Out on Wall Street, one group of stocks divides investors into either fans or critics. Penny stocks, or tickers that trade for less than $5 per share, are known for stirring up mixed reactions among market watchers, as these names are unrivaled in terms of both their risk and reward potential.
Some argue the bargain prices are just too good to be true, noting that there could be a very legitimate reason they are trading at such low levels. Problems like weak fundamentals or overwhelming headwinds come to mind here.
However, the more risk-tolerant see the possibility of colossal returns as too enticing to ignore. With these stocks, you get more bang for your buck. Additionally, given the lower price tags, even minor share price appreciation can translate to massive percentage gains.
Taking this into account, we turned to the pros from investment firm H.C. Wainwright for some inspiration. Looking at two penny stocks with the H.C. Wainwright stamp of approval, the firm’s top analysts believe both could quadruple, or more, in the next year.
Running the tickers through TipRanks’ database, we wanted to find out what makes both names so compelling even with the risk involved.
ObsEva SA (OBSV)
Hoping to usher in a new era in women’s reproductive health, ObsEva works to bring the products women need to market. Currently going for $2.5 apiece, H.C. Wainwright thinks that the share price presents an attractive entry point.
Representing the firm, 5-star analyst Raghuram Selvaraju points out that pivotal data for linzagolix, the company’s lead candidate, in uterine fibroids appears “best-in-class.” Linzagolix is an orally administered gonadotropin-releasing hormone (GnRH) receptor antagonist that could potentially provide effective management of endometriosis-associated pain while mitigating bone mineral density loss and other adverse effects typically associated with the currently approved treatment.
Looking at the data from the pivotal trials of the therapy, PRIMROSE 1 and PRIMROSE 2, the former met the primary endpoint at 24 weeks, demonstrating that women receiving linzagolix experienced a statistically significant and clinically meaningful reduction in menstrual blood loss compared to placebo. Additionally, patients that received the 200mg dose of linzagolix with add-back therapy (ABT) achieved a 75.5% responder rate and those receiving the 100mg dose of linzagolix without ABT achieved a 56.4% responder rate.
As for PRIMROSE-2, longer-term data revealed that continued treatment with linzagolix for 52 weeks provided sustained efficacy, with the drug also well-tolerated. Responder rates of 91.6% and 53.2% were observed in women receiving 200mg with ABT and 100mg without ABT, respectively, both of which are similar to the responder rates observed at week 24 of the study. Weighing in on this result, Selvaraju stated, “This underscores the durability of the efficacy achieved with linzagolix.”
Given that both studies saw women receiving linzagolix experience statistically significant improvements across a number of clinically relevant secondary endpoints, including reduction in pain, improvement in anemia and quality of life, Selvaraju has high hopes.
“From our vantage point, linzagolix appears to have best-in-class potency among the clinical-stage gonadotropin-releasing hormone (GnRH) receptor antagonists, along with the ability to be deployed without ABT. Thus, we continue to see it as a best-in-class drug,” the analyst opined.
On top of this, Selvaraju highlights the Phase 3 EDELWEISS trials evaluating linzagolix, with the data readout set for next year, in endometriosis as another area to watch. “Positive data for relugolix from Myovant Sciences in the SPIRIT Phase 3 trials appear to have reduced the risk profile of linzagolix in treating endometriosis-associated pain. Relugolix met both co-primary endpoints in each of the SPIRIT studies. We remain confident that linzagolix could be an even more effective GnRH receptor antagonist than relugolix, with the added edge of utility without add-back therapy (ABT),” he said.
To this end, Selvaraju rates OBSV a Buy along with a $23 price target. Should this target be met, a twelve-month gain of 812% could be in store. (To watch Selvaraju’s track record, click here)
Do other analysts agree with Selvaraju? As it turns out, most do. 3 Buy ratings and a single Hold add up to a Strong Buy analyst consensus. At $15.75, the average price target indicates 535% upside potential from current levels. (See ObsEva stock analysis on TipRanks)
Galectin Therapeutics (GALT)
Using its unique carbohydrate technology target galectin proteins, which are key mediators of biologic and pathologic function, Galectin Therapeutics develops new therapies to improve the lives of patients with chronic liver and skin diseases as well as cancer. While H.C. Wainwright says investors need patience when it comes to this name, which changes hands for $2.70 a share, the firm sees it as a long-term winner.
On September 29, the company provided more detail on its NASH-RX Phase 2b/3 trial evaluating its galectin-3 inhibitor candidate, belapectin (GR-MD-02), designed for the treatment of NASH cirrhosis patients who have clinical signs of portal hypertension (PH) and are at risk of developing esophageal varices. It should be noted that GALT is one of the few companies with a late clinical stage candidate for NASH cirrhosis, and NASH-RX is the first and only pivotal program for the cirrhotic NASH population.
NASH-RX evaluates two belapectin doses versus placebo in about 315 NASH patients in its Phase 2b portion. In addition, following a pre-specified interim analysis (IA) conducted by the trial's Data Monitoring Committee (DMC) when all patients in the Phase 2b portion have completed at least 78 weeks of treatment and underwent a gastroesophageal endoscopic (EGD) assessment, belapectin could either be eligible for accelerated approval if the primary endpoint of reduced incidence of new varices is achieved, or advance into a Phase 3 portion with an optimal belapectin dose enrolling an additional 210 patients.
Covering the stock for H.C. Wainwright, 5-star analyst Ed Arce noted: “For the Phase 3 portion, Galectin could choose to implement adaptations including sample size and randomization ratio adjustments, inclusion/exclusion criteria changes, and to incorporate results of a separate hepatic impairment study. Therefore, NASH-RX has two shots on goal for success, with the interim analysis of the Phase 2b portion that is expected in Q2 2023 as its first shot on goal.”
When it comes to the available clinical data, top-line results from the Phase 2b NASH-CX study demonstrated a statistically significant and clinically meaningful reduction in the absolute change of the hepatic venous pressure gradient (HVPG) at 54 weeks within a patient subset, without varices at baseline, who were treated with belapectin 2mg/kg. Arce believes it’s encouraging that no patients in this NASH-CX patient subset reported the formation of new varices, compared to 18% of patients in the placebo group.
Expounding on this, Arce stated, “We note that patients with no baseline varices represented approximately 50% of the total NASH-CX study population, and is now an entry criteria for the NASH-RX study... While this subset analysis represents a small patient sample size, it nonetheless provides the early clinical rationale to support belapectin's entry into the NASH-RX trial with a specific patient population.” He added, “We continue to believe in belapectin's potential in NASH cirrhosis.”
Taking all of this into consideration, Arce maintains a Buy rating and $12 price target. This target conveys his confidence in GALT’s ability to climb 358% higher in the next year. (To watch Arce’s track record, click here)
Turning to the rest of the Street, it has been quiet with respect to other analyst activity. As Arce is the only analyst that has thrown an opinion into the mix over the last three months, GALT is a Moderate Buy. (See GALT stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.