It’s been a tough year for small- and mid-cap biotech stocks.
The SPDR S&P Biotech exchange-traded fund (ticker: XBI), which tracks the biotech sector with a focus on small- and mid-cap names, is down 7.4% in 2021, while the S&P 500 is still up about 17%.
That’s despite the extraordinary performance this year of some large-cap biotechs, notably Moderna
stock (MRNA), up more than 310% this year, and BioNTech
(BNTX), up more than 320% this year.
Some investors and analysts have argued in recent months that the smaller end of the biotech sector is due for a comeback. Earlier this month, Barron’s noted that there are signs of substantial value hiding in biotech, with Pfizer
(PFE) and Sanofi
(SNY) each paying rich premiums to snap up biotechs in August.
In that feature, we highlighted five biotechs that investors and analysts told us had serious breakout potential. Now we’re back with four more names in the mid-cap biotech space that analysts love.
This time, we decided to focus on opportunities among the biotech names that have seen their share prices fall the farthest this year. We picked these stocks by screening the constituents of the SPDR S&P Biotech ETF for the 20 stocks that have seen the steepest declines this year, and that currently have market capitalizations between $2 billion and $10 billion.
Among those 20 names, we looked for the four stocks whose average analyst target prices, as calculated by FactSet, implied the largest percentage gain in the shares. We came up with four relatively small biotechs for which analysts hold high hopes. Some of their share prices have been driven down by bad company news, while others seem to have drifted down along with the rest of the sector.
The stocks are Apellis Pharmaceuticals (APLS), Rocket Pharmaceuticals (RCKT), TG Therapeutics (TGTX), and Turning Point Therapeutics (TPTX).
We excluded one stock from the screen, ImmunityBio
(IBRX), because FactSet only tracks one analyst who covers it.
Apellis Pharmaceuticals , a commercial-stage biotech developing drugs that target a part of the immune system known as the complement system, has seen its shares fall 42% so far this year. That drop came this month, when the stock fell 37% on Sept. 10, and then 7.8% the following trading day, after the company reported results from two Phase 3 studies of its drug pegcetacoplan in an eye condition known as geographic atrophy.
One of the trials, known as DERBY, missed its primary endpoint, while the other study hit its primary endpoint. In a note out the evening the data was released, Cowen analyst Phil Nadeau said the data were good enough, and maintained his target price of $70. Apellis shares, which closed at $55.61 on Sep. 9, recently traded at $33.06.
The average analyst target price on Apellis is $67.81, which implies a 105% gain over the stock’s recent price. Many, if not all, of the analyst target prices have been updated since the DERBY trial disappointment, which suggests that the analysts generally agree with Nadeau—and not with investors—about what the DERBY trial results mean for the company’s future prospects.
Another of the stocks that made it through the screen, Rocket Pharmaceuticals , has seen its share price fall about 41% so far this year. Rocket is developing gene therapies to treat a number of conditions, including Danon disease, an often deadly genetic disorder that leads to heart failure. Its lead program is a lentiviral-based gene therapy to treat Fanconi anemia, a rare genetic bone marrow disorder. The stock has rebounded a bit since mid-August after the Food and Drug Administration lifted a clinical hold it had placed on the company’s Danon disease trial in May,
Cowen analyst Yaron Werber expects the company’s Fanconi anemia gene therapy to enter the market next year, and writes that the Fanconi anemia program alone could generate $1.9 billion in cumulative revenue. “We expect Rocket to create long-term shareholder value as its gene therapy programs advance through clinical development,” Werber writes.
The average target price for Rocket stock is $69.70, implying a 115% gain over the recent price of $32.44. The stock has a market value of $2.1 billion. Of the 12 analysts tracked by FactSet who cover the stock, all rate it a Buy.
Shares of TG Therapeutics , which focuses on the biology of B-cells—a type of white blood cell involved in the adaptive immune system—have fallen 41% this year. Much of that drop came on Aug. 2, when the stock fell about 22% in a single day after the company reported second-quarter earnings. The report included sales guidance for the company’s approved drug, a cancer treatment called Ukoniq, that fell well short of investor expectations.
“We view the stock selloff as overdone,” Cantor Fitzgerald analyst Alethia Young wrote at the time. Evercore ISI analyst Josh Schimmer at the time cut his target price to $55 a share from $80. The stock closed that day at $27.42, down from its previous close of $34.99. Since then, the stock has rebounded slightly, to a recent $30.70.
Analysts remain bullish. Of the eight tracked by FactSet who cover the stock, seven rate it a Buy, while one rates it a Hold. Their average target price is $59.88, implying a 95% gain over the recent price.
The last stock to clear our screen was Turning Point Therapeutics , a $3.9 billion cancer drug biotech whose share price has fallen 35% this year. Turning Point stock began to stumble in February, when share prices dropped across small-cap and mid-cap biotech companies. The company is testing a drug called repotrectinib, its lead asset, in a number of cancer indications.
The average target price of $153.30 represents a 94% upside to Turning Point stock’s recent level of $78.89. Of the 10 analysts tracked by FactSet who cover the stock, all rate it a Buy.
Write to Josh Nathan-Kazis at [email protected]
