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All Contents © 2020The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| February 5, 2019
Biotech stocks are a staple among growth investors. The rewards can be staggering – prices on biotechnology shares can literally double overnight – but the risk is just as high. It’s not unusual for these stocks to be cut in half or worse if drug-trial data disappoints or a drug application is rejected.
Thus, proper due diligence is critical, and that includes tapping the experts for information about these often difficult-to-gauge stocks.
Mizuho Securities has recently put out an analyst report highlighting its top biotechnology picks for 2019. And thanks to analyst ranking service TipRanks, we can see that the report’s author, Managing Director Difei Yang, has a strong track record of stock recommendations. Yang is ranked in the top 250 out of more than 5,100 tracked analysts.
Yang writes, “We favor innovative and ground-breaking therapies in 2019; emerging technologies such as gene therapy and cell therapy could command substantial premiums from large cap pharma/biotech if impressive results are shown in historically difficult-to-treat conditions.”
As Yang points out, pharma M&A is off to a strong start in 2019 with a number of blockbuster deals. They include Bristol-Myers Squibb’s (BMY) $74 billion acquisition of Celgene (CELG), and Eli Lilly’s (LLY) $8 billion buyout of Loxo Oncology (LOXO). “In our view, the transactions underscore the persistent need by large pharma to fuel continued growth and replenish R&D pipelines via M&A,” she writes.
Here are Mizuho’s top nine biotech stocks to buy right now. Many of them can stand on their own but look even better as potential buyout targets.
Data is as of Feb. 4, 2019.
Market value: $2.1 billion
TipRanks consensus price target: $82.00 (76% upside potential)
TipRanks consensus rating: Strong Buy
Yang’s first biotech stock pick for 2019 is Aerie Pharmaceuticals (AERI, $46.50), an ocular-focused company that has developed two groundbreaking glaucoma drugs: Rhopressa (launched in 2018) and Rocklatan, which is gearing up for its PDUFA goal date of March 14. This is the deadline by which the U.S. FDA must either approve or reject the company’s New Drug Application.
If the FDA approves Rocklatan, that, along with the subsequent launch, would be the most important catalyst for AERI in 2019.
“Blockbuster potential in Rocklatan following strong Rhopressa launch in 2018,” cheers Yang, who says Rocklatan has greater revenue potential than Rhopressa and could become a first-line therapy for patients. “Limited competition in the glaucoma space, a solid first product launch, strong management execution, coupled with an attractive valuation make Aerie one of our top picks in 2019.”
Yang’s price target of $77 implies 66% upside from current levels. The analyst also is looking for peak sales of $305 million (5% U.S. market share) for Rhopressa and $561 million for Rocklatan (8% U.S. market share) in 2025.
For more information on Aerie’s shares, get a free AERI Research Report from TipRanks.
Market value: $327.8 million
TipRanks consensus price target: $23.67 (74% upside potential)
Concert Pharmaceuticals (CNCE, $13.60) has a proven drug-discovery platform with multiple key catalysts coming up in 2019. CNCE’s technology develops deuterated molecules by substituting deuterium for hydrogen atoms. The increased stability of deuterium can lead to better efficacy, safety and tolerability.
This biopharmaceutical company applies its DCE Platform to identify previously studied compounds, including already approved drugs, that can be improved by deuterium chemistry.
Concert already boasts two wholly owned assets (CTP-543 for alopecia areata and CTP-692 for schizophrenia) and one partnered program (AVP-786 for Alzheimer’s agitation). Investors should be looking receive important data on both CTP-543 and AVP-786 this year.
Concert expects top-line data from the 12 mg cohort in a Phase 2 trial of CTP-543 to come during the third quarter. “The 12mg dose could show higher efficacy vs. 8mg and we will be looking for a consistent safety profile,” Yang writes.
Meanwhile, Phase 3 data for AVP-786 is expected following the scheduled trial completion in April. “With two wholly owned assets, one partnered program and cash value at ~$7/share, we see strong value in CNCE,” writes Yang, who has a price target of $26, suggesting 91% upside. For further stock insights, turn to TipRanks’ CNCE Research Report.
