Biotech stocks bottomed in mid-June and have seen some upward momentum since then. The recovery is in line with the broader market. But the industry has yet to get a lift from fundamental improvement.
We saw a flurry of activity in 2020 – the year when the Covid-19 pandemic first broke out. Biopharma companies, both big and small, jumped onto the Covid-19 drug and vaccine research bandwagon. While they were on it, most of them racked up unsustainable valuations. Not all of them could push their Covid-19 pipelines past the finish line, setting off largescale sell-offs.
The iShares Biotechnology ETF (NASDAQ:IBB) has lost about 20% year-to-date (YTD) and the SPDR S&P Biotech ETF (NYSE:XBI) lost a steeper 37%.
As biotech stocks embarked on a normalization move after the pandemic, the economic environment was beginning to turn hostile. Higher inflation set the Federal Reserve on course for monetary policy normalization. A risk-off mood prevailed in the market, making it difficult for biotechs to raise equity financing. Venture capital deals tapered off. Mergers and acquisitions activity, partnerships, and licensing deals were few and far between. Initial public offerings also ground to a standstill.
Left with no option, biotechs announced layoffs, pulled the plug on pipeline candidates, abandoned clinical trials, and even completely shut down operations.
Drug price regulation also remains an overhang on the sector. Reports suggest Senate Democrats are advancing among themselves a deal that would serve to lower prescription drug prices.
As the saying goes, when the going gets tough, the tough get going. It is, therefore, important to screen those tough biotechs that have the potential and wherewithal to deliver even during a tough backdrop.
Here are seven biotech stocks that investors can pick up with conviction in the third quarter (Q3):
|AXSM||Axsome Therapeutics, Inc.||$43.69|
|ARQT||Arcutis Biotherapeutics, Inc.||$24.20|
|BLUE||bluebird bio, Inc.||$4.81|
|HRTX||Heron Therapeutics, Inc.||$2.94|
|ICPT||Intercept Pharmaceuticals, Inc.||$14.50|
|AMLX||Amylyx Pharmaceuticals, Inc.||$20.50|
Biotech Stocks to Buy: Axsome Therapeutics (AXSM)
New York-based Axsome Therapeutics (NASDAQ:AXSM) is a biopharma firm focused on therapies for central nervous system disorders. The stock was once a high-flier, having skyrocketed to just under $110 in 2019. Since then, stung by not-so-enterprising pipeline updates, the stock has pulled back notably.
The company has a Prescription Drug User Fee Act (PDUFA) date of Q2 for its AXS-05 as a treatment option for major depressive disorder. Approval would open a floodgate of opportunity for the company. The same asset is also being studied for Alzheimer’s disease agitation and smoking cessation.
The company pursued the inorganic route to transform into a commercial-stage biopharma. It acquired Sunosi, a treatment option for excessive daytime sleepiness, from Jazz Pharmaceuticals (NASDAQ:JAZZ) in May.
Recently, Morgan Stanley (NYSE:MS) analyst Vikram Purohit doubled his price target for Axsome shares, incorporating contribution from Sunosi and a higher probability of success for AXS-05 approval in major depressive disorder.
Arcutis Biotherapeutics (ARQT)
Dermatology-focused biopharma Arcutis Biotherapeutics (NASDAQ:ARQT) has a tryst with the U.S. Food and Drug Administration (FDA) on Jul. 29 regarding its topical roflumilast cream for plaque psoriasis. Roflumilast cream, according to the company, is a highly potent and selective treatment option in a convenient once-daily cream formulation. It is also evaluated for atopic dermatitis.
The company is studying a foam formulation of the investigational treatment in hair-bearing areas of the body for indications such as seborrheic dermatitis and scalp and body psoriasis.
Arcutis has begun preparations for the commercial launch of roflumilast cream for plaque psoriasis, contingent on the FDA approval coming through. Apart from this, the company has three catalysts for the remainder of the year. It expects to readout three Phase 3 roflumilast clinical data this year.
Arcutis boasts of a fairly strong cash position. The Westlake Village, California-based biopharma ended the first quarter with cash, cash equivalents and marketable securities of $345 million.
Biotech Stocks to Buy: Altimmune (ALT)
Gaithersburg, Maryland-based Altimmune (NASDAQ:ALT) is a clinical-stage biopharma focused on developing peptide-based therapies for obesity and liver diseases. The company’s lead product candidate is pemvidutide and it is evaluated for both obesity and non-alcoholic steatohepatitis (NASH). The company is also developing a chronic hepatitis B immunotherapeutic candidate known as HepTcell.
