Some of the big biotech stocks that soared earlier this year have headed south.
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It remains a tough year for biotech stocks. While the S&P 500 is up 25% so far in 2021, key biotech exchange-traded funds are lagging behind dramatically.
The iShares Biotechnology ETF (ticker: IBB), which is weighted toward larger biotech names, is up 1.3% in 2021, while the SPDR S&P Biotech ETF (XBI), which is spread more evenly across smaller and midcap biotech names, is down 12.2%.
Even the big biotech highfliers, which spiked early in the year, have had it rough as the year has neared its end. Moderna
(MRNA), for example, which climbed 238.5% over the first six months of 2021, is down 33.5% since the beginning of August.
“With every other vertical literally going vertical, the market has essentially determined that putting money behind this more complex and volatile sector is not the optimal use of capital,” Oppenheimer healthcare equity strategist Jared Holz wrote in an email to investors in late October.
Despite the grim picture, analysts see hope for some biotech names. To pick some of the most promising, Barron’s repeated a screen we did this summer, checking the combined constituents of both the IBB and the XBI for the four stocks with a market cap of over $5 billion that trade the farthest below their average analyst target prices as calculated by FactSet.
The four stocks that passed the screen—Fate Therapeutics (FATE), CRISPR Therapeutics (CRPS), Denali Therapeutics (DNLI), and Ultragenyx Pharmaceutical (RARE)—are developing some of the most cutting-edge technologies in biotech, and have garnered substantial excitement. Analysts see reasons for all four to gain.
4 Undervalued Biotech Stocks
These are the four biotech stocks in the IBB and the XBI with market values over $5 billion that trade the furthest below their average analyst price targets.
| Company / Ticker | Recent Price | Average Target Price | Implied Gain |
|---|---|---|---|
| Fate Therapeutics / FATE | $53.03 | $105.63 | 99.2% |
| CRISPR Therapeutics / CRSP | 84.88 | 157.00 | 84.5 |
| Denali Therapeutics / DNLI | 49.25 | 89.08 | 80.9 |
| Ultragenyx Pharma / RARE | 79.62 | 140.11 | 76.0 |
Source: FactSet
Barron’s ran the same screen in July, and came up with a different crop of stocks, including TG Therapeutics (TGTX), Vir Biotechnology (VIR), and Exelixis
(EXEL). Ultragenyx also made that list.
Fate, a clinical-stage biotech focusing on cancer therapies, has seen its shares drop 39.5% this year. Its average analyst target price is $105.63, according to FactSet, implying a 99.2% gain over its recent price of $53.03.
In a note on Monday, Jefferies analyst Michael Yee, who has a Buy rating and an $145 target price on the stock, called solid-tumor data released by the company this week “a promising harbinger” for data on other programs expected next year.
“This keeps a big stock catalyst for 2022 based on timing and disclosure through the year,” Yee wrote.
CRISPR Therapeutics , meanwhile, is a gene-editing specialty biotech, also in the clinic with a handful of experimental drugs. Shares of CRISPR Therapeutics are down 43.7% this year. The average analyst target price is $157, implying an 84.5% gain over the stock’s recent price of $84.88.
“At $7B valuation [with] no products yet approved, we have to acknowledge that it is STILL a highly valued stock,” Evercore ISI analyst Liisa Bayko wrote on Nov. 4. Still, with multiple programs entering the clinic, the potential upside is substantial. “If [proof of concept] works, this could open a floodgate of opportunities,” Bayko wrote. “We’re excited.”
She rates the stock at Outperform, with a target of $125 for the price
Denali Therapeutics , another clinical stage biotech developing drugs to treat neurodegenerative diseases, has seen its share price fall 40% this year. The average analyst target price on the stock is $89.08, implying upside of 80.9% to the recent price of $49.25.
In early November, Evercore ISI analyst Josh Schimmer titled a note on Denali: “If There’s Another Moderna in Biotech, This May Be It.”
“This is the one stock I see in the biopharma universe that could become the ‘next Moderna,” Schimmer wrote, citing the potential of an amyotrophic lateral sclerosis therapy under development by the company called DNL343. Schimmer has a $111 target price on the stock, which he rates Outperform.
The final stock, Ultragenyx Pharmaceutical , is developing gene therapies and other therapeutics to treat rare genetic diseases. Unlike the other stocks that cleared the screen, Ultragenyx does have drugs on the market, including a treatment for a number of rare conditions called Crysvita.
Ultragenyx shares are down 42.4% this year. The stock traded at a recent price of $79.62. The average analyst price target on the stock is $140.11, implying upside of 76%.
In a note out on Nov. 3, Citi analyst Yihal Nochomovitz wrote that the stock is “trading at a significant discount to fair value,” and that there are several factors that “should help course correct the faltering stock.” Nochomovitz highlighted data on the company’s gene therapy for Angelman syndrome, due in the middle of next year.
Write to Josh Nathan-Kazis at [email protected]
