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All Contents © 2020The Kiplinger Washington Editors
By Maya Sasson, Contributing Writer
| May 19, 2020
Bull market or bear market, one fact remains unwavering: Biotech stocks represent the ultimate risk/reward plays.
These investments are inherently volatile in nature. Numerous biotechnology companies have just one or two products delivering revenue, which means any news around new potential treatments has added urgency. That results in bigger price swings. "Pre-revenue" biotech stocks – those with no approved products – are even shakier in nature. These companies are in a race to get a treatment approved before they run out of money for research and trials.
Following biotechnology companies isn't like following the rest of the market, either. In many cases, biotech earnings reports aren't a lightning rod for share-price movements. Instead, these stocks tend to ebb and flow on clinical data releases and regulatory approval decisions, which are arguably far more important metrics for gauging biotechnology firms' long-term prospects.
So, how are investors supposed to distinguish between the long-term winners and those poised to take an "L"? We suggest taking a page from the analyst community's playbook.
Using TipRanks' database, we were able to scan the densely populated industry for the most compelling plays. These biotech stocks not only have earned overwhelmingly bullish support from the Wall Street analysts who cover them, but sky-high upside based on the pros' estimates. Here are seven of Wall Street's best biotech stocks right now, according to the analyst community, which believes each of these picks has triple-digit return potential.
Data is as of May 18. Stocks listed in order of potential upside as implied by analysts’ consensus price targets.
Market value: $517.6 million
TipRanks consensus price target: $14.88 (109% upside potential)
TipRanks consensus rating: Strong Buy
Viking Therapeutics (VKTX, $7.13) focuses on metabolic and endocrine disorders. Thanks to its expertise when it comes to designing thyroid hormone receptor β (TRβ) agonists, or drugs that decrease liver fat, some members of the Street believe that Viking is poised to emerge as an outperformer in this competitive space.
This is the stance taken by BTIG analyst Julian Harrison. He highlights the fact that these oral drugs are not only safe and convenient, but they also exhibit robust levels of efficacy, close to what is produced by injectable forms of the therapy.
Harrison sees significant value in Viking's lead candidate, VK2809, which was designed for use in patients with non-alcoholic steatohepatitis. "We believe VK2809 is positioned to be best-in-class with a favorable mix of potency and tolerability/safety, thanks to calculated prodrug chemistry, a hard-nosed development team, and a cash runway through late proof-of-concept data," he writes. "Overall, we view VK2809's strong clinical data and the enterprise value of only $140 million as a chance for investors to invest in an undervalued asset."
Data from VK2809's Phase 2b trial in patients with biopsy-confirmed NASH is slated for release in mid-2021, which will play an important role in shaping the landscape, writes Harrison, who has a Buy rating and $9 price target on shares.
The recent analyst consensus on Viking is among the strongest for small-cap biotech stocks. Eight analysts have sounded off with Buys over the past month, versus no Holds or Sells. The $14.88 price target implies VKTX could more than double from current prices. Investors interested in learning more can check out the VKTX analysis on TipRanks.
Market value: $830.2 million
TipRanks consensus price target: $10.50 (120% upside potential)
ImmunoGen (IMGN, $4.76) applies an innovative approach that utilizes antibody-drug conjugates (ADCs) to treat cancer. One analyst is particularly excited about IMGN's prospects given a jam-packed calendar of upcoming catalysts.
Writing for H.C. Wainwright, analyst Debjit Chattopadhyay believes that the mirvetuximab cancer-treatment franchise is "is way ahead making this a compelling OC-play." He writes that top-line data from a SORAYA study could be released in mid-2021, a Biologics License Application is expected in the second half of 2021, and a commercial launch could come in mid-2022. Enrollment for a separate MIRASOL study is right on track, too.
"While the SORAYA and MIRASOL programs should cement mirvetuximab's position in late-line ovarian cancer, competition for the pool has ratcheted up, which along with the limited stock moving clinical updates were the primary driver of the underperformance in ImmunoGen's shares," Chattopadhyay writes. "However, the wealth of safety, activity, and combinability data generated by mirvetuximab positions this asset ahead of relevant competition."
The company is scheduled to present data for the combination of mirvetuximab and Avastin in a platinum-agnostic cohort at the American Society of Clinical Oncology (ASCO) meeting in June and longer-term results at the European Society for Medical Oncology (ESMO) meeting in September, with Chattopadhyay seeing each event as a major driver of upside.
