In 2020, the race for the Covid-19 vaccine distorted investment inflows in the biotechnology sector. Back then, emerging biotech stocks tripled or more on hopes that they would come out with a vaccine.
Buying interest in vaccine research resumed earlier this year when Covid variants emerged. Once again, markets did not learn their lesson from last year. Speculators chased companies that had no product on the market.
In hindsight, the biggest winners from the vaccine race are BioNTech (NASDAQ:BNTX) and Moderna (NASDAQ:MRNA). AstraZeneca (NASDAQ:AZN) and Pfizer (NYSE:PFE) are established mega capitalization firms that also fared well for investors. With strong vaccine demand ahead, none of those firms are busted.
To get a bigger margin of safety, investors want busted stocks where markets do not recognize their strong underlying company fundamentals. These seven biotech stocks are due for a rebound:
- Amarin Corp (NASDAQ:AMRN)
- Arcturus Therapeutics (NASDAQ:ARCT)
- Arena Pharmaceuticals (NASDAQ:ARNA)
- Bluebird Bio (NASDAQ:BLUE)
- Cassava Sciences (NASDAQ:SAVA)
- Quanterix (NASDAQ:QTRX)
- Theravance Biopharma (NASDAQ:TBPH)
In the above chart, Amarin scores the best overall with the highest value. The rest of the emerging biotech picks have fair scores. That will change for the better when the companies bring an approved drug to the market. Investors buying these beaten up biotech stocks will get a big reward for their patience.
Biotech Stocks: Amarin Corp (AMRN)
Amarin regained much of the stock’s loss after the drop in April, but it is still well off its highs for the year. The stock plunged in Feb. when it posted an $18 million loss for the year ended Dec. 31, 2020, or a loss per share of five cents. This included a big $45.8 million non-cash stock-based compensation expense.
By August, after it posted second-quarter results, markets started warming up to AMRN stock again. The company posted revenue growth of 14% to $154.5 million.
Amarin is on track for the European launch of Vazkepa. It also received marketing authorization for the drug in Great Britain, where the company can sell the drug for “treatment to reduce the risk of cardiovascular (CV) events in high CV risk statin-treated adult patients.”
On Aug. 23, Amarin said that Vascepa/Vazkepa reduced ischemic events in patients with prior heart attacks. The report showed that major adverse cardiovascular events declined by 26%. Hospitalization for unstable angina declined by 35%.
Amarin has the attention of four Wall Street analysts. The average price target for AMRN stock is almost $12, according to TipRanks.
Arcturus Therapeutics (ARCT)
Markets warmed up to Arcturus Therapeutics when it posted second-quarter results in August. But the stock is still a long way from its $129.71 52-week high.
Investors liked Arcturus’s collection of a $30 million payment from Vinbiocare. The company forecasts having enough cash to support operations for more than two years.
This is a critical milestone. Biotech firms typically need to tap the equity market to fund their research activities. But Arcturus had $433.6 million in cash as of June 30, 2021. In the quarter, it lost almost $55 million, or $2.07 per share.
Its Covid-19 mRNA vaccine candidate is in Phase 3 in Vietnam, and the company may earn an Emergency Use Authorization (EUA) in December. If successful, some countries in Asia may rely primarily on the Arcturus’s vaccine.
This would put an end to the slump in ARCT stock. Shares could easily break out to new yearly highs if it starts to sell hundreds of millions of doses annually.
Analysts have a mixed rating on ARCT shares. Nearly half of analysts tracking the stock rate it a “sell.” The average price target is around $65.
Biotech Stocks: Arena Pharmaceuticals (ARNA)
Arena dipped sharply after posting second-quarter results. It has $1 billion in liquidity that will support this progress.
Research and development costs totaled $112.5 million, double the $64.9 million it cost in the same period last year. The increase was driven by the higher personnel expenses needed to advance clinical programs. After losing $146.1 million, investors are deeply concerned that ARNA stock will underperform further. A stock issuance will dilute shareholders.
Arena has two upcoming data reads for drugs treating moderately-to-severely active ulcerative colitis. In Q2, the Phase 3 Elevate UC 52 trial reached full enrollment. Chief Executive Officer Amit Munshi said, “we continue to be very positive about where that trial is heading, both in terms of the timelines as well as in terms of data integrity.” When Arena posts topline data for the trial in Q1 2022, the stock may jump.
Markets may continue pressuring ARNA shares on liquidity worries. A few months ahead of the data read, the stock may be inexpensive enough to offer a high reward relative to risks.
