Reflecting the ultimate risk and reward, healthcare stocks are capable of delivering big returns at what feels like the drop of a hat, but investors need to be prepared for big risk, too.
Unlike companies in other sectors, the survival of many healthcare players, especially when they are in the early stages, hinges on only clinical trials of their therapies or products in development and regulatory rulings, with updates on either front acting as catalysts that can send shares in either direction.
So, any piece of good news can propel shares to sky-high levels. Disappointing outcomes, however, can send investors running for the hills.
Given the inherently volatile nature of the space, due diligence is necessary before making investment decisions. That’s where the Wall Street pros can lend a hand, as they know the ins and outs of the industry.
Bearing this in mind, we used TipRanks’ database to pinpoint healthcare stocks that have received overwhelmingly bullish support from the Street ahead of potential catalysts. Locking in on three in particular, each ticker boasts a “Strong Buy” consensus rating from the analyst community.
Aquestive Therapeutics (AQST)
Using its patented PharmFilm technology, Aquestive Therapeutics works to improve the delivery of approved drug active ingredients. Ahead of the fast-approaching PDUFA date for one of its products, some members of the Street think that now is the time to get in on the action.
Back in February, AQST announced that the FDA had accepted the NDA for Libervant, its diazepam buccal film designed to manage refractory and repetitive seizures (ARRS; seizure clusters), and the PDUFA date had been set for September 27. The NDA was based on results from a single-dose crossover study, which demonstrated comparable systemic diazepam exposures to Diastat (a diazepam rectal gel that was used as a reference) with significantly less variability.
Writing for Wedbush, 5-star analyst Liana Moussatos points out that VALTOCO, a nasal spray product developed for use in cluster seizures, got the FDA’s stamp of approval in January, with seven-year orphan drug U.S. marketing exclusivity also granted. “Of note, VALTOCO orphan drug exclusivity approval may prevent a subsequent product approval (same active moiety as well as an indication) during the exclusivity period unless the new product can demonstrate ‘clinical superiority’ to the approved products,” she explained.
To this end, Moussatos remains optimistic and sees Libervant’s approval as a major potential catalyst. “Aquestive is confident that Libervant (oral) is clinically superior to the two currently approved device-driven products (rectal gel and nasal spray) and that it meets one or more attributes required by the FDA to be considered a major contribution to patient care. In our view, Libervant may expand patient choice as the first orally delivered diazepam product available to ARRS patient,” she stated.
While the COVID-19 pandemic has led to many delays throughout the industry, management doesn’t expect any delays for the review of Libervant. Additionally, if approved, the company has said it’s ready for a launch, with it estimating U.S. net revenues of about $300 million at its peak.
Based on the above, Moussatos keeps an Outperform (i.e. Buy) rating and $33 price target on the stock. Should her thesis play out, a potential twelve-month gain of 326% could be in the cards. (To watch Moussatos’ track record, click here)
All in all, other analysts echo Moussatos’ sentiment. 3 Buys and no Holds or Sells add up to a Strong Buy consensus rating. With an average price target of $18.67, the upside potential comes in at 136%. (See AQST stock analysis on TipRanks)
Eton Pharmaceuticals (ETON)
Primarily focused on developing, acquiring and commercializing hospital injectable and pediatric rare disease products, Eton Pharmaceuticals wants to improve the lives of patients from all over the world. With several product candidates currently under review at the FDA, it’s no wonder Wall Street focus has zeroed in on this name.
On September 16, ETON announced that its partner hadn’t received any update from the FDA regarding its decision on the review of EM-100, its eye drop product for allergic conjunctivitis. Although the candidate’s Generic Drug User Fee Act (GDUFA) target action date was September 15, H.C. Wainwright’s Raghuram Selvaraju believes approval is imminent. Should approval ultimately be granted, the 5-star analyst thinks it could drive serious upside.
On top of this, Eton is awaiting a decision from the FDA for its taste-neutral sprinkle (granule) formulation of hydrocortisone (Alkindi Sprinkle), as a replacement therapy for pediatric adrenal insufficiency (AI). A PDUFA date is set for September 29, 2020.
"We assign a 90% probability of regulatory approval to EM-100 and Alkindi Sprinkle [...] Currently, we project total revenue of $9M for 2020—essentially unchanged vs. the previous $9.4M—and $43.9M in revenue for 2021, down somewhat from the previous $50.7M. We have accordingly revised our loss per share estimates for 2020 to $1.04 per share vs. the prior net loss of $1.28 per share, while maintaining our net loss per share projection for 2021 of $0.20. We continue to expect Eton to potentially achieve cash flow breakeven during 2H21. [...] Our assumptions yield a roughly $420M firm value," Selvaraju noted.
To this end, Selvaraju maintains a Buy rating on ETON shares, along with an $18 price target. This figure suggests 141% upside potential from current levels. (To watch Selvaraju’s track record, click here)
Are other analysts in agreement? They are. Only Buy ratings have been issued in the last three months, 3 to be exact. Therefore, the message is clear: ETON is a Strong Buy. Given the $15 average price target, shares could double in the next year. (See Eton stock analysis on TipRanks)
Last but not least we have Mesoblast, which develops therapeutics and medical devices based on its mesenchymal precursor stem cell platform. After an Oncologic Drugs Advisory Committee (ODAC) voted in favor of its therapy, several of the Street’s pros have high hopes for this healthcare company ahead of the September 30 PDUFA date.
On August 13, the FDA held an AdCom meeting to discuss MESO’s biologics license application (BLA) filing for Ryoncil (remestemcel-L), which was designed as a treatment for children with steroid-refractory acute graft versus host disease (SR-aGVHD). Acute GVHD occurs in roughly half of the 30,000 patients who undergo allogeneic bone marrow transplant (BMT).
At the meeting, the committee members voted 9-to-1 in support of the drug’s efficacy in a difficult indication. 5-star analyst Jason McCarthy, of Maxim Group, told clients, “This was in contrast to the briefing documents ahead of the Adcom on August 11, which stated concerns related to efficacy that resulted in MESO shares plummeting 35% at that time. Our view is that it was a premature 'knee-jerk' reaction to an Adcom that didn't even happen yet. As such, Ryoncil is very much still on track and the PDUFA is next."
Looking more closely at the data, two randomized Phase 3 trials in GvHD, study 265 and study 280, were conducted by Osiris Therapeutics, which previously owned the candidate. Both studies missed their primary endpoints compared to the placebo, but study 265 “was conducted in newly-treated GvHD patients (not steroid refractory), and therefore is not entirely relevant to Ryoncil's BLA,” according to McCarthy. As for study 280, it missed its durable complete response endpoint in the target population, but overall response at day 28 was 64% for Ryoncil and 36% for placebo.
“Ultimately, these studies were not in the target population for the current BLA, and in patients that fit the criteria, a positive effect was observed,” McCarthy commented. Additionally, he points out that an aggregated dataset demonstrated a consistent response across three separate trials including study 280.
Speaking to the unmet needs in this indication, in patients with severe disease, there is currently a 90% mortality rate and there are no approved therapies for pediatric steroid-refractory patients. Jakafi has been approved for patients aged 12 and older, but McCarthy believes Ryoncil compares favorably. He said, “Considering the positive safety profile of Ryoncil compared to other therapies and the unmet need in the indication, we continue to see a high likelihood of approval.”
In line with his optimistic approach, McCarthy reiterated a Buy rating and $22 price target. This target conveys his confidence in MESO’s ability to climb 22% higher in the next year. (To watch McCarthy’s track record, click here)
Other analysts don’t beg to differ. 5 Buys and no Holds or Sells add up to a Strong Buy consensus rating. At $21.60, the average price target implies 22% upside potential. (See Mesoblast stock analysis on TipRanks)
To find good ideas for healthcare stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
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.