Biotech stocks are some of the most volatile for investors to include in their portfolio. And that volatility can be hard to predict. Biotech companies don’t have a firm correlation with the overall economy. And what can add to the challenge is that many of these companies are small-cap companies that are not well-known names.
These small biotech stocks may shoot higher based on a vaccine or drug candidate that gets national attention. But these small-cap stock also reflect the adage of letting the buyer beware. The stark reality for many investors is that the vast majority of these treatments never make it past clinical trials, and that means that a stock that goes up rapidly can move down just as fast.
We’re seeing that right now with the multitude of companies competing in the race towards a vaccine and/or treatment for Covid-19 and the novel coronavirus that causes the disease. And if you’ve been good at timing the market, you could have made some good money on some of these candidates.
Of course, if you held the stock too long, you could have lost your shirt as well.
That doesn’t mean. However, that buy and hold investors should avoid the biotech sector altogether. There are still some attractively priced small-cap biotech companies working on treatments for a range of conditions that provide them with a large addressable base. And we’ve identified seven of these stocks in this special presentation.
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- ImmunoGen
- G1 Therapeutics
- Dynavax
- Alexion Pharmaceuticals
- Sarepta Therapeutics
- Vertex Pharmaceuticals
#1 - ImmunoGen (NASDAQ:IMGN)
ImmunoGen (NASDAQ:IMGN) has effectively managed its balance sheet despite not yet having brought a product to market. The company has done this by leveraging its technology in a variety of partnerships with a broad range of biopharmaceutical companies, including Jazz Pharmaceuticals (NASDAQ:JAZZ), Amgen (NASDAQ:AMGN), Sanofi (NASDAQ:SNY), and Bayer (OTCMKTS:BAYRY).
More than likely, IMGN stock is trading flat for the year because investors are focusing on biotechs with direct exposure to the novel coronavirus's treatment. However, you can see the company has gained over 130% in the last 12 months when you back out a little bit. That’s a gain that investors won’t ignore once they start looking.
And ImmunoGen does have its own pipeline of attractive candidates. The company is specifically working on developing antibody-drug conjugate (ABC) therapeutics as a form of cancer treatment. ImmunoGen has two candidates in Phase 3 trials and another two candidates in Phase 2 trials.
About ImmunoGen
ImmunoGen, Inc, a commercial-stage biotechnology company, focuses on developing and commercializing the antibody-drug conjugates (ADCs) for cancer patients. The company's product candidates include mirvetuximab soravtansine, an ADC targeting folate-receptor alpha (FRa), for the treatment of platinum-resistant ovarian cancer; and a cell-surface protein expressed in various epithelial tumors, including ovarian, endometrial, and non-small-cell lung cancers, as well as Pivekimab sunirine, a CD123-targeting ADC that is in Phase II clinical trial for treating acute myeloid leukemia and blastic plasmacytoid dendritic cell neoplasm.
Read More - Current Price
- $31.23
- Consensus Rating
- Hold
- Ratings Breakdown
- 0 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $31.04 (0.6% Downside)
#2 - G1 Therapeutics (NASDAQ:GTHX)
One of the most investable fields in the biotech sector involves cancer research. And that’s the segue to introduce G1 Therapeutics (NASDAQ:GTHX). Analysts are encouraged by the possibility for its lead drug candidate, trilaciclib. In fact, they’ve given GTHX stock a $61.50 price target over the next 12 months. This would be a gain of nearly 200% from current levels. GTHX stock is down nearly 25% in the year-to-date.
Trilaciclib is designed to improve the outcomes for patients that have received chemotherapy. The company began implementing a new drug application (NDA) in the fourth quarter of 2019. On its most recent earnings call, company executives emphasized that the company was on track to complete that process in the second quarter. The company also said the FDA was doing a great job of balancing existing applications with the demand for fast-track approval of potential Covid-19 treatments and/or vaccines.
