3 Biotech Stocks That Could Be Millionaire-Makers
Their stocks have collapsed. But they could still be huge winners.
April 28, 2021

This article originally appears on The Motley Fool, written by Jason Hawthorne.

Biotech companies are about the riskiest investment someone can find in the stock market. They are often small, cash-strapped, and have a future inextricably tied to the success or failure of one clinical trial. For every Amgen, which has gone from a market cap of less than $1 billion 30 years ago to $147 billion today, there are hundreds that fade into obscurity. Yet, when they make it big, the rewards can be life-changing. 

That's why Frequency Therapeutics (NASDAQ:FREQ), Axsom Therapeutics (NASDAQ:AXSM), and Trillium Therapeutics (NASDAQ:TRIL) are interesting. Each stock has been beaten down but has the potential to inflate shareholders' portfolios if their science proves successful.

1. Frequency Therapeutics

The most common type of hearing loss affects 40 million people in the U.S. Rather than offer a device to make sounds louder, this company is using progenitor cells to help regenerate hair in the inner ear to improve hearing. Unfortunately, despite subjects receiving anywhere between zero and four injections, the recent study using the approach showed no discernible difference in the participants' ability to hear. That sounds like a failure.

Frequency Therapeutics' management is going back to the drawing board after suspecting trial participants may have exaggerated their level of hearing loss. They also fear the multiple injections overwhelmed the region's ability to grow hair. It isn't a total long shot. An earlier trial with only one injection did show significant improvement versus a placebo.

In the most recent study, word recognition improved in both those who received the placebo and those who got the treatment. This led management to the conclusion that many pretended their word recognition was worse than it actually was just so they could be enrolled in the trial. 

It's a wild claim, and one that is a little hard to believe. However, with smaller related trials set to provide data in both the second and third quarter of this year, it's not a huge risk to try again. This time, Frequency will design the trial with only a single dose and will work to eliminate any enrollment bias. It's unlikely, but it could prove to be a small miracle for investors if a redesigned trial can validate previous results.

2. Axsome Therapeutics

Axsome Therapeutics may be down since the beginning of the year, but its stock is starting to show signs of life. The company was recently granted priority review by the U.S. Food and Drug Administration (FDA) for its drug to combat major depressive disorder (MDD). The agency previously granted the drug breakthrough therapy designation for both MDD and Alzheimer's Disease. 

About one-third of the 17 million adults in the U.S. who experience a major depressive episode each year are deemed treatment-resistant. The condition is not well understood, but it does appear that women and senior citizens are more likely to be resistant to medications than others. This could be for both psychological and biological reasons. One theory is that inflammation in the brain could cause depression. Since antidepressants only affect neurotransmitters, they don't address this potential underlying cause.

Axsome's drug is made up of a proprietary combination of dextromethorphan (DM) and bupropion. DM is common in antidepressants. However, since it is quickly metabolized by the body, it is hard to reach therapeutic levels in the bloodstream. Axsome's combination is designed to slow the metabolism and help patients more easily reach a level of DM in the blood that provides relief. Beyond depression and Alzheimer's, the company's other programs target narcolepsy, migraines, and smoking cessation. 

The drug has demonstrated a reduction in depressive symptoms for patients diagnosed with MDD in phase 2 and phase 3 trials, and the FDA has set a target action date of Aug. 22. If the FDA approves it, shareholders will reap the reward of Axsome joining the $4 billion market for MDD treatment. 

3. Trillium Therapeutics

Shareholders of cancer fighter Trillium Therapeutics have an important date coming up. The company is scheduled to provide an update for its two treatment candidates on April 28. Management has pointed to its R&D Day as the time it would share new data, clarify its strategic priorities, and lay out a development plan for the future. The meeting will likely shape the narrative for much of 2021.

Last year, Trillium completed an impressive transformation. It discontinued a primary program and focused its resources on cancers of the blood and solid tumors via intravenous administration. Trillium also raised more than $300 million through two rounds of fundraising and a $25 million investment from Pfizer

Its TTI-622 and TTI-621 candidates advanced in dose escalation studies and demonstrated monotherapy responses -- without any additional drugs -- that fueled investor excitement. That drove the stock to a 1,300% gain last year. If the update is encouraging, shareholders could have another great year ahead.

The current market capitalization is less than $1 billion. That's a mere fraction of the $4.9 billion Gilead Sciences paid for Forty Seven, a company with similar science behind its treatment. With solid results and a recently acquired company for comparison, the stock should resume its climb.

Jason Hawthorne owns shares of Trillium Therapeutics. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.

MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here

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