For the uninitiated, biotech stocks can seem a tad intimidating. The untrained eye is confronted with masses of obscure data, clinical trial information and industry specific medical jargon. Once cracked, though, the information becomes a lot clearer and a general pattern emerges.
Biotechs, in particular, have a reputation for extreme volatility, gaining and losing value almost on a whim. Tending to soar after receiving good news, and likewise crashing violently following the release of unsuccessful trial data. Therefore, the risks are abundant, but equally, so are the rewards. The key is knowing how to spot the right investment, and furthermore, when to execute it.
TipRanks’ Stock Screener tool makes it a lot easier to pick out a promising stock, as it provides a collection of key metrics to identify the right choice. So, we took out our virtual scalpel, and dissected the data at hand to find three 'Strong Buy' biotech stocks that offer the highest upside potential on Wall Street. Let's take a closer look:
ObsEva SA (OBSV)
ObsEva is a good example of the inherent volatility in biotechs. In the last five weeks alone, ObsEva's stock experienced both the highs and, especially, the lows.
In early November, the company made the surprise announcement that it will discontinue development of Nolasiban in vitro fertilization (IVF) due to its miss on primary endpoint in Phase 3 clinical trial, IMPLANT4. Investors were not pleased, sending the stock tumbling by over 60%.
So that sounds bad, right? Yet, over the following month, the volatile stock managed to claw back about 60% to its share price, before sharply dropping again.
Earlier this week, ObsEva announced what it called "positive" top-line PRIMROSE-2 results, the first of two phase 3 studies evaluating linzagolix with and without co-administration of add-back therapy (ABT) for the treatment of heavy menstrual bleeding due to uterine fibroids. The stock initially rallied on the news, but the gains soon faded and the stock finished the day 30% down.
Wedbush analyst Liana Moussatos says that "based on the clinical and safety profile of Linzagolix to date," she anticipates "positive results for PRIMROSE 1 in Q2:20."
As a result, Moussatos reiterated an Outperform rating on OBSV, while raising her price target to $36 (from $33). In other words, the analyst sees the stock rising 10-fold in just over a year. (To watch Moussatos' track record, click here)
The Street is not quite as bullish as Moussatos, indicating massive gains of "only" 525% might be in place, should the average price target of $21 be reached. The volatile biotech has a Strong Buy consensus rating, represented by 4 "buy" ratings and 1 "hold." (See ObsEva stock analysis on TipRanks)
Kala Pharmaceuticals (KALA)
Those are pretty hefty gains, right? Let’s take a look at what our next biotech has in store.
Kala develops treatments for inflammatory ocular conditions. In August, the biopharma was on the receiving end of the dreaded CRL (complete response letter) from the FDA, requesting data from an additional clinical trial for KPI-121 0.25%, the company’s dry eye disease candidate. Kala intends to respond with top-line results from the Phase 3 (STRIDE 3) trial anticipated in Q120.
Wedbush’s Liana Moussatos is confident in Kala’s ability to turn things around, noting, “We project a new PDUFA to be assigned sometime in 2020, with potential U.S. approval by YE:20 and launch in early Q1:21. We estimate that in 2027 gross annual sales for KPI-121 0.25% could reach about $1.89 billion for Dry Eye Disease. We project full year profitability in 2021 with about $173 million in revenues in 2021 (~$87 million for Dry Eye and ~$86 million for Post-Surgical Inflammation and Pain).”
Accordingly, Moussatos reiterated an Outperform rating on Kala, alongside a price target of $51. Kala currently trades at $4.20, indicating potential upside of an incredible 1111%. (To watch Moussatos’s track record, click here)
Does the Street agree? Yes, but not quite to the same extent. Two other Buy ratings assigned over the last 3 months add up to a Strong Buy consensus rating. The average price target, though not quite as mercurial as Moussatos’s, is $24.33. By no means to be sniffed at, as this target indicates gains in the magnitude of 414% could be in place. (See KALA price targets and analyst ratings on TipRanks)
Our final pick is another example of the sector’s extreme volatility. Novavax is a biotech engaged in the production of vaccine candidates. The company shed 70% of its value back in February, after its respiratory syncytial virus (RSV) vaccine, ResVax, failed in a pivotal trial. Since then the share price has been gathering moss and has yet to regain a foothold on the market ladder.
Novavax, though, might have an ace up its sleeve in the shape of NanuFlu, a seasonal influenza vaccine candidate. NanoFlu exhibited impressive phase 2 results, and is currently in a fully enrolled 28 day phase 3 trial, with results expected in 1Q20.
Ladenburg Thalmann’s Michael Higgins thinks NanoFlu’s unique design “sets up well for Novavax.” The analyst noted, “The design of NanoFlu’s pivotal sets up well for Novavax. The primary endpoints in NanoFlu’s pivotal are non-inferiority comparisons of hemagglutination inhibition (HAI) between NanoFlu vs. Sanofi’s Fluzone Quad for the four strains in the vaccine. This design is in line with the three most recent seasonal flu vaccines’ pivotals. In our view, this non-inferiority trial is de-risked when considering NanoFlu has demonstrated superiority to FluZone HD in Phase 2 and its Phase 1/2."
Therefore, Higgins reiterated a Buy rating on Novavax, alongside a price target of $27.50, indicating potential upside of a blockbusting 572%. (To watch Higgins’ track record, click here)
Novavax currently only has two other analysts appraising its potential, both deeming the vaccine manufacturer a Buy. The Strong Buy consensus rating comes with an average price target of $18.83, implying upside of 360%. (See Novavax stock analysis on TipRanks)