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Is Agenus or Ariad Pharmaceuticals the Better Long-Term Buy?

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With the global cancer market surpassing $100 billion in sales last year, and presently on track to hit $147 billion by as early as 2018, according to IMS Health, there's no doubt that companies specializing in novel anti-cancer drugs have the potential to generate enormous returns for investors.

Having said that, experimental-stage cancer drugs more often than not fail to hit the mark in the clinic, and the few drugs that do eventually make it to the market tend to face stiff competition right out of the gate. Stated simply, it's no easy task to separate the wheat from the chaff when it comes to small to mid-sized oncology companies.

Agenus (NASDAQ: AGEN) and Ariad Pharmaceuticals (NASDAQ: ARIA), for example, are both promising up-and-coming cancer companies that have garnered significant interest among investors over the last year. At this point in time, though, neither company is necessarily assured of transforming into a high-profile operation going forward. With this in mind, let's take a deeper look to consider which stock offers investors the better long-term opportunity right now.

Checkpoint inhibitors are the hot new thing in oncology

Agenus is pinning its hopes on its broad checkpoint inhibitor and modulator platform that's being co-developed, in part, with both Incyte (NASDAQ: INCY)and Merck. In fact, Incyte took out a $35 million equity stake in Agenus as part of its partnering agreement to develop checkpoint regulators targeting the GITR, OX40, LAG-3, and TIM-3 receptors.

The basic strategy underlying Agenus and its partners' collective approach is to bring the next cohort of checkpoint regulators to market, following the smashing success of Bristol-Myers Squibb and Merck's PD-1 inhibitors (Opdivo and Keytruda, respectively). Taken together, Opdivo and Keytruda hauled in a jaw-dropping $953 million in sales in just the first quarter of 2016, illustrating why pharma companies are so eager to break into this particular drug market.

While checkpoint inhibitors have quite literally changed the treatment paradigm for many cancers, Agenus remains well behind its competitors in this increasingly crowded space, having only launched its first two early stage clinical trials this year. As such, I think the earliest a regulatory filing might be feasible -- assuming everything goes as planned -- would be around 2020.

Between now and then, Agenus is almost certainly going to have to raise additional funds to support its clinical activities, given that the company exited the most recent quarter with less than $150 million in cash.

Ariad hit the reset button in 2016

After signing over its European operations to Incyte for a $140 million upfront fee and tiered royalties on European sales of Iclusig earlier this year, Ariad is now squarely focused the regulatory fate of its ALK+ non-small cell lung cancer (NSCLC) drug candidate brigatinib.

The long and short of it is that Iclusig -- Ariad's first approved cancer drug -- no longer appears to have the juice to be a viable franchise-level product due its tendency to increase the risk of serious blood-clotting events. After all, Iclusig's 2016 U.S. sales are projected to fall short of even $200 million, despite being on the market for over three years at this point. The net result is that Ariad has been forced to cut its workforce and reduce operational costs where possible.

The good news is that Ariad's management has suggested that the company's second possible product, brigatinib, could generate sales at least approaching blockbuster status down the road -- that is, depending on how the drug's ongoing pivotal-stage trial as a frontline treatment pans out.

Right now, brigatinib is currently under review with the FDA as a later-line treatment for ALK+ NSCLC patients that are resistant to Pfizer's crizotinib (Xalkori), with a final decision expected by early 2017. And if approved, the Street estimates that Ariad's net loss per share may shrink by as much as 40% next year, inching the biotech closer to finally turning a profit.

Which stock is the better buy?

Although Agenus arguably has the far higher upside potential based on the ginormous sales figures being posted by currently marketed checkpoint inhibitors, I have to give the nod to Ariad in this comparison. At the end of the day, Ariad already has one product on the market (Iclusig), and the company stands a good shot at grabbing a second regulatory approval for brigatinib next year. Agenus, by contrast, has yet to even report early stage results for its most promising checkpoint inhibitors, and the biotech's cash burn is likely going to jump over the next few quarters as a result of its growing clinical activities.

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