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Stocks  | July 30, 2019

Biotech stocks can be a risky proposition heading into an election year. These equities, after all, have proven to be extremely sensitive to the heated political rhetoric surrounding prescription drug prices in the United States.

With this political minefield in mind, we asked three our Motley Fool contributors which biotech stocks they think might be worth the risk. They picked Heron Therapeutics (NASDAQ: HRTX), Celgene Corp. (NASDAQ: CELG), and Iovance Biotherapeutics (NASDAQ: IOVA). Here's why.

A Possible Double-Bagger

George Budwell (Heron Therapeutics): Heron Therapeutics got walloped earlier this year after the company announced that the Food and Drug Administration (FDA) had rejected its experimental non-opioid pain medication known as HTX-011. The rejection largely came out of the blue, as HTX-011's late-stage program painted a rather encouraging picture from both a safety and efficacy standpoint. The drug, in effect, seemed poised to become an important new tool in the battle against the over-prescription of opioids in the acute pain setting, giving it a strong shot at generating sales in excess of $500 million within the early part of the next decade. 

However, Heron's collapse could represent a tremendous buying opportunity for bargain hunters. HTX-011's rejection was reportedly based on easily resolvable technical issues. Heron should thus be able to resubmit the drug's regulatory application with the FDA in a timely manner. Nevertheless, this key experimental drug won't have a meaningful impact on Heron's top line until the 2022 to 2023 time frame due to this regulatory setback. That's not a big deal in the grand scheme of things, but the stock market is notoriously impatient when it comes to biotech stocks.

What's the upside potential? Wall Street's current price target on Heron implies a juicy upside of approximately 140%. That might sound unrealistic at first glance, but this biotech stock was actually bumping up against this forward-looking price not that long ago. Long story short, Heron's shares have a decent chance at reclaiming a big chunk of their lost territory once HTX-011's regulatory application has been sorted out -- a landmark event that should materialize within a matter of months. 

There's Still Time To Buy This Big Biotech 

Keith Speights (Celgene): The story isn't over yet for Bristol-Myers Squibb's (NYSE: BMY) pending acquisition of Celgene. I don't think it's too late to buy Celgene stock and still see a solid return.

BMS plans to fork over $50 in cash and one share of its own stock for every Celgene share owned. Based on the latest prices of both stocks, there's only a small premium to be gained. However, investors shouldn't forget the sweetener to the proposed BMS acquisition of Celgene: a contingent value right (CVR) worth $9 per share if certain conditions are met.

Those conditions are that Celgene wins FDA approval of ozanimod and liso-cel by Dec. 21, 2020, and win FDA approval of bb2121 by March 31, 2021. I think all three approvals are likely. An FDA decision on ozanimod in treating relapsed multiple sclerosis is expected by March 25, 2020, well ahead of the deadline. Celgene should file for approval of liso-cel in treating large B-cell lymphoma later this year. A filing for bb2121 in treating multiple myeloma is expected to follow soon afterward.

Keep in mind also that BMS is well below its previous highs from earlier this year. Any gain for the big pharma stock will translate to a gain for Celgene shareholders. Celgene also has a few potential catalysts on the way, including an FDA approval decision for myelofibrosis drug fedratinib.

But will BMS's acquisition of Celgene close? I think so. BMS will have to sell Otezla to make regulators happy. However, my view is that should be the only hoop the big drugmaker will have to jump through to make the deal happen. Buying Celgene now should lock in a modest -- but relatively safe -- return for investors.

A Revolutionary Solid Tumor Cancer Treatment

Todd Campbell (Iovance): If Iovance's efforts pay off, then it will file for FDA approval next year of an entirely new way to fight solid tumor cancers, including melanoma and cervical cancer.

In June, Iovance unveiled data suggesting its tumor infiltrating lymphocytes (TIL) approach can elicit solid response rates in heavily pretreated patients. In metastatic melanoma, the objective response rate was 38%, and the disease control rate (responders plus stable disease) was 80%. In heavily pretreated cervical cancer patients, the objective response rate was 44%, and the disease control rate was 85%.

Iovance is the only company with a TIL approach in clinical trials. Unlike gene therapies that remove T-cells from a patient to reengineer them to spot blood cancers, TIL involves growing lymphocytes that have proven they can infiltrate a patient's solid tumor into large enough numbers so they can find and destroy cancer cells when they're returned to the patient. 

The company's already enrolling melanoma patients in a trial that can support FDA approval, and in July, the FDA said its ongoing phase 2 trial could support a filing in cervical cancer if successful. If data from these trials confirms what's been witnessed so far, then Iovance's treatments could offer new hope to thousands of solid tumor cancer patients by late 2020 or early 2021, making this an interesting stock to buy now. 

A revolutionary initiative is helping average Americans find quick and lasting stock market success.

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