Let’s talk about biotech. These stocks present a unique set of attractions for investors, especially investors willing to shoulder some extra risk. To start with, biotech firms have a famously high overhead, and equally long lead-times for product development. But that is balanced by the opportunity for huge gains – sales profits, and share appreciation – when a new drug shows strongly positive clinical trial results, or receives regulatory approval for commercialization.
To give an example, just last week Ambrx Biopharma saw its stock spike by a massive 1007% in one day. That tremendous gain came on the back of solidly positive results from a Phase 2 clinical study in the treatment of metastatic breast cancer. The company’s drug candidate got a boost – but the shareholders were the immediate winners, as their holdings skyrocketed in value.
Not every biotech stock will jump by 1000%, but it’s not uncommon for these stocks to double on positive news. The risk, of course, is that these stocks can fall just as far should a clinical trial fail or a government regulator deny approval. Fortunately for biotech investors, the ranks of Wall Street’s stock analysts include experts in the biotech field – who know how to tell the difference.
And that brings us to Needham analyst Ami Fadia who has been looking at two clinical-stage biotech stocks that show potential to double, should their upcoming catalysts show positive results. Using TipRanks’ database, we found out that the rest of the Street is also on board, as each boasts a “Strong Buy” consensus rating.
Theseus Pharmaceuticals, Inc. (THRX)
We’ll start our look with Theseus Pharmaceuticals, a clinical-stage company focused on cancer research. Specifically, Theseus is working on the development of tyrosine kinase inhibitors (TKIs), as a novel therapy with potential to ‘outsmart’ treatment-resistant cancers.
Theseus’ development pipeline currently has three tracks, two in discovery and preclinical phases, and one, THE-630, is undergoing human clinical trials.
THE-630 is a potential treatment for gastrointestinal stromal tumors (GIST) that have proven resistant to existing treatments. The drug candidate is currently undergoing a Phase 1/2 dose escalation and expansion trial, with the Phase 1 site activation completed during 3Q22, and patient enrollment ongoing. The company expects to release initial safety and pharmacokinetic data during 2Q23, with additional Phase 1 data to be released in 4Q23.
At the pre-clinical stage, THE-349 has been meeting its development milestones, and Theseus expects to submit the IND for FDA approval during 2H23.
Based on the potential of the company’s drug candidates, Needham’s Ami Fadia believes that now is the time to get in on the action.
“While 2L GIST has been a tough drug development space, we believe THE-630 has the potential to beat [Pfizer’s] Sutent in a H2H trial in 2L GIST and has a path to approval in 5L, as it inhibits all known activating and resistance mutations pre-clinically. We estimate ~$1.2B in sales in 2035… THE-349, also developed using the PRA, hits all single, double and triple mutants desired for a 4th gen EGFR+ NSCLC inhibitor pre-clinically. We estimate sales of >$2Bin 2035,” Fadia opined.
Those are solid sales estimates, and Fadia uses them to back up her Buy rating. Her $22 price target suggests that Theseus has a robust 275% upside ahead of it. (To watch Fadia’s track record, click here)
While there are only 3 recent analyst reviews on record for THRX, they all agree that it’s a Buy – making the Strong Buy consensus rating unanimous. The shares are trading for $5.87 and their $20.67 average price target indicates an impressive 252% upside potential on the one-year horizon. (See THRX stock forecast on TipRanks)
Cogent Biosciences, Inc. (COGT)
The second biotech stock we’ll look at, Cogent Biosciences, is working on precision therapies for genetically driven diseases, including various cancers. The company has one drug candidate, bezuclastinib, undergoing several concurrent clinical trials in the treatment of both advanced and nonadvanced systemic mastocytosis as well as gastrointestinal stromal tumors.
Cogent has recently initiated a major clinical trial; the PEAK, a Phase 3 study of bezuclastinib in combination with sunitinib and compared to sunitinib as a monotherapy, is underway against GIST. The first data sets from the PEAK trial will be available during 1H23.
Bezuclastinib is also undergoing trials in the treatment of advanced systemic mastocytosis (AdvSM). The APEX Phase 2 study is ongoing, and early data from that trial was used to support the protocol for the SUMMIT trial, randomized, double-blind, placebo-controlled, global, multicenter, Phase 2 clinical trial of bezuclastinib in patients with nonadvanced systemic mastocytosis (NonAdvSM). Data from SUMMIT is expected to be ready for presentation in 2H23.
Needham’s Fadia looks at the company’s sales potential and likes what she sees. Noting that the clinical trials are underway and promising, she writes: “In AdvSM, bezuclastinib can have similar efficacy with better safety than BPMC’s Ayvakit, particularly on ICH as supported by APEX data. In non-AdvSM, bezuclastinib can have better efficacy than Ayvakit with similar safety. We model 2030 sales of >$1.2B.”
“In 2L GIST, bezuclastinib’s mutational coverage is complementary to current SoC Sutent, such that their combo should improve outcomes over Sutent, provided safety is acceptable. We model 2030 sales of ~$300M,” the analyst added.
With potential sales by the end of the decade reaching $1.5 billion or better, Fadia rates COGT shares a Buy. She sets her price target at $24, implying room for ~100% share appreciation in the next 12 months.
All in all, Cogent’s 3 most recent analyst reviews are all Buys, for a unanimous Strong Buy consensus, and the $24 price target matches Fadia’s. (See COGT stock forecast on TipRanks)
To find good ideas for biotech stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Source: https://finance.yahoo.com/news/investing-2-biotech-stocks-could-012416401.html