Could This Biotech Stock Explode Higher?

The biotech sector is famously one of the most volatile parts of the stock market. Cellectis (NASDAQ:CLLS) is a biotechnology company focusing on the use of engineered T-cells for targeting and eliminating cancerous cells in the human body. The company has developed clinical-stage treatments for forms of both leukemia and myeloma.

 

As one might expect from a biotech company whose products have not yet come to market, Cellectis is a good way off from profitability at the moment. Cellectis lost $2 per share in the first three quarters of 2021, up from $0.98 during the same period in 2020. Revenue totaled $11 million, up from $9 million in Q3 2020. R&D costs, however, also continued to rise compared to 2020. Expenses related to research and development were up $32 million in 2021, compared to 2020.

 

One of the brighter spots for Cellectis was its cash position, which remained quite strong as of Q3. The company retained $201 million of cash and cash equivalents at the end of the third quarter. While this was down from $244 million at the end of 2020, this cash stockpile bodes well for Cellectis.

 

Since it cannot expect substantial revenues until its treatments come to market, the company will likely need this cash to continue funding R&D.

 

The appeal of Cellectis stock largely hinges on the massive potential upside from eliminating cancerous cells. The company is attempting to break into a massive and growing market. By 2028, the total oncology market is expected to be worth more than half a trillion dollars.

 

By 2024, the expected market for leukemia treatments alone is projected at $17.1 billion. Success in this market would almost certainly allow Cellectis to generate large revenues and produce returns for investors.

 

A final argument for Cellectis is its stable of strategic partnerships. As of the time of this writing, Cellectis works with four other biotechnology companies who can help to support its development and efforts to gain FDA approval. The company has also partnered with the M.D. Anderson Cancer Center at the University of Texas, giving it a strong academic research partner.

Like most early-stage biomedical and pharmaceutical companies, Cellectis is a highly speculative investment. While there certainly is potential here if the company’s treatments eventually earn approval, investors likely won’t see the full return on their capital for several more years.

 

As of now, the company is in Phase-1 trials. The average time from Phase-1 trials to market is 10.5 years, making Cellectis a very long-term bet.

 

Cellectis has also been quite volatile over the past year, resulting in large losses for investors who bought early. The 52-week high for the stock was $24.02, while the low was $3.43.

 

This loss of value may create opportunities for investors at the moment, but it also shows that Cellectis is far from a stable stock. Though the stock has started to move higher recently, it’s still a very long way from recovering toward its 52-week high.

 

Cellectis also suffers from the general problems of young startup companies that haven’t yet reached profitability. Losses are acceptable, especially while products are being developed. However, the company will need to establish a clear path toward profitability before it can succeed on a long-term basis. Given the long road ahead for its products to reach the approval stage, Cellectis may have a difficult time convincing some investors to ride out ongoing losses.

 

 

Taking both the pros and cons of the stock into account, it’s clear that Cellectis is a stock that should be considered only by investors with a very high tolerance for risk. There’s no doubt that the market exists for novel cancer treatments. Given the uncertainties that surround drug approval and Cellectis’ recent losses, however, this stock is a poor choice for more conservative investors.

 

On the plus side, Cellectis has strategic partnerships that should help it in developing and marketing its treatments. The company is positioned well in terms of cash, and its rising R&D expenses are likely a net positive as it seeks to move its products toward the general market.

 

Novel cancer treatments will likely provide ample revenues for companies that develop them, giving Cellectis a decent chance at long-term returns. Analyst ratings also suggest considerable upside, though the stock’s performance over the past year casts serious doubts on its short-term performance.

 

With that said, Cellectis is still a very long way from reaching its full potential. Investors who buy at today’s prices will almost certainly see large returns if and when the company’s treatments gain FDA approval.

 

Given that up to 90 percent of treatments fail the test of FDA approval, though, there’s also a risk of substantial losses. The company’s partnerships with other biotech firms and the University of Texas should help to reduce its chances of failure, but the risk is still there.

 

Overall, investors who are seeking large gains in the biotech sector may want to consider taking small positions in Cellectis as part of a larger sector-specific portfolio. For the majority of investors, though, there are simply too many unknowns when it comes to a biotechnology company that is still in such an early stage. This speculative investment has the potential to pay off, but there are more stable paths to generate good returns.

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