The bear markets have arrived. The Dow Jones and the S&P 500 are officially in correction territory. Traders were spooked last Friday – Dec 14 – by the Chinese government data predicting slowing growth, and this week they are waiting for the US Federal Reserve to announce its interest rate decision.
In a trading environment like this, risk is inevitable. So why not balance the risk with the highest possible returns? The biotech sector is a logical place to look, for while many of the smaller companies are highly risky, they also offer great returns when a new drug is approved for commercial use. In addition, small biotechs are sometimes used by the larger drug companies as ‘farm teams’ in the development process. As Cowen analyst Phil Nadeau (Track Record & Ratings) describes, “Large caps are cash rich but pipeline poor. We think they'll look to the small and mid-cap to fill those pipelines.”
TipRanks can help you sort through the stock market, to find pharmaceutical companies with high upside potential and recent bullish reports from the market analysts. Let’s take a look at three biotechs that fit the profile.
AnaptysBio, Inc. (ANAB – Research Report)
AnaptysBio is small (market cap less than $2 billion) pharmaceutical developer focused on creating therapeutic antibodies for the treatment of severe chronic diseases. The theoretical foundation of this approach is simple: the company seeks to develop non-naturally occurring antibodies that will target the proteins involved in the biological processes of diseases.
Currently, AnaptysBio has three drugs in various stages of the development pipeline. The one farthest along, etokimab, is in late Phase-2 testing and shows promise in three applications: dermatitis, asthma, and chronic rhinosinusitis.
In the Q3 earnings report presented in early November, company SEO Hamza Suria commented on etokimab’s status, and the promise of new developments next year: “We continued to advance the clinical development of our wholly-owned etokimab programs for severe inflammatory disease indications during the third quarter of 2018. ... We look forward to further advancement of our wholly owned pipeline with four additional readouts from ongoing clinical trials of etokimab and ANB019 during 2019.”
In the numbers, AnaptysBio ended the Q3 with over $500 million cash on hand, reported $5 million in revenue, and showed a loss of nearly $17 million, or 66 cents per share. The company expects to burn through that cash by the end of 2020, but also anticipates positive results from clinical trials to encourage fundraising.
Market analysts agree with the generally positive outlook. Stifel’s Derek Archila (Track Record & Ratings) said on Nov 11, “[W]e do believe shares could start working as we get closer to important clinical readouts for etokimab in atopic dermatitis and chronic rhinosinusitis, both expected in the 2H19. … Ultimately, we remain positive on ANAB shares over the next ~12 months and think etokimab's emerging profile could be very competitive relative to existing treatment options within blockbuster indications.” His price target of $127 suggests a 95% upside potential to this stock.
More recently, on Dec 7, Cantor Fitzgerald’s Eliana Merle (Track Record & Ratings) specifically noted this company’s potential once the clinical trial results start coming in: “We continue to believe the recent pullback represents an attractive opportunity into major 2H 2019 readouts.” Her price target, $140, is more aggressive and implies an upside of 115%.
The analyst consensus on ANAB is a ‘Strong Buy,’ based on three recent ‘buy’ ratings. The average price target and upside are very close to Merle’s, at $139 and 112%.
Nektar Therapeutics (NKTR – Research Report)
Nektar has a broader pipeline than AnaptysBio, with drugs in development and on the market to treat chronic pain, auto-immune conditions, and several cancers. Interestingly, Nektar’s approved drugs are marketed in partnership with other, larger, pharmaceutical companies, with each agreement allowing numerous benefits: the partner acquires rights to manufacture and market a new drug, while Nektar receives access to the larger partner’s marketing resources, plus royalties and commissions which provide a steady income stream.
The business model allows Nektar to keep a sharper focus on its development pipeline. There are eight drugs currently in Nektar’s pipeline. The most important is NKTR-181, a non-addictive opioid painkiller intended to treat chronic back pain. The non-addictive nature of NKTR-181 will give it a real marketing advantage once it is approved for general use; the opioid addiction epidemic is big news, so an alternative treatment for pain issues will be welcome.
Nektar is also excited about NKTR-214, an immuno-oncology drug in development. The company is partnering with Bristol-Myers Squibb and currently has -214 in Phase 3 trials for the treatment of melanoma and renal cell carcinoma. Immuno-oncology drugs prime the patient’s own immune system to fight cancer and are on the cutting edge of the field.
Mizuho analyst Difei Yang (Track Record & Ratings) noted NKTR-214 in her comments on Nov 12, when she said, “We continue to see merit in the NKTR-214/Opdivo combo. We expect continued data updates in various tumor settings over the coming months to drive NKTR shares.” Her note remains relevant, and her price target of $81 suggests a 138% upside for NKTR.
More recently, on Dec 13, Goldman Sachs’ Paul Choi (Track Record & Ratings) gave NKTR a $62 price target – an 82% upside – and cited NKTR-214: “Data readouts over the next 12-24 months should help to rebuild the case for NKTR-214's commercial potential across an array of tumor types.” He believes that the coming year will see a positive reassessment of this stock.
NKTR holds an average price target of $77 currently, implying a 125% upside from the current share price of $34. Analysts are bullish on the future value of the company’s pipeline drugs, and give a consensus of ‘Moderate Buy.’
Revance Therapeutics, Inc. (RVNC – Research Report)
Revance’s focus is on issues of skin and connective tissues. The company has products in development for the treatment of Cervical Dystonia (a painful spasming condition of the neck and shoulder muscles) and Plantar Fasciitis (a deterioration of the connective tissue on the bottom of the foot). The product with the most immediate promise is RT002, in Phase 3 clinical trials. RT002 is a botox-derived injectable drug intended to treat skin wrinkles in the glabellar area – the spot between the eyebrows and above the bridge of the nose.
Revance released results of the SAKURA-3 trial on RT002 on Dec 4, showing better than anticipated results. The findings confirmed the drug’s potential in aesthetic medicine. The company plans to pursue further tests of RT002 on other areas of the forehead and upper face.
RT002 may sound too niche to be highly profitable, but earlier this month Revance announced a marketing license agreement with China’s Fosun Pharma for manufacture, distribution, and marketing of RT002 in mainland China, Hong Kong, and Macau. Revance will receive $30 million up front in the agreement, along with development and sales milestone payments up to $230 million. Tiered double-digit royalty payments will provide Revance with income on future sales of RT002 in China.
The analysts have taken note of Revance’s success with RT002. Difei Yang (quoted above) wrote on Dec 7, about the Fosun agreement: “We see the deal as attractive and one that could offer additional upside down the road.” She added that the next step would be approval of the drug for regular use; from an investor’s perspective, that will be the most important factor in the share price. Yang gave RVNC a target price of $42, suggesting a 115% upside potential.
On Dec 4, in the wake of the SAKURA-3 and Fosun announcements, Cantor Fitzgerald’s Louise Chen (Track Record & Ratings) reviewed RVNC. She was impressed enough to give this stock a $50 target, for an impressive 156% upside. In her comments, she said, “We expect upward earnings revisions to levels not reflected in sell-side consensus expectations to drive shares higher. These could come from positive news flow for Revance’s key programs in development.”
Revance currently holds a ‘Moderate Buy’ analyst consensus, based on those two most recent ratings. The stock’s average price target is $41, giving it an upside potential of 116%.
Author: Michael Marcus
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.