Zacks Industry Outlook Highlights Catalyst Pharmaceuticals, Chinook Therapeutics, Assertio Holdings and Sigilon Therapeutics
For Immediate Release
Chicago, IL – March 3, 2022 – Today, Zacks Equity Research discusses Catalyst Pharmaceuticals CