2 Clinical-Stage Biotech Stocks That Could Soar Next Week

Although it’s never a good idea to try to time the market, there are undoubtedly better times than others when it comes to buying clinical-stage biotech stocks. If you buy too early, for instance, you can end up having to wait years before a company reaches an important clinical milestone, and that could mean enduring multiple rounds of dilution as well.

With this theme in mind, I think investors may want to take a close look at the clinical-stage biotechs Galectin Therapeutics (NASDAQ: GALT) and Verastem (NASDAQ: VSTM) heading into next week. In short, I believe these two biotechs are gearing up for a healthy move higher soon, perhaps making them great buys right now. Here’s a deeper look at why.

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A rising tide

Companies working on drugs for a form of fatty liver disease known as nonalcoholic steatohepatitis (NASH) have been screaming higher of late due to the clear need for viable treatment options, along with the fact that this underserved space is forecast to grow into a $20 billion to $35 billion market in less than a decade. Galectin, a small-cap biotech with a platform focusing on carbohydrate technology that targets galectin proteins, appears primed to be the next biotech to benefit from this rising tide phenomenon.

Galectin’s claim to fame is that it’s one of the few companies developing a drug to treat an especially severe form of this fatty liver disease, namely NASH patients with cirrhosis. Unfortunately, the biotech reported mixed midstage results for its lead NASH candidate, GR-MD-02, late last year, causing the company’s stock to crater.

In brief, GR-MD-02 missed its primary endpoint of reducing venous pressure within the liver portal system when all subjects were included in the analysis. But the drug did exhibit a significant treatment effect in a subset of patients who lacked esophageal varices (dilated veins in the esophagus resulting from portal hypertension). Galectin has thus decided to move forward with a late-stage trial focusing solely on NASH patients without esophageal varices.

Why is this small-cap biotech ready to break out? Oddly enough, Galectin’s stock seems set to heat up only in part because of GR-MD-02’s progression into a pivotal stage trial. The main reason, on the other hand, is the growing potential for a lucrative licensing deal for GR-MD-02, or an outright acquisition of the company. And a deal could be coming soon.

Galectin, after all, released an intriguing 8-K last month outlining how certain executives may be eligible to receive a “transaction” or “acquisition” bonus that constitutes up to a maximum of 300% of their annual salary if a deal comes to fruition. Such a move makes strategic sense for Galectin because the company arguably doesn’t have the financial resources to bare the entire expense of a large pivotal-stage trial. And now seems to be the perfect time to cut a deal. After all, these drugs are reportedly attracting significant acquisition interest from heavy hitters like Bristol-Myers Squibb right now.

This news has already started to light a fire under Galectin’s shares in the last few sessions, and this positive momentum is likely to carry over into next week.

An under-the-wire cancer play

Verastem is a small-cap oncology company that’s already hit two key milestones for its lead blood cancer drug candidate duvelisib in recent months. Digging into the details, the biotech reported positive late-stage results for duvelisib in patients with advanced chronic lymphocytic leukemia late last year, and followed this clinical success up with a rapid regulatory filing with the Food and Drug Administration (FDA) only a few months later.

As a result, the FDA is presently expected to make a decision regarding duvelisib’s pending New Drug Application by Oct. 5 of this year. But with the drug showing unprecedented results in this extremely sick patient population, I wouldn’t be surprised if the agency approved duvelisib well before this target date.

Why is this stock set to move higher next week? The big-ticket item is that Verastem issued a secondary offering last Friday that reportedly raised $43 million in proceeds for the company. While secondary’s rarely excite retail investors, this case is unique. Verastem now has enough cash on hand to launch its lead product candidate perhaps as early as the third-quarter of this year, assuming approval.

That’s a major obstacle that all nearly early commercial-stage biotechs have to overcome, and Verastem has now jumped through that particular hoop — possibly paving the way for a smooth transition from clinical to commercial-stage biotech later this year.

Is either stock worth buying?

I believe the answer is “yes” in both cases. Although Galectin did have to narrow the target market for its experimental NASH drug, this drug did show a compelling treatment effect in this smaller patient population. And as no other NASH candidate is pursuing this particular indication right now, Galectin should be able to attract a partner without much trouble.

Verastem, on the other hand, seems to be barreling toward its first regulatory approval for an absolutely red-hot segment of oncology. This hidden gem therefore appears primed to head higher in the weeks and months ahead.

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George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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