Biotech is a fickle sector for stock investors. These companies are notorious for their extraordinary overhead expenses and their high-cost operations. Until, that is, they hit their corporate jackpot and get approval on a novel new drug, or a first-in-class treatment, or corner the market in the treatment of a rare or terminal condition. When that happens, investors can see their holdings appreciate by leaps and bounds. The gains in the NASDAQ IBB demonstrate this possibility; this index of NASDAQ biotech stocks is up 33% in the past 52 weeks.
Of course, the fate of individual companies isn’t just tied to the outcomes of research programs or the overall fate of the sector. The political climate in which they operate can make or break their chances – and in this, the biotech sector may be in for good times. The high price of prescription drugs, a boon for pharmaceutical manufacturers, has become a political football, but the incoming Democratic Administration will rest on slim legislative majorities unlikely to support sweeping reforms.
“We believe the environment in Washington DC will also remain favorable to the sector,” said Mizuho analyst Vamil Divan. “Democratic control of the White House and both houses of Congress will likely keep potential US drug pricing reform in the headlines, but we believe the Biden Administration will push for more incremental changes to our drug pricing system…”
Divan is bullish on the near-term future of the pharmaceutical industry, citing the innovation of biotech companies large and small in addition to the changing political tides. The trick here for investors is finding the biotech stocks that are primed for gains this year.
We’ve used the Investing Insights platform to find several that meet a bullish profile: A solid upside potential; a Strong Buy consensus rating; and a ‘Perfect 10’ from the Smart Score. The Smart Score gives every stock a score from 1 to 8, based on a combination of 8 separate factors which are each known to strongly correlate with future performance.
Protagonist Therapeutics (PTGX)
Peptide technology, which focuses on the building blocks of proteins as a pathway to treating disease, is a rapidly growing segment of the biotech sector. Protagonist Therapeutics (NASDAQ:PTGX) uses a proprietary platform to develop novel peptide-based medications for the treatment of currently unmet medical needs.
The company’s pipeline features two distinct research programs, one for the treatment of blood disorders and one for the treatment of inflammatory bowel diseases.
The blood disorder track includes PTG-300, a novel compound designed for subcutaneous injection. PTG-300 mimics the effects of hepcidin, a natural hormone that regulates iron equilibrium and proper development of red blood cells. The drug is under investigation as a treatment for polycythemia vera and for hereditary hemochromatosis, and has reached Phase II trial.
The inflammatory bowel disease (IBD) track features four drug candidates, two in preclinical trials and two entering Phase II studies. The Phase II trial includes PTG-200, an IL-23R antagonist being investigated as a treatment for Crohn’s disease. The company has also begun dosing patients with PTG-235, another IL-23R antagonist, in a Phase I study. PTG-235 is being developed under a collaboration agreement with Janssen Biotech.
These development pathways have potentially large patient bases. There are an estimated 320,000 polycythemia vera patients in the US and Europe, and over 1.6 million IBD patients in the US alone.
Piper Sandler analyst Yasmeen Rahimi is bullish on Protagonist Therapeutics, writing, “Protagonist is well-equipped with a powerful discovery engine that leverages its unique peptide therapeutic discovery platform for indications where this drug modality has advantages over classical small molecule or biologic/antibody approaches… With four separate clinical programs across two multi-billion-dollar market opportunities (rare blood cancers and inflammatory bowel diseases) and a promising platform that can develop additional candidates gaining the attention of large Pharma (Janssen), we believe PTGX is destined to grow into a multi-billion-dollar company…”
Rahimi backs her bullish stance with an Overweight (i.e. Buy) rating on the stock, and a $53 price target that implies an upside of 152% for the next 12 months.
Reflecting the data, and Wall Street’s gut reaction, PTGX gets a Strong Buy rating from the analyst consensus, based on a unanimous 4 Buy recommendations. The stock is selling for $20.21, and its $41.75 average price target implies an upside of ~98% for the year ahead.
Collegium Pharmaceutical (COLL)
Next up, Collegium Pharmaceutical (NASDAQ:COLL), is a small-cap drug maker focused on the treatment of chronic pain. The company’s products are designed to address the problems of abuse and addiction in the opioid market. With nearly 20 million Americans suffering from chronic pain issues, this Massachusetts-based company will not lack for a patient base.
The product line at Collegium includes two pain-relief drugs: Xtampza, a 10-to-12-hour, controlled release version of oxycodone, and Nucynta, an opioid of similar effect to oxycodone but with fewer reported side effects. Xtampza, as a controlled-release formulation is less potent than morphine, and potentially less prone to abuse.
Collegium showed $79.2 million in revenue for 3Q20, the last quarter reported, with a net earnings of 32 cents per share. Both of these figures were up sequentially – earnings by 39%. Year-over-year, the gains were more impressive: EPS was up from an 18-cent loss in the year-ago quarter, while revenue was up 8.6% in the same period.
Covering Collegium from H.C. Wainwright, analyst Oren Livnat sees the company taking a solid position in its niche.
“[We’re] confident in strong early-2021 volume acceleration. Then, we’re hopeful that Collegium can drive moderated but continued volume growth through the year as it works to gain market share in the 22M commercial lives where Xtampza now has parity positioning vs. OxyContin… we see gross margin upside bolstered by improved Nucynta profitability… We continue to see Collegium stock as extremely cheap at just 5.3x our 2021 EBITDA,” Livnat wrote.
It’s not surprising, then, why Livnat gives COLL an Outperform (i.e. Buy) rating. His $33 price target supports his bullish stance, and suggests a 50% one-year upside.
With 5 recent Buy ratings – and no reviewers publishing a negative commentary – COLL shares have a unanimous Strong Buy analyst consensus. The average price target is $34.25, slightly more bullish than Livnat’s above, and implying a 56% upside from the current trading price of $21.96.
Olema Pharmaceuticals (OLMA)
For a biopharma company that can find a niche and develop an effective medication to fill it, the rewards are substantial. Olema Pharmaceuticals (NASDAQ:OLMA) has focused on cancers that are estrogen-linked and specific to women. The company’s lead drug candidate is OP-1250, a complete estrogen receptor antagonist and selective estrogen degrader that has shown promise in early testing. OP-1250 is currently under evaluation prior to the start of Phase I human trials.
The company is pursuing several pathways with OP-1250. The drug candidate is seen as a potential treatment for metastatic breast cancer, endometrial cancer, and gynecological malignancies. Most of this research is still in pre-clinical phases, but the Phase I study is in preparation for the treatment of estrogen receptor positive, HER2 negative, metastatic breast cancer.
Olema held its IPO in November of 2020, as a move to raise capital for further research on OP-1250. The move to the public markets was notably successful – the stock was initially priced at $19, but opened much higher, at $45, and closed on its first day of trading at $49. The IPO raised over $240 million, and in the weeks since, Olema has reached a total market cap of $1.69 billion.
Among the bulls is 5-star analyst Arlinda Lee, of Canaccord Genuity, who is not shy about her upbeat outlook on the company.
“Olema is developing potent, oral, and complete inactivators of ER signaling designed to elicit deeper and more durable responses than existing therapies… With clinical studies underway, setting the stage for rich dataflow in 2021 and beyond, we are optimistic that Olema’s collective expertise in endocrine cancers and OP-1250’s differentiated properties can translate into clinically meaningful benefit for patients and become a cornerstone of ER-driven cancer therapy,” Lee commented.
In line with these bullish comments, Lee puts a Buy rating on OLMA, and her $60 price target indicates her confidence in 43% upside growth for 2021.
Once again, we are looking at a stock with a unanimous Strong Buy consensus rating – there are 4 Buy-side reviews on record for Olema since its IPO. The stock is trading at $42, and its $60.67 average price target is consistent with Lee’s above.