Approval of trilaciclib would be a key in buying time for the company to get some of its other early-stage candidates through the pipeline. This is particularly important because, as many of these small biotech companies, G1 Therapeutics is not yet profitable.
About G1 Therapeutics
G1 Therapeutics, Inc, a commercial-stage biopharmaceutical company, engages in the discovery, development, and commercialization of small molecule therapeutics for the treatment of patients with cancer in the United States. The company offers COSELA, which helps to decrease incidence of chemotherapy-induced myelosuppression in adult patients treated with a platinum/etoposide-containing regimen or topotecan-containing regimen for extensive stage small cell lung cancer.
Read More - Current Price
- $7.15
- Consensus Rating
- Hold
- Ratings Breakdown
- 0 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $4.00 (44.1% Downside)
#3 - Dynavax (NASDAQ:DVAX)
The next small-cap stock on our list is Dynavax (NASDAQ:DVAX). Unlike the other companies on this list, Dynavax does have indirect exposure to a Covid-19 vaccine. The company’s CpG1018 adjuvant is being used by several other drugmakers who have vaccine candidates.
On the one hand, this could be a tremendous boost for the stock, which is already up 10% for the year. Essentially, Dynavax is getting several bites at the apple. One of its most encouraging opportunities is stemming from its partnership with Sinovac. DVAX stock got a lift on news that Sinovac’s vaccine candidate was showing early promise. But remember, we’ve seen this movie so far this year with companies such as Novavax (NASDAQ:NVAX), Gilead Sciences (NASDAQ:GILD), and Moderna (NASDAQ:MRNA).
So it’s important to evaluate Dynavax on the strength of its existing portfolio. And unlike some small-cap firms, Dynavax does have an approved hepatitis B vaccine on the market. Sales of its Heplisav-B missed analysts’ revenue expectations of $11.3 million in the first quarter. However, the miss could easily be chalked up to declining demand due to the pandemic.
About Dynavax Technologies
Dynavax Technologies Corporation, a commercial stage biopharmaceutical company, focuses on developing and commercializing vaccines in the United States. It markets HEPLISAV-B, a hepatitis B vaccine for prevention of infection caused by all known subtypes of hepatitis B virus in age 18 years and older in the United States and Europe.
Read More - Current Price
- $12.17
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 2 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $22.00 (80.8% Upside)
#4 - Alexion Pharmaceuticals (NASDAQ:ALXN)
With a market cap of over $25 billion, Alexion Pharmaceuticals (NASDAQ:ALXN) is the first large-cap company to make this list. Alexion is involved in the treatment of rare conditions. That’s why many of the drugs that they have on the market fly under the radar of many Americans.
Alexion is a polarizing stock. Overall, it has a price target that suggests the stock has a strong upside from its current level. And the company recently received support for that assessment by resolving a patent dispute that will keep its lead drug patent protected through 2025. The company has several drugs on the market and more in its pipeline.
Some investors are not as keen on the company’s debt level caused by acquisition on the downside. Like all biotech stocks, ALXN stock does not come without risk. However, in this case, it’s a risk supported by-products that deliver actual revenue. In fact, the company posted record revenue in its most recent quarter.
About Alexion Pharmaceuticals
Alexion Pharmaceuticals, Inc develops and commercializes various therapeutic products. The company offers ULTOMIRIS for the treatment of paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrome (aHUS); and SOLIRIS for the treatment of PNH, aHUS, generalized myasthenia gravis (gMG), and neuromyelitis optica spectrum disorder (NMOSD).
Read More - Current Price
- $182.50
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#5 - Sarepta Therapeutics (NASDAQ:SRPT)
Sarepta Therapeutics (NASDAQ:SRPT) is a good example of how fast biotech stocks can move. On June 8, SRPT stock climbed over 8% on positive news regarding its experimental gene therapy for a rare muscular dystrophy type. Early results from the early-stage clinical trial showed that patients receiving a higher dose manifested greater benefits than those receiving a lower dose.
