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For investors seeking strong returns, few market sectors can offer the high potential found in biotech. It doesn’t come easy, though. Biotech firms are notorious for running losses. The lead-times for new product development are frequently measured in years, and overhead costs in the millions – and those costs are front-loaded.
A large portion of these companies are involved in cutting edge research – on new drugs, new device technology, and new treatments. Hitting on an effective novel treatment, for these companies, is equivalent to winning the lottery. On the way to finding that ticket, biotech stocks will live or die by a series of milestones – clinical trial results, FDA and EU process approvals, new funding, all of these are watched by investors. A single solid milestone can put the share price on a stratospheric trajectory.
But where there’s reward, there is also risk. A negative result will send that same stock into the doldrums.
With this in mind, we set out on our own search to find compelling plays in this volatile industry. We used TipRanks’ database to pinpoint to biotech stocks that the analysts believe could soar over 70% in the year ahead. In fact, each has attracted enough support from Wall Street to earn a “Strong Buy” consensus rating.
Cogent Biosciences (COGT)
We’ll start with Cogent Biosciences, a small-cap biotech firm working on solutions for genetically driven diseases. These are congenital, chronic, and frequently severe, conditions, caused by one or more genetic mutation in the patient. The company has one lead drug candidate, CGT9486 (also called bezuclastinib), a precision medication designed to selectively inhibit the KIT D816V mutation.
The targeted mutation is responsible for systemic mastocytosis (SM), a condition which impacts multiple organs and systems in the body. CGT9486 is also under investigation as a treatment for gastrointestinal stromal tumors.
Cogent has clinical trial tracks evaluating CGT9486 for both of these conditions. Two Phase 2 trials are planned this year for systemic mastocyctosis, with the Advanced SM trial starting during the first half of the year, and the non-Advanced SM Phase 2 study to begin in the second half. Last-stage clinical studies in the treatment of gastrointestinal stromal tumors are scheduled to begin in 2H21, after Cogent-FDA interactions.
This background has caught the attention of Jefferies analyst Eun Yang.
"While building an internal research & discovery team for pipeline expansion, for its sole asset bezuclastinib with validated MoA from competitors' approval, we view clinical risks as somewhat mitigated. With Ph2/3 trials set to start in 2021 for 3 different indications (SM, GIST), if it shows potential differentiation vs competitors on market/in development, we see upside potential from current levels," Yang noted.
To this end, Yang rates COGT a Buy along with a $20 price target. This target suggests the stock will be changing hands for a 122% premium a year from now. (To watch Yang’s track record, click here)
Overall, it’s clear that Yang is no outlier on this stock. All 5 of the recent analyst reviews are positive, making the Strong Buy consensus rating unanimous. The shares are priced at $9, and the $21.50 average price target implies a one-year upside potential of ~139% from that level. (See COGT stock analysis on TipRanks)
Vera Therapeutics (VERA)
The second company we’re looking at, Vera Therapeutics, focuses on immunological and inflammatory disease; the company’s development program features atacicept, a novel biologic drug under investigation for the treatment of IgA nephropathy (IgAN), an autoimmune disease of the kidneys. Current treatments of the condition include dialysis or kidney transplant. Atacicept is a once-weekly subcutaneous injection that reduces the immune complexes that cause the disease condition.
VERA shares entered the public markets on May 14, in an IPO that raised over $50 million. The shares started trading at $11, and saw 4.35 million shares hit the market.
The company has already established a reliable safety profile for atacicept, based on clinical studies involving more than 1,000 patients. The drug’s Phase 2a trial was conducted on an out-licensing agreement with Merck, and showed a 60% reduction in Gd-IgA1, the molecule implicated as a causal factor of the condition. Atacicept is the first – and only – drug candidate to achieve a result of this significance.
Describing the market opportunity, Jefferies analyst Maury Raycroft told clients: "VERA is pursuing large market opportunities in IgAN ($4-8B) and LN ($2-5B) with significant unmet need... There are ~126K biopsy-confirmed IgAN patients in the U.S., ~136K in the EU, and ~130K in Japan... There are ~110K LN patients in the U.S., ~69K in the EU, and ~22K in Japan."
The analyst added, "Stock should move 2H21 after reg feedback on LN path; we think if VERA gets alignment on potential to advance directly into a ph.III, we estimate it could save the program 1.5 yrs in development time."
In line with his comments, Raycroft rates the stock a Buy, and his $27 price target implies an upside potential of ~79% for year ahead. (To watch Raycroft’s track record, click here)
This newly public stock has so far picked up three analyst reviews – and all are positive. This gives VERA a unanimous Strong Buy consensus rating. The stock’s $25.50 average price target suggests it has room for ~70% upside this year. (See VERA stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.