherently risky. If they fail, their stocks can languish at very low prices… or worse. But if they succeed, shareholders can see outstanding returns. It’s not quite a zero-sum game, but it’s close.

That said, there are ways to limit risk when buying biotech stocks. Specifically, I look for undervalued companies that have already produced positive clinical trial data. In other words, while their drug or treatment has a good chance of succeeding, investors have been hesitant or have not yet caught on.

I also like to target biotech stocks working on treatments for diseases or conditions that are prevalent rather than those with smaller markets. These companies have a much better chance of having a blockbuster on their hands.

Here are three biotech stocks that could just be the next big breakthrough.

ImmunityBio (IBRX)

ImmunityBio (NASDAQ:IBRX) has developed a protein treatment called Anktiva that it is currently testing as a treatment for a type of bladder cancer. Data from the company’s Phase 2/3 trial showed 91.4% of patients were able to avoid having their bladder removed and that none of the patients died. Given that the patients in the trial had been unresponsive to standard treatments, these were superb results.

The Food and Drug Administration (FDA) is expected to decide whether to approve Anktiva in May, according to Seeking Alpha columnist Terry Chrisomalis. He also notes that the “global bladder cancer market could reach $11.5 billion by 2032.”

If, as I anticipate, Anktiva gets the nod from the agency next month, IBRX stock is likely to soar.

Further, ImmunityBio is testing Anktiva in combination with another protein for use in patients with pancreatic cancer. This has also shown promise, as it “more than doubled median overall survival for patients” in Phase 2 trials, potentially opening up another large market for ImmunityBio.

Eisai (ESAIY)

In a recent column, I noted that Japanese drugmaker Eisai (OTC:ESAIY), in partnership with Biogen (NASDAQ:BIIB), had “developed the first Alzheimer’s drug that seems to work.” The company recently released a further analysis of its trial results of monoclonal antibody drug Leqembi that showed it slowed the progression of the disease in patients with early and mild Alzheimer’s-related dementia. Yet, the stock has not benefited from the news, with shares down 7.6% since early February.

I believe the Street is skeptical about the chances of the drug becoming successful for two reasons. First, another Alzheimer’s treatment developed by Biogen, Aduhelm, generated much-lower-than-expected sales after being approved in 2021. This was due in part to questions over its effectiveness and Medicare’s narrow coverage of the drug.

But Eisai’s drug appears more promising. In January, the FDA approved Leqembi through its accelerated approval pathway. “This treatment option is the latest therapy to target and affect the underlying disease process of Alzheimer’s, instead of only treating the symptoms of the disease,” said Billy Dunn, M.D., director of the Office of Neuroscience in the FDA’s Center for Drug Evaluation and Research.

The estimated number of people in the United States with mild cognitive impairment or early-stage Alzheimer’s is 1.5 million, The New York Times reports. This presents a large potential market for Leqembi, with Eisai and Biogen planning to split the profits equally.

The Centers for Medicare & Medicaid Services rejected a petition for wider coverage of Leqembi in February. However, if the company can continue to provide research supporting the efficacy of the drug and it becomes covered by Medicare in more cases, it could lead to a spike in sales and the price of ESAIY shares.

Atara Biotherapeutics

Atara Biotherapeutics (NASDAQ:ATRA) recently became the first company in the world to receive approval from a major regulatory agency for an allogeneic T-cell therapy. Chimeric antigen receptor (CAR) T-cell therapies rely on programming immune cells to attack cancer cells. Autologous CAR T-cells are taken from the cancer patients themselves, while allogeneic CAR T-cells are taken from healthy people.

Allogenic cells can be injected into patients more quickly because they can be pre-made, while autologous CAR-T cells have to be manufactured after a patient is diagnosed with cancer and has been deemed a good candidate for CAR T-cell treatment. Moreover, many believe that allogeneic cells will be cheaper to manufacture.

In December, Atara’s Ebvallo secured approval from the European Commission “as a monotherapy for the treatment of adult and pediatric patients two years of age and older with relapsed or refractory Epstein‑Barr virus positive post‑transplant lymphoproliferative disease (EBV+ PTLD) who have received at least one prior therapy.”

The approval did not lift Atara’s shares, which are down around 16% since the Dec. 22 announcement. However, given the fact that the drug was approved by the EU and the tremendous potential of allogeneic CAR T-treatment, I expect the FDA to approve Ebvallo and other such treatments in the company’s pipeline, greatly lifting  ATRA stock.

As of the date of publication, Larry Ramer owned shares of IBRX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.