Market value: $465.8 million
TipRanks consensus price target: $30.60 (111% upside potential)
Like Aerie, Nightstar Therapeutics (NITE, $14.50) also focuses on treatments for eye diseases. But Nightstar’s specialization is developing gene therapies for patients with rare inherited retinal diseases.
Nightstar has released positive data for two treatments: NSR-REP1 for choroideremia (CHM), in Phase 3 trials and NSR-RPGR for X-linked retinitis pigmentosa (XLRP). “We see strong potential in the company’s broad pipeline of retinal disease indications; an area where we believe gene therapy will play an important role in the coming years,” Yang writes.
Indeed, in 2018, Nightstar presented data from the XLRP program that showed early signs of sustained efficacy. A Phase 2/3 expansion study was initiated in the fourth quarter of last year.
“A final therapeutic dose remains (to be decided) but if results continue to be positive, the company could cement a leadership status in retinal gene therapy,” Yang writes.
Yang actually has a comparatively low price target of $22, implying “just” 52% upside. This is based on conservative assumptions for NSR-REP1 (70% probability of success, $210 million peak sales in 2028) and NSR-RPGR (20% probability of success, $385 million peak sales in 2028). Check out other analyst targets in TipRanks’ NITE Research Report.
Market value: $1.1 billion
TipRanks consensus price target: $34.00 (34% upside potential)
TipRanks consensus rating: Moderate Buy
Groundbreaking biotech Audentes Therapeutics (BOLD, $25.39) uses gene therapy technology to develop treatments for people with rare muscle diseases.
“Audentes has shown impressive data with the lead AT-132 gene therapy program for the treatment of X-linked myotubular myopathy, an ultra-rare neuromuscular disorder,” Yang writes. XLMTM is caused by mutations to the myotubularin (MTM1) gene, and usually is characterized by muscle weakness that can cause respiratory failure.
In 2018, Audentes reported positive data from the AT132 program that showed sustained improvements in neuromuscular and respiratory function. During the study, three patients even achieved ventilator independence.
Now BOLD is expanding into treatments for Pompe disease and Crigler-Najjar, as well as another frontier, Yang writes. “2019 is expected to kick off with a regulatory update on AT132 in 1Q19 including details on potential registration pathways. Audentes also will disclose a new large neuromuscular indication in 2Q19.”
Yang says it’s important for Audentes to advance the product pipeline in 2019 and show additional success beyond AT132.
A $45 price target suggests upside potential of 77% from current levels. Find out more from TipRanks in its BOLD Research Report.
Market value: $7.5 billion
TipRanks consensus price target: $79.00 (87% upside potential)
Nektar Therapeutics (NKTR, $42.24) develops immuno-oncology compounds including NKTR-214, which has the potential to help treat multiple types of cancer.
Nektar is developing the drug with Bristol-Myers Squibb following a massive $1.85 billion investment from the global biopharma company in 2018. As part of the deal, Nektar can receive up to $1.8 billion in milestone payments.
“A broad phase 3 clinical program across more than 20 indications in 9 tumor types is now underway and management recently announced a renewed focus on lung cancer,” Yang writes. With such a broad clinical development program, Nektar can take many shots on goal.
Data from the PIVOT Phase 1/2 trial studying the treatment’s efficacy against non-small cell lung cancer is expected later this year at the European Society for Medical Oncology Congress later this year, while data in other cancer indications will be presented at various conferences throughout 2019.
Overall, Yang sees upside of more than 90%, with a price target of $81. You can check out more analysis in TipRanks’ NKTR Research Report.
Market value: $4.6 billion
TipRanks consensus price target: $51.00 (3% upside potential)
Cancer company Novocure (NVCR, $49.73) is pioneering a novel therapy for solid tumors called tumor-treating fields, or TTFields. These are low-intensity, alternating electric fields that disrupt the division of cancer cells. Wang writes that “NovoCure’s product Optune utilizes Tumor Treating Fields as a unique approach to treat solid tumors by combining physics and biology.”
Yang says Optune has already shown the ability to provide long-term survival benefits for patients with newly diagnosed glioblastoma (GBM), a cancer with limited treatment options. The company also has reported impressive results in the treatment of mesothelioma, the first indication outside of the brain, validating potential in additional solid tumor indications, including non-small cell lung cancer.
Catalysts for 2019 include the potential FDA approval and commercial launch of Optune in mesothelioma, and GBM reimbursement approval by Medicare, Yang writes.
NVCR shares have already more than doubled in the last year, but Yang sees more upside to come. “We see substantial value in this med-tech/biotech’s broad pipeline of indications currently in clinical development,” Yang writes. She has a $51 price target on the stock.
Find out more from TipRanks in its NVCR Research Report.
Market value: $670.9 million
TipRanks consensus price target: $17.00 (214% upside potential)
Akebia Therapeutics (AKBA, $5.41) is focused on treating kidney disease and currently sports two primary portfolio products: vadadustat, a HIF-PH inhibitor for the treatment of anemia related to chronic kidney disease that’s in Phase 3 trials; and Auryxia, an iron deficiency anemia treatment that it picked up in a 2018 merger with Keryx Biopharmaceuticals.
Auryxia’s performance was solid in 2018, driven by use for electrolyte disorder hyperphosphatemia. The drug’s market share has grown from 2.2% to 6.4% in 28 months.
“We expect 2019/2020 to be an important year for Akebia with multiple catalysts to watch for,” Yang writes. Key catalysts include Auryxia performance throughout the year, and vadadustat data readouts; Japan Phase 3 data for both dialysis-dependent and non-dialysis patients is expected in 2019.
Yang’s $17 price target implies the stock will more than triple. She projects Auryxia peak sales of $312 million in 2028, and a 70% probability of success for vadadustat, with commercialization starting in 2022. Check out more analysis of Akebia in TipRanks’ AKBA Research Report.
Market value: $4.9 billion
TipRanks consensus price target: $72.50 (30% upside potential)
FibroGen (FGEN, $55.78) creates first-in-class medicines to treat chronic and life-threatening conditions such as anemia, idiopathic pulmonary fibrosis (IPF) and pancreatic cancer.
Currently, Fibrogen is pushing two products through clinical development: roxadustat – a competitor to Akebia’s vadadustat that’s already approved in China – for the treatment of anemia; and pamrevlumab, a monoclonal antibody that inhibits the connective tissue growth factor in chronic fibrotic disorders and in cancer.
Yang is betting on the upcoming major adverse cardiovascular events (MACE) analysis, expected in the first half of the year (likely around April), to be a major catalyst for shares. With good data, Fibrogen could cement roxadustat as a “first-in-class HIF-PH inhibitor for the treatment of anemia related to (chronic kidney disease),” she writes.
A price target of $74 implies 33% upside from here. Discover more about this lesser-known stock in the TipRanks’ FGEN Research Report.
Market value: $1.9 billion
TipRanks consensus price target: $64.50 (56% upside potential)
The final pick in Mizuho’s list of top biotech stocks to buy: Zogenix (ZGNX, $42.82).
Zogenix has “strong potential in rare epilepsy disorders,” Yang writes. That’s with a potential FDA approval coming in 2019 for Dravet syndrome – a type of epilepsy with seizures triggered by hot temperatures or fever.
The drug in question is called Fintepla, which Yang says is “highly differentiated from competitor products (including Epidiolex) with the potential for higher pricing and market share.”
Rival product Epidiolex, by GW Pharmaceuticals (GWPH), launched in the U.S. on Nov. 1, 2018. Investors should keep an eye on product performance in the first half of 2019, but Yang is confident that Fintepla still can become the standard of care over time.
Upcoming catalysts in 2019/2020 include the completion of the NDA submission for Fintepla during the first quarter, as well as potential FDA approval and a subsequent U.S. launch that could occur as soon as Q3.
The Mizuho analyst sees 51% upside ahead, targeting a price of $69. For more insights on Zogenix, turn to TipRanks’ ZGNX Research Report.
Harriet Lefton is head of content at TipRanks, a comprehensive investing tool 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.