The stock was on a broader downtrend from July 2020 until late-April 2022. Since then, Altimmune shares have reversed course and are seeing an upward bounce.
Altimmune is scheduled to release primary efficacy data from the Phase 1b trial of pemvidutide in non-alcoholic fatty liver disease (NAFLD) in the third quarter. The company will follow up with data from the 12-week extension trial of the Phase 1b NAFLD trial in the fourth quarter. Interim analysis of data from the Phase 2 study of pemvidutide in obesity is due in the fourth quarter.
The average analysts’ price target for Altimmune shares is $21, suggesting scope for over 80% upside potential.
bluebird bio (BLUE)
It could be redemption time for gene therapy company bluebird bio (NASDAQ:BLUE). The company has experienced multiple clinical trial setbacks in the past. It has two FDA decisions in the upcoming months. Beti-cel, the gene therapy candidate to treat beta-thalassemia – a blood disorder – has a PDUFA goal date of Aug. 19. Eli-cel, a second gene therapy candidate, is being evaluated for early active cerebral adrenoleukodystrophy in patients aged 18 years and lower. The FDA decision date for the therapy is Sep. 16.
An Adcom that reviewed the regulatory applications separately unanimously voted for approving the two therapies.
The stock did react to the two Adcom decisions announced in early June, but it is still off of its all-time highs. The relative strength index, considered a momentum indicator, suggests the stock is approaching the neutral zone.
Between now and the two decisions, the stock could gain further ground.
Biotech Stocks to Buy: Heron Therapeutics (HRTX)
San Diego, California-based Heron Therapeutics (NASDAQ:HRTX) is a commercial-stage biopharma. Its portfolio includes Cinvanti and Sustol. Both of these medications are used in combination with other antiemetic agents in adults for the prevention of acute and delayed nausea and vomiting associated with chemotherapy. The company also markets Zynrelef extended-release solution for producing post-surgical analgesia for up to 72 hours.
Looking ahead, the company expects Cinvanti and Sustol sales to hit $89 million to $93 million, respectively, in fiscal-year 2022.
Heron’s regulatory application for HTX-019 as a preventative option for post-operative nausea and vomiting is pending before the FDA. The PDUFA goal date is Sep. 17.
A positive verdict could prove salubrious for the stock, which is trading at depressed levels. Analysts, on average, expect the stock to rally to $19.17, suggesting over 500% upside from current levels.
Intercept Pharmaceuticals (ICPT)
Morris Town, New Jersey-based Intercept Pharmaceuticals (NASDAQ:ICPT) is developing a therapeutic candidate to treat non-viral liver diseases such as primary biliary cholangitis (PBC) and NASH.
In 2020, the FDA rejected the company’s investigational compound Ocaliva as a treatment option for fibrosis caused by NASH. The regulator required additional post-interim analysis efficacy and safety data from a late-stage study dubbed REGENERATE and the continuation of the long-term outcomes phase of the study.
On Jul. 7, Intercept announced positive results from the REGENERATE study, marking the second analysis showing achievement of primary endpoint in the intent-to-treat population. The company said, based on the results, it plans to resubmit the new drug application for Ocaliva in liver fibrosis due to NASH.
Jerry Durso, the chief executive officer of Intercept, is confident about getting Ocaliva past the finish line this time around:
“The weight of evidence in both safety and efficacy has notably increased and provides a more robust benefit:risk profile of OCA. We look forward to our meeting with FDA later this month to discuss the resubmission of our NDA for OCA in fibrosis due to NASH.”
Biotech Stocks to Buy: Amylyx Pharmaceuticals (AMLX)
Amylyx Pharmaceuticals (NASDAQ:AMLX) received a jolt earlier this year when an FDA committee voted against the approval of its amyotrophic lateral sclerosis (ALS) candidate AMX0035. Investors began to discount the rejection by the FDA when it was to decide on the application for approval. Much to the surprise of investors, the FDA announced in early June the review period has been extended by three months to Sep. 29.
In the interim, FDA’s counterpart in Canada approved the drug with conditions that included presenting results from an ongoing Phase 3 study dubbed PHOENIX. Results from the trial are due in 2024.
In another twist in the tale, the FDA announced in early July that it has reconvened the Adcom meeting. The committee will meet on Sep. 7 to review the regulatory application before the FDA finally announces its verdict.
On the date of publication, Shanthi Rexaline 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.