- Reduced focus on Covid-19 and less worries about interest rates should push many biotech stocks higher.
- vTv Therapeutics (VTVT) has strong positive catalysts in the medium term and the long term.
- Novavax (NVAX) looks poised to be boosted by an upcoming FDA approval of its coronavirus shot.
- Aileron (ALRN) has reported positive data and has a huge potential market
Biotech stocks have tumbled in recent months and years. For example, the SPDR S&P Biotech ETF (NYSE:XBI) has sunk 40% so far this year. As a result, there are many oversold biotech stocks for investors to buy.
But in the next six months, two main factors should push the sector much higher. First, since worries about the coronavirus have significantly decreased, investors’ minds and wallets are no longer mostly focused on treatments and vaccines for Covid-19. As a result, the companies working on treatments for other illnesses are likely to attract more money from investors, pushing their shares higher.
Secondly, since February 2021, many investors have worried about inflation continuously surging, causing the Federal Reserve to raise interest rates to levels that haven’t been seen in decades. That scenario, which has been seen by many as quite likely since November 2021, would tremendously hurt the shares of unprofitable biotech companies.
That’s because such firms often need to borrow money and will not generate profits for several years, making their stocks less attractive to investors during periods of high interest rates.
Yet with many now believing that inflation has peaked and Fed Chairman Jay Powell having seemingly ruled out interest rate hikes of 0.75% at upcoming Fed meetings, the much-feared scenario looks much less likely.
Here are three oversold biotech stocks that are well-positioned to benefit from this improved environment.
|VTVT||vTv Therapeutics||42 cents|
|ALRN||Aileron Therapeutics||42 cents|
As I’ve pointed out in previous columns, vTv Therapeutics’ (NASDAQ:VTVT) treatment for Type 1 diabetes — TTP399 — has been given breakthrough status by the U.S. Food and Drug Administration. The agency’s decision indicates that it’s optimistic about the drug’s outlook.
In vTv’s recent earnings press release, the company disclosed that it is “currently in active discussions with respect to financing, partnering, and licensing transactions for the further development of TTP399.” The willingness of other entities to speak with vTv about the drug indicates that it has considerable value, and there’s a good chance that a deal between vTv and another company involving the drug could significantly boost VTVT stock in the near-to-medium term.
Also making me bullish on vTv is that the largest owner of the company’s stock, billionaire Ronald Perelman, retained over 36.5 million shares of the company as of December 2021, though he sold 87,000 shares in that month.
The market capitalization of VTVT stock is a measly $28.9 million.
In my last column on Novavax (NASDAQ:NVAX) stock, published on April 27, I warned that the shares had become “speculative” due to weak uptake of the company’s coronavirus vaccine. I noted, however, that I still though the company had “a shot.”
Since then, I’ve become much more bullish on the shares, for three main reasons. First, it has come to my attention that the drug maker is in the lead when it comes to developing a combined Covid-19-and flu shot. That could give the company a tremendous lift in many developed countries, where hundreds of millions of elderly and vulnerable people already get annual flu shots. Presumably, those consumers will like the idea of getting one combined flu-and-coronavirus shot annually, rather than two separate shots.
Secondly, the FDA agreed to allow one of its panels to evaluate Novavax’s jab next month, and the company’s CEO said he anticipates that the committee will endorse the drug. Assuming the panel does recommend Novavax’s shot, the vaccine should be approved by the agency, resulting in significant coverage of the jab by America’s mainstream media.
That, in turn, could cause a sizeable portion of those people who have not received a Covid-19 vaccine to receive Novavax’s shot, which is based on older, potentially more trusted technology than the mRNA jabs.
And assuming Novavax’s vaccine is eventually approved as a booster shot and as a jab for children by the FDA, many of the millions of American children who haven’t received a shot and the 52% of U.S. adults (as of a month and a half ago) who have not been boosted could choose to receive Novavax’s shot.
Finally, the increased willingness of investors to take a chance on biotech stocks with high potential should enable NVAX stock to rally in the near-to-medium term.
For risk-tolerant growth investors, I believe that the best bets in the biotech sector are unestablished companies whose drugs have performed well in trials involving small numbers of patients. Those firms tend to have very low valuations, but their drugs have a decent chance of succeeding. Aileron Therapeutics (NASDAQ:ALRN), which has developed a treatment for the side effects of chemotherapy, is definitely in this category.
In 2020, the company reported that its ALRN-6924 drug had significantly reduced the rates of anemia and thrombocytopenia among 17 patients with small cell lung cancer who were being treated with chemotherapy. Anemia and thrombocytopenia are common side effects of chemo.
According to Aileron, ALRN-6924 may help lessen the side effects of chemo for patients with “p53-mutated cancer.” According to the company, 1.8 million people in America and 18 million individuals worldwide are diagnosed with such cancers each year.
On the date of publication, Larry Ramer was long VTVT, NVAX, and ALRN.
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