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Gene Therapy Companies Undervalued, Positioned for Upside

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·5 min read
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Pharmaceutical companies can trade sideways for years, and may see a spike every now and then due to positive announcements or an FDA approval update. The newest subset of the biotech industry, known as gene therapy companies, has been multiplying at an astonishing rate. As a result, they have many new stocks listed to capital markets. These companies have recently piqued the interest of investors, and analysts are weighing in.

Many individuals are born with disorders for which there is no cure, or for which only meager treatments exist to improve their quality of life. However, with gene therapy, it is said that entire ailments can be eliminated after just one treatment that targets their source. Faulty genes can be repaired by implanting viral genetic material into the DNA and RNA chains.

In a lengthy report on the upsides of gene therapy in the biotech industry, Yun Zhong of BTIG explained that many companies of this sort are trading near their 52-week lows, and as such are poised for a buying opportunity. He opined that the challenges and setbacks faced by these firms are naturally occurring growing pains for the industry as a whole, and will serve as net positives once investors move past them.

Zhong even quoted Wilson Bryon, the FDA director of the Office of Tissues and Advanced Therapies, who said that “according to FDA officials, the delays and holds are not related to any change in policy and stance, but rather were a result of the agency’s increasing workload in gene therapies. We believe the FDA is increasingly comfortable with safety in gene therapy.”

In regards to negative media published as of late, Bryon went on to say that “bad things always get more attention.” Zhong was confident that obstacles faced are even necessary for the industry to continue its march toward the general acceptance and adoption of technologies.

The analyst went on to state that disorders stemming from the central nervous system (CNS) provide great potential for the use of gene therapy on their root causes, not to mention that many have no alternative treatments.

In regard to the one-time treatment optimism surrounding gene therapy, Zhong added that while its reality has yet to be confirmed, gene therapy could be expanded to 30-70% more patients if re-dosing were to be made widely available.

The FDA has given the “green light to dozens of biotechnology companies to conduct gene therapy clinical trials,” wrote Zhong. He continued by mentioning various FDA approvals for therapies and the fact that “hundreds of ongoing clinical trials are being conducted in the U.S. market." Positive updates would in turn result in large amounts of positive news, pushing share prices up higher.

Zhong covered several stocks in his report, one of which was Applied Genetic Technologies Corporation (AGTC), to which he assigned a Buy rating and a price target of $11. This would reflect a potential 152.87% upside. AGTC focuses on inherited retinal disorders, which are ideal subjects for gene therapy. (See AGTC stock chart on TipRanks)

In his bullish thesis, Zhong wrote that the company has several promising therapies for unmet market needs in the pipeline and has a favorable risk vs. reward ratio.

He was confident that Applied Genetic Technologies is a “highly attractive investment opportunity” and that the share price is deeply undervalued.

On TipRanks, AGTC has an analyst rating consensus of Strong Buy, based on 4 Buy ratings. The average analyst Applied Genetic Technologies price target is $15.67, indicating a potential 260.23% upside from its Wednesday closing price.

Another company reviewed was Avrobio Inc. (AVRO), a company focusing on lysosomal storage disorders, to which Zhong assigned a Buy rating and a price target of $23. This price target would suggest a potential 133.98% upside. (See AVRO stock chart on TipRanks)

Zhong explained that Avrobio is targeting a significant market opportunity of $5 billion. He was encouraged by the company's technology platform and its promising results from clinical trials. AVRO’s manufacturing process has streamlined the company’s path to commercialization, and Zhong was quick to opine that the 50% drop in share price seen since February was an over-reaction to safety concerns. He believes that the stock is positioned for long term upside.

On TipRanks, AVRO received an analyst rating consensus of Strong Buy, based on 6 Buy ratings and 1 Hold rating. The average analyst Avrobio price target is $22.20, indicating a possible 125.84% upside.

A third stock, Magenta Therapeutics (MGTA), was reviewed by Zhong. He assigned a Buy rating and a price target of $20, reflecting a potential 12-month upside of 80.02%.

Magenta has been working on treatments to address the hematopoietic stem cell transplant (HSCT) procedure. Zhong believes that Magenta’s programs “should improve both safety and efficacy of HSTC, and should allow more patients to be eligible for the procedure to potentially have a curative treatment available.” (See MGTA stock chart on TipRanks)

He wrote that the HSTC programs will meet strong market demand in the U.S. and E.U., with even more patients who could become eligible in the future.

On TipRanks, MGTA has an analyst rating consensus of Strong Buy, based on 3 Buy ratings. The average analyst Magenta Therapeutics price target is $19.33, expressing a potential 12-month upside of 73.99%.

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.