It has been three weeks since the coronavirus-driven volatility hit the global economy, and the market continues to rapidly move into both the green and the red. Since its February 19 peak, the S&P 500 has ultimately shed 15% of its value, with it swinging violently in either direction on a seemingly daily basis. As for the other major U.S. indexes, they seem to be following this pattern to a T.
Given the uncertainty related to how long the aftermath of the virus’ outbreak will weigh on the market, investors are turning to the pros for guidance, namely healthcare investing guru Hal Mintz. The New York investment banker, who previously managed BAM Capital, has earned a Street reputation as being a trusted source of stock picking inspiration. Currently leading the Sabby Capital hedge fund, which primarily focuses on small-cap healthcare names, Mintz has grown the equity portfolio to reach $361 million, according to the latest 13F filling. As a result, when Mintz makes a move, Wall Street watches.
Bearing this in mind, we took a closer look at three small-cap biotech stocks Sabby Capital added to the portfolio recently. After running the tickers through TipRanks’ Stock Screener tool, we found out that analysts see plenty of upside in store for each of these Buy-rated names. Let’s dive in.
Zosano Pharma (ZSAN)
Using its patented intracutaneous microneedle patch technology, Zosano Pharma wants to provide a safe, simple and fast acting method for drug delivery. While shares have taken a nasty tumble since the start of the year, some believe that a turnaround is on the horizon.
Hal Mintz falls into this category. On February 12, Sabby Capital snapped up 3,576,491 shares at $0.65 cents apiece. The total purchase value comes in at more than $2.3 million, with the fund now a 9.99% owner of the company.
Based on its Adhesive Dermally Applied Microarray (ADAM) technology, Maxim analyst Anthony Vendetti remains confident in the company’s long-term growth prospects. Specifically pointing to its Qtrypta therapy for migraines and cluster headaches, the analyst noted that there is a significant market opportunity. Among current patients suffering from migraines, 74% receive insufficient treatment, according to a MAST (Migraine in America Symptoms and Treatment) study from 2017. “In our opinion, Qtrypa has the ability to provide a fast, non-oral treatment for migraines, which according to the Migraine Research Foundation, is the third most prevalent disorder in the world,” he stated.
The drug’s NDA was accepted by the FDA on March 4, and Vendetti sees gains in store as he believes clinical data supports its approval in October. In the ZOTRIP Phase 2/3 clinical study, the drug was able to provide pain relief in 81% of patients two hours after treatment. Additionally, he reminds investors to consider the implications of the therapy beyond migraines. “Furthermore, we believe the company's ADAM technology can be used as a drug delivery system for future immunotherapy, proteins, and biologics,” he explained.
The analyst concluded, "The acceptance of the NDA for Qtrypta by the FDA represents another positive step towards bringing an innovative therapy for migraine sufferers to market, and we believe that the capital raises get ZSAN closer to the PDUFA goal date of October 20, 2020, a potentially transformative date for the company. We are bullish on the opportunity for its Adhesive Dermally Applied Microarray (ADAM) technology."
As a result, Vendetti rates Zosano shares a "buy" alongside a $2.00 price target which implies nearly 260% upside from current levels. (To watch Vendetti’s track record, click here)
Biocept Inc. (BIOC)
Biocept is developing cutting-edge diagnostic solutions that can possibly provide critical information to both cancer patients and doctors using a simple blood test called liquid biopsy. Given the technology’s potential, some members of the Street see big things in store.
This is the case for Mintz as his fund added a BIOC holding to the portfolio on March 2. Acquiring a 9.71% stake in the company, Sabby Capital spent $3.6 million to buy 9 million shares.
Like Mintz, Maxim Group’s Jason McCarthy has high hopes for the biotech. He doesn’t dispute the fact that in liquid biopsy, the actual circulating tumor DNA (ctDNA) only represents a small percentage of circulating DNA and the rest gets released as a normal part of the cell’s life cycle in the form of cfDNA. That being said, he points out, “Biocept’s Switch-Blocker technology is designed to suppress amplification of wild-type targets, without suppressing mutant sequences containing even one single nucleotide variant (SNV). On top of this, the technology allows for real-time PCR.
It doesn’t hurt that the “Clinical validation of qPCR Target Selector assays using highly specific switch-blockers for rare mutation detection” study supports the use of liquid biopsy and switch blocker technology. In the study, which looked at the EGFR, BRAF and KRAS gene mutations, a high concordance between Target Selector liquid biopsy and traditional biopsy was discovered.
“Demonstrating concordance to tissue is an essential step in establishing a liquid biopsy. Tissue is the gold standard, though isn't always practical and can have issues relating to tumor heterogeneity. The new data helps further display the performance of Target Selector, which should help drive continued adoption in 2020,” McCarthy commented.
It should also be noted that these mutations are seen in several types of cancers, and that two approved therapies, Tagrisso and Mekinist, targeting these mutations generated $3 billion and $1.3 billion, respectively, in 2019.
To this end, McCarthy stayed with the bulls, reiterating his Buy rating and $1 price target. Should the target be met, a 186% twelve-month gain could be in the cards. (To watch McCarthy’s track record, click here)
Heat Biologics (HTBX)
With its proprietary T-cell Activation Platform (TCAP), Heat Biologics has been able to create therapies that enable a patient’s own immune system to defend itself against cancer cells. Its two platforms, ImPACT and ComPACT, were designed based on the heat shock protein, gp96.
Among the biotech’s fans is the Sabby Capital manager. His fund added a new position comprised of 4.3 million shares at $0.35 per share. The total purchase value comes in at more than $1.5 million, with the fund now a 7.49% owner of the company.
More recently, HTBX has made a splash after it announced that through its subsidiary, Zolovax, it is launching a coronavirus vaccine program. Using gp96, the biotech will design a vaccine that takes advantage of the protein’s immune activating capabilities. According to Jason McCarthy, who also covers this stock, the fact that gp96 is used in both oncology and infectious diseases makes it especially promising in the battle against coronavirus.
In addition, McCarthy believes that the technology’s efficacy in other infectious diseases bodes well for the company. “Previously, the gp96 platform has been evaluated in numerous NIH (National Institutes of Health) and DOD (U.S. Department of Defense)-funded preclinical trials, against HIV/SIV, malaria, Zika and other infectious diseases. The results demonstrated potent immune response and induction of mucosal immunity in animal models,” the analyst noted.
Even though HTBX has been weighed down thanks to exchange agreements around warrants, McCarthy points out that since February 28, shares are up 82%.
Based on all of the above, McCarthy left both his Buy rating and $1 price target unchanged. This conveys his confidence in HTBX’s ability to soar 67% in the next twelve months.
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