Wielding Weapons Against Cancer

These firms are in the forefront of the cancer wars, and their stocks should deliver healthy gains.

- Tom Petruno

Medical science hasn’t yet won the war on cancer, but it is scoring important victories in battles against many forms of the dreaded disease. Advances in new treatments have made cancer a hot investing theme over the past 18 months, helping to power fresh interest in biotechnology stocks.

Companies such as Medivation have fueled the renewed lure of striking it rich from novel cancer treatments. With Xtandi—its breakthrough treatment for prostate cancer—riding high, plus promising new drugs for breast cancer and blood cancers in development, the company was the object of a bidding war in 2016. It culminated last September with drug giant Pfizer (symbol PFE) paying $14 billion for Medivation, or $81.50 per share—38 times the stock’s level at its 2010 low.

In February, Japan’s Takeda Pharmaceuticals (TKPYY) paid $5.2 billion for Ariad Pharmaceuticals (ARIA), which is developing drugs that target certain solid tumors. The buyout price was 75% above Ariad’s market value before the deal was announced.

Plenty of volatility. Biotech shares had led the bull market overall, with a New York Stock Exchange–sponsored index of 30 biotech issues soaring 723% from early 2009 to mid 2015. But the stocks then dived 42% by February 2016, in part because of a political backlash against high drug prices.

That backlash remains a long-term threat to the industry’s profit potential, and it continues to weigh on the stocks. Despite a rebound since early 2016, the NYSE biotech index is still down 20% from its 2015 peak. But that could also mean opportunity.