Sarepta is a leader in the area of gene therapy. The company has made a name for itself based on its novel approach for treating Duchenne muscular dystrophy (DMD). This latest treatment is being developed to treat a rare condition with a much smaller addressable market than those with DMD. However, the results are further validation of the company’s overall gene therapy platform.
The aforementioned drug candidate, SRP-9003, is one of more than 20 drug candidates Sarepta has in its pipeline. The company has completed enrollment for a Phase 3 functional study for an additional candidate SRP-9001. According to Kiplinger, the Swiss multinational Roche Holdings (OTCMKTS:RHHBY) has purchased rights for the drug, which could bring Sarepta over $2.85 billion in revenues.
About Sarepta Therapeutics
Sarepta Therapeutics, Inc, a commercial-stage biopharmaceutical company, focuses on the discovery and development of RNA-targeted therapeutics, gene therapies, and other genetic therapeutic modalities for the treatment of rare diseases. It offers EXONDYS 51 injection to treat duchenne muscular dystrophy (duchenne) in patients with confirmed mutation of the dystrophin gene that is amenable to exon 51 skipping; VYONDYS 53 for the treatment of duchenne in patients with confirmed mutation of the dystrophin gene that is amenable to exon 53 skipping; AMONDYS 45 for the treatment of duchenne in patients with confirmed mutation of the dystrophin gene; and ELEVIDYS, an adeno-associated virus based gene therapy for the treatment of ambulatory pediatric patients aged 4 through 5 years with duchenne with a confirmed mutation in the duchenne gene.
Read More - Current Price
- $110.86
- Consensus Rating
- Buy
- Ratings Breakdown
- 21 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $181.33 (63.6% Upside)
#6 - Vertex Pharmaceuticals (NASDAQ:VRTX)
Last but certainly not least, we will take a look at Vertex Pharmaceuticals (NASDAQ:VRTX). Vertex is the industry leader in the treatment of cystic fibrosis. It has four drug treatments currently on the market. It’s most recent addition is Trikafta. In the first quarter, sales of Trikafta were largely responsible for boosting the company’s revenue up to a record high of $1.52 billion. What makes Trikafta so appealing is that, unlike some of the company’s other drug candidates, it can treat 90% of patients with cystic fibrosis. That’s a huge addressable market and one that gives Vertex a near-monopoly.
Biotech companies are frequently measured on what’s next in Vertex's case that appears to be gene editing. To that end, Vertex recently acquired Exonics Therapeutics and is leveraging that in a partnership with Crispr Therapeutics (NASDAQ:CRSP).
About Vertex Pharmaceuticals
Vertex Pharmaceuticals Incorporated, a biotechnology company, engages in developing and commercializing therapies for treating cystic fibrosis (CF). It markets TRIKAFTA/KAFTRIO for people with CF with at least one F508del mutation for 2 years of age or older; SYMDEKO/SYMKEVI for people with CF for 6 years of age or older; ORKAMBI for CF patients 1 year or older; and KALYDECO for the treatment of patients with 1 year or older who have CF with ivacaftor.
Read More - Current Price
- $451.23
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 18 Buy Ratings, 9 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $499.12 (10.6% Upside)
In the introduction to this presentation, we pointed out some of the inherent risks in biotech stocks. One of the risks that we left off was the balance sheet risk. Companies will flood their balance sheet with debt to invest in drug treatments or vaccines in many cases. And when these products don’t make it through clinical trials, it can financially hamstring these companies for years to come.
And speaking of time, that’s another consideration for many investors. The risk-reward dynamic for investors is magnified because clinical trials take time. As much as vaccine candidates are “fast-tracked,” it will – and should – take time to bring a safe, effective vaccine to market.
That’s another important point to remember about the stocks in this presentation. They are all showing sound management of their balance sheets. This means that there is less risk for investors, even if it may be several years before these companies bring a product to market.
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