"The sub-$400 million … stock offers a compelling entry point in our view," writes Chattopadhyay, who reiterated his Buy rating and has a $9 price target on IMGN shares.
Five analysts covering biotech stocks have thrown an opinion into the mix recently; four have IMGN at Buy, making the consensus rating a Strong Buy. Moreover, the consensus price target of $10.50 means the pros expect ImmunoGen's stock to ramp up by 120% over the next year or so. Check out other analyst ratings and targets on TipRanks.
Market value: $603.6 million
TipRanks consensus price target: $34.75 (160% upside potential)
Homology Medicines (FIXX, $13.35) is emerging as one of the key players in the adeno-associated virus (AAV)-based space. An update on a trial for HMI-102, which is being tested as a treatment for metabolic disorder phenylketonuria (PKU), is expected in the next few months. The results could have major implications for this biotechnology firm.
Oppenheimer's Matthew Biegler notes that the data should include preliminary results from patients treated in the third (high-dose) cohort, and this should be enough to provide insights on the therapy's efficacy. The analyst reminds investors that he upgraded FIXX in March, and reaffirms his belief that HMI-102 in high doses will prove effective.
Biegler notes that Homology faces headwinds related to the ongoing COVID-19 pandemic, but he remains optimistic. "While management noted some slowdown in recruitment into (the PheNIX trial) due to COVID-19, the company has taken steps to blunt the impact of the pandemic on key assessments for enrolled patients, including allowing local blood draws and home-based visits where feasible," he writes. "Management does not currently anticipate any material delays in PheNIX due to the pandemic."
"Given cash runway extending into late 2021, we believe Homology has ample time to generate proof-of-concept," adds Biegler, whose Outperform rating includes a $32 price target (120% potential upside). That's actually slightly less bullish than the analyst consensus target of $34.75.
Five analysts have unanimously issued Buy ratings on FIXX over the past quarter, translating into a Strong Buy consensus. For even more insights on FIXX and other biotech stocks, take advantage of TipRanks.
Market value: $707.3 million
TipRanks consensus price target: $12.50 (183% upside potential)
Kadmon Holdings (KDMN, $4.42) develops cutting-edge treatments for various immune and fibrotic diseases, and it designs immuno-oncology therapies. And several members of Wall Street are telling investors to get on board following a pre-NDA (New Drug Application) meeting about KD025, its treatment for chronic graft-versus-host disease (cGVHD).
"The recent successful pre-NDA meeting reaffirms our bullish view on KD025's treatment potential in (cGVHD), and reassures the company's NDA submission timeline in 4Q20," H.C. Wainwright analyst Andrew Fein writes. "While existing data package is sufficient to support the NDA, Kadmon is on track to report its updated six-month analysis from the pivotal study."
Fein also points out that there is a significant market opportunity because ibrutinib, the only currently available therapy, "does not treat real-world patients (severe patients or those with fibrotic components of the disease) and comes with toxicity baggage." KD025 not only boasts a "clean safety profile," but the oral delivery makes it convenient.
The fact that the KD025-213 study was fully enrolled "speaks to the enthusiasm of investigators and awareness in the patient community, both echoing the optimism on market uptake conveyed by our KOL," concludes Fein, who maintains a Buy recommendation and $25 price target.
That 465% return potential is several times higher than the Wall Street consensus, but few investors would complain if KDMN climbs "just" 183% over the next year. Discover what the rest of the Street has to say about Kadmon.
Market value: $654.4 million
TipRanks consensus price target: $33.25 (200% upside potential)
Atara Biotherapeutics (ATRA, $11.10) designs off-the-shelf, allogeneic T-cell immunotherapy companies, with a primary focus on treating serious diseases. The company recently released its first-quarter results, but as is often the case with biotech stocks, a Mizuho Securities analyst writes, "We believe numbers don't matter here. It's all about the data, when we're going to get it, how to think about it."
Mizuho's Salim Syed is looking forward to Phase 1a data for Atara's ATA188, a treatment for progressive multiple sclerosis (MS), in a few weeks. The analyst sees a major opportunity in what he calls a "largely … unsaturated market." ATA190, another Atara asset, also is inspiring confidence.
"The drug's autologous sister, ATA190, actually demonstrated a reversal in disability from baseline in 3/10 patients, which has never been shown before by any MS drug," Syed writes. "This is a big deal to show reversal from baseline. It means you're not just slowing decline, you're actually getting better."
Syed thinks the "risk-reward is skewed up" and has assigned a Buy rating on ATRA shares. His $38 price target remains unchanged, meaning he believes shares could more than triple over the next 12 months or so.
What does the rest of the Street have to say? Five of the six analysts that have reviewed Atara over the past three months call the stock a Buy – good for a consensus Strong Buy rating. Their collective price target implies 200% upside from current levels. Check out other analysts' price targets for ATRA on TipRanks.
Market value: $448.0 million
TipRanks consensus price target: $16.00 (229% upside potential)
Dynavax (DVAX, $4.86), which takes advantage of the body's own immune responses to create effective vaccines, is among the health and pharmaceutical companies battling the COVID-19 coronavirus. However, while it has grabbed headlines for its collaborations on developing a COVID-19 vaccine, DVAX already has an approved vaccine for hepatitis B.
For the first quarter of 2020, sales of Dynavax's Heplisav-B came in at $10.5 million. While this missed the $11.3 million consensus estimate, it surpassed H.C. Wainwright analyst Edward White's $10 million call. Sales did slip by 0.5% on a sequential basis, which was chalked up to the pandemic.
But White pointed out that in late March, Dynavax said the European Medicines Agency accepted the company's application for Heplisav-B, which has a targeted approval in the first quarter of 2021. So White remains firm on this year's goals and sees big things down the road.
"We maintain our 2021 revenue estimate of $74.4 million," he writes. "We estimate sales will rise to $236 million in 2028."
Heplisav-B also is being studied in other indications. Dynavax recently published interim data from the HBV-4 trial enrolling patients undergoing hemodialysis showing that it was both effective and well-tolerated. White is looking forward to the release of the complete results.
"Full data from the trial are still expected in 2H20 as this study has not been impacted by the pandemic; people on dialysis need to remain on dialysis despite COVID-19," he writes. "Hemodialysis represents about 16% of the hepatitis B market, and we believe increased share and overall growth of this market could drive sales of Heplisav-B."
White has a Buy rating and a $12 price target on shares, conveying high confidence – and the potential for shares to jump 147% over the next year. A small group of analysts covering the stock have dished out three Buy ratings versus no Holds or Sells over the past quarter. You can learn more about the analyst community's views on DVAX via TipRanks' consensus breakdown.
Market value: $608.3 million
TipRanks consensus price target: $59.67 (270% upside potential)
G1 Therapeutics (GTHX, $16.12) is among the very best biotech stocks to buy right now, based on analysts' estimates. GTHX is advancing promising therapies for people who are living with cancer. The company currently is on the Street's radar thanks to the progress of trilaciclib, its drug that can potentially improve outcomes for patients that have already received chemotherapy.
G1 is preparing to file an NDA for trilaciclib in the second quarter, and a Marketing Authorisation Application (MAA) in Europe in the fourth quarter of 2020, for myelopreservation in small cell lung cancer (SCLC). Needham analyst Chad Messer points out that GTHX already has all of the necessary data, and with COVID-19 not expected to cause any delays, the company is well on its way ahead of the third-quarter Prescription Drug User Fee Act (PDUFA) review date.
"Trila was granted Breakthrough status by the FDA based on its ability to preserve the bone marrow of patients receiving marrow toxic chemotherapy," Messer writes. "G1 plans on retaining significant US ownership for trila and is seeking a partner for marketing ex-US."
Messer lists a number of potential near-term catalysts: "G1 has multiple near-term drivers including expected feedback from the FDA on a registrational path for trilaciclib in 2Q. Trilaciclib, G1T38, or G1T48 could succeed in clinical trials. These drugs could get approved and exceed market expectations. G1 Therapeutics could partner these drugs on favorable terms.
The analyst, who has a $74 price target, joins three other analysts in issuing Buy-equivalent ratings over the past three months. Get the full analyst consensus and price target breakdown for GTHX on TipRanks.
Maya Sasson is a content writer at TipRanks, a comprehensive investing platform that tracks more than 5,000 Wall Street analysts as well as hedge funds and insiders. You can find more of their stock insights here.