For investors seeking a strong growth option, and willing to take on some added risk, the biotech sector offers an unparalleled opportunity. Unlike other names, biotech companies often rely on only a few key milestones like data readouts or FDA approvals. So, when a particular result goes a company’s way, the news can act as a catalyst that sends shares soaring. However, investors looking to gain exposure to this space should know that this also makes these stocks riskier as unfavorable outcomes can have the opposite effect.

As a result, the strength of investment opportunities in this sector can be harder to determine. So what’s the best way to gauge biotech stocks ahead of big catalysts? We suggest turning to Wall Street analysts for guidance.

Using TipRanks database, we were able to identify two such stocks as they approach significant catalysts. The platform also revealed that these Strong Buy tickers boast impressive upside potential from current levels.

Ardelyx (ARDX)

We'll start with Ardelyx, a biopharmaceutical company focused on developing treatments to improve the management of complications arising from kidney and cardiorenal diseases. This is a niche with a large patient base, and one that has to some extent been overlooked in the medical research industry.

Ardelyx has created tenapanor, a targeted small molecule therapy. This first-in-class drug candidate is under investigation for its use in controlling serum phosphorus in adult dialysis patients with chronic kidney disease. Ardelyx believes that tenapanor makes it possible to achieve effective and consistent control of blood phosphate levels.

So far, tenapanor has met its primary endpoint in three Phase 3 clinical trials. The trials evaluated the drug candidate’s efficacy and safety; two (BLOCK and FREEDOM) were monotherapy trials with adults CKD patients undergoing dialysis, while the third (AMPLIFY) was a dual mechanism trial. Ardelyx currently has an open label extension trial underway.

The positive results from the Phase 3 studies form the background to the company’s New Drug Application to the FDA. This is a key milestone in the development and approval process. The key date is April 29, 2021 – this is the Prescription Drug User Fee Act (PDUFA) date for tenapanor.

Ahead of the upcoming PDUFA date, Wedbush analyst Laura Chico believes a successful outcome is in the cards.

“Simply put, we see lead asset tenapanor as novel and differentiated, with the potential to disrupt hyperphosphatemia treatment in chronic kidney disease patients on dialysis. The novel mechanism, robust serum phosphate lowering comparable to marketed phosphate binders and a lower pill burden creates a differentiated profile. Small-cap commercial launches are not for the faint of heart, but we see tenapanor's profile resonating with physicians. With the pipeline a call option, we presume an on-time approval (PDUFA 4/29/21) and 3Q21 launch,” Chico opined.

In line with her comments, Chico rates ARDX an Outperform (i.e. Buy), and her $14 target implies a one-year upside of 129%.

That Wall Street likes this stock is clear from the unanimous Strong Buy consensus rating. That consensus is built on 4 recent Buy reviews, which is good news for Ardelyx. The shares are priced at $6.10 and their $14 average price target matches Chico’s.

Heron Therapeutics (HRTX)

The second biopharma company we’re looking at here, Heron, starts with a leg up – it has two drugs already approved by the FDA and on the market. Heron’s two approved drugs, Sustol and Cinvanti, are both indicated for use in treating the nausea that is frequently caused by chemotherapy. This is a serious side effect that has a distinct negative effect on the quality of life of many cancer patients – even when the chemo is effective. An efficacious anti-nausea drug should be a net boon for the company, and Heron expects that sales of the two drugs in 2021 should total $130 million to $145 million.

The major catalyst for the company, however, is the upcoming PDUFA date for HDX-011 (Zynrelef). HDX-011 is indicated for use to control postoperative pain in small to medium surgical wounds in adults. It was granted a marketing authorization by the European Commission in September 2020, and the next milestone is the PDUFA date for FDA approval, currently set for May 12, 2021.

Heron’s initial application was submitted in October 2018 and was followed by a complete response letter (CRL) in April of 2019. The CRL requested additional non-clinical and CMC data. The NDA was resubmitted in October of 2019, followed by a second CRL in June 2020 seeking additional non-clinical information.

“We continue to like shares and think there is upside on the approval of HTX-011 (postoperative pain) which is expected in May 2021. While HTX-011 has been hampered by two CRLs already, we think the approval in the EU offers de-risking on the clinical efficacy and safety front and that the minor issues that the FDA has raised around the excipients used should be addressable. On approval, we think shares could move to the low-to-mid$20 range," Archila commented.

Archila’s upbeat outlook on Heron manifests with a Buy rating and a $28 price target that suggests room for 87% growth in the next 12 months.

Once again, we’re looking at a stock with a unanimous Strong Buy consensus view. Heron has 3 recent Buy ratings, and an average price target that is somewhat more bullish than Archila allows; at $30.33, it implies a potential upside of ~103% on the one-year time horizon.

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