Bluebird Bio (BLUE)
Bluebird Bio shares traded for more than $200 in 2018. Repeatedly disappointing clinical results have hurt the stock since then.
On Aug. 9, a Food and Drug Administration (FDA) decision against its elivaldogene autotemcel (eli-cel, Lenti-D) gene therapy for cerebral adrenoleukodystrophy (CALD) sent BLUE stock even lower.
Bluebird said that the FDA placed its eli-cel on clinical hold following a safety report. It received a Suspected Unexpected Serious Adverse Reaction (SUSAR) of myelodysplastic syndrome (MDS). This occurred in a patient treated with eli-cel for CALD more than a year ago in the Phase 3 ALD-104 study. Bluebird said it does not expect the hold to have an impact on its sickle cell disease (SCD), β-thalassemia or oncology programs.
In its β-thalassemia study, the company said that “all patients treated with beti-cel who achieve transfusion independence (TI) remain free from transfusions, with the longest follow-up of seven years.” For its cerebral adrenoleukodystrophy study, the company said that it received marketing authorization of Skysona from the European Commission.
Bluebird’s upcoming separation of its Severe genetic disease (SGD) and oncology businesses into two companies could unlock shareholder value. The sum of the parts is worth more than the whole.
Bluebird had $942 million in cash and cash equivalents at the end of the last quarter.
Biotech Stocks: Cassava Sciences (SAVA)
After rallying on news of Biogen (NASDAQ:BIIB) getting the FDA’s approval for its Alzheimer’s disease drug, Cassava also rose in June. But in July and again in August, SAVA stock plunged on concerns over its Simufilam clinical data.
To summarize, lawyer Jordan Thomas urged the director of the FDA’s Center for Drug Evaluation and Research to pause the Simufilam clinical trial. Cassava quickly rebuked the allegations. It stood by its study and responded to every key point in the allegation.
For example, Thomas accused Cassava of falsifying biomarker data. Cassava responded that its “plasma p-tau data from Alzheimer’s patients was generated by Quanterix Corp., an independent company, and presented at the recent Alzheimer’s Association International Conference.”
Investors should appreciate the value that Cassava will bring to the treatment of Alzheimer’s disease. Millions are afflicted by the disease, and the world cannot rely on Biogen’s drug only. Furthermore, scientists question the evidence that Biogen’s aducanumab is an effective therapy for the disease. As Cassava advances in its Alzheimer’s drug, investors will be rewarded with potential upside soon.
Quanterix, which offers digitized biomarker analysis to advance the science of precision health, fell in sympathy with SAVA stock recently. The company helps advance methodologies related to clinical studies on neurodegenerative diseases.
In the second quarter, Quanterix posted record product revenue of $18.7 million, up 175% year-over-year. Collaboration, license and development revenues remain small for now. As protein-based research gains momentum, the firm will realize higher revenue.
CEO Kevin Hrusovsky said, “when a protein of interest is discovered, we then hone in and bring its utility across translation with pharma on their drugs into the diagnostic landscape, where the combination of diagnostic and therapy can be deployed.”
In the report, Quanterix also highlighted the role of its Simoa technology, which “powered the largest and most diverse global investigation of the role of plasma neurofilament light (NfL) in dementia diagnosis.”
Quanterix has an immense growth opportunity in the diagnostics segment through biomarkers. Also, it will develop more biomarkers to enhance the probability of drug approvals. This will attract more business ahead.
Biotech Stocks: Theravance Biopharma (TBPH)
On Aug. 23, Theravance Biopharma posted results for its Phase 2b dose-finding induction study. The study to evaluate Izencitinib in patients with ulcerative colitis did not meet the primary endpoint. Investors dumped TBPH stock because it missed the mark for milestone payments from its partner, Janssen Biotech, a unit of Johnson & Johnson (NYSE:JNJ).
Theravance highlighted one small positive observation. It said that there “was a small dose-dependent increase in clinical response measured by the adapted Mayo score.”
Also, it will post top-line results for its Crohn’s Phase 2 study in late 2021 or early 2022. Ahead of that report, TBPH stock may find buyers at this level. A positive data read should send the stock above its recent lows.
In the second quarter, the company posted revenue of $12.9 million. It booked $2 million in revenue from its global collaboration with Janssen, and $10.9 million is attributed to its Viatris collaboration.
Viatris and Theravance Biopharma are collaborating in the development of Yupelri. This drug is a maintenance treatment for patients suffering from chronic obstructive pulmonary disease.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.