Today, we’re looking at two small-cap biotech firms whose stocks have struck a rut. Each company has hit a recent clinical setback that sent the share price falling, erasing previous gains and sending it back down to low levels.

Setbacks of this sort are not uncommon in the biotech industry, and in fact highlight the risk and speculative nature of the industry.

So what should investors do, when a stock collapses? Is this a matter of poor fundamentals? And has the stock’s price found its low point yet? That’s where the Wall Street pros come in.

Noting that each is set to take back off on an upward trajectory, some 5-star analysts see an attractive entry point for both.

Using TipRanks’ database, we found out that these two tickers have earned Moderate or Strong Buy consensus ratings from the analyst community, and boast strong upside potential.

Cortexyme, Inc. (CRTX)

The first beaten-down name we're looking at is Cortexyme, a clinical-stage biopharma company focused on degenerative diseases, especially Alzheimer’s. The company's lead candidate is COR388, also called atuzaginstat.

Atuzaginstat is currently under investigation in the GAIN trial, a study of its efficacy against Alzheimer’s disease. The trial is fully enrolled, with 643 patients, and the company was moving toward an open label enrollment (OLE) section of the Phase 2/3 study. During a routine regulatory update, Cortexyme announced that the OLE phase would be halted, although the primary GAIN study will continue, with results due to be released in Q4 2021. The announcement of the partial halt triggered a 35% drop in share price.

The partial hold was prompted by adverse events on the liver during the atuzaginstat trial. The hepatic symptoms were reversible and showed no long-term lasting effects. The FDA reviewed these records, and in collaboration with Cortexyme the decision was made to hold the OLE while continuing with GAIN. This decision allows the main thrust of the program to continue, while working out a new protocol for the OLE. The purpose of the OLE is to test long-term efficacy and tolerability of the drug.

In a review of Cortexyme after the announcement, HC Wainwright’s 5-star analyst Andrew Fein noted, “Cortexyme's announcement of a partial clinical hold on the OLE study of atuzaginstat is disappointing, but the reversible nature of the liver toxicity might provide some ray of hope for Cortexyme. We believe that the pivotal trial's continuation suggests that the drug-induced liver injury might not be severe enough to halt the program.”

Turning to the near-term, Fein adds, “Continuation of the GAIN trial is encouraging despite the partial hold on OLE. It suggests that FDA plans to wait for the additional data from the pivotal trial before coming to any conclusion. Management shared that nearly one-third of the GAIN patients have completed the study and way past the 12-week time point, suggesting that they are out of risk.”

To this end, Fein rates CRTX a Buy, and his $76 price target indicates confidence in a 147% growth potential. 

Overall, Cortexyme has a Moderate Buy rating from the analyst consensus, with 6 recent reviews breaking down 4 to 1 to 1, Buy-Hold-Sell. The stock’s $83.60 average price target suggests that Wall Street sees a high potential here, on the order of ~170% upside from the trading price of $30.74.

Immunovant (IMVT)

Next up is Immunovant, a clinical stage biopharmaceutical research firm, focused on developing treatments for patients with autoimmune disorders, a class of diseases in which the immune system attacks the patient’s own body.

The firm’s lead drug candidate, IMVT-1401, is undergoing trials as a treatment for thyroid eye disease, myasthenia gravis, and warm autoimmune hemolytic anemia. The drug described as “a novel, fully human anti-FcRn monoclonal antibody,” delivered by subcutaneous injection.

On February 2, Immunovant’s stock plunged 42%, and it has been falling ever since. The precipitating factor was an announcement by the company that IMVT-1401 has had its Phase 2b clinical trial, for thyroid eye disease, halted temporarily, due to patients experiencing dangerous rises in their LDL levels. LDLs are the potentially harmful form of cholesterol, which have been connected to cardiovascular disease.

Despite the clinical setback, Stiffel’s 5-star analyst Derek Archila reiterated a Buy rating on IMVT shares, along with a $28 price target. This figure suggests a 52% upside potential from current levels.

“Interestingly, increases have only been seen in TED patients, and our review of the literature suggests a few things: (1) it's likely this is TED specific given the biology- see below for details, but we don't think similar LDL increases will be seen in other indications outside TED; and (2) other anti-thyroid therapies used in Graves/TED also see similar increases in LDL, which end up being transient. We think IMVT-1401, in away, is replicating this mechanism," the analyst noted.

Archila summed up, "While we will need to see additional data from the company to confirm... we don't think this program is dead.”

Overall, the Strong Buy analyst consensus view on IMVT would suggest that Wall Street generally agrees with Archila’s assessment. This rating is derived from 8 recent reviews, which include 7 Buys and only a single Hold. The average price target here stands at $40.38, implying ~121% upside for the next 12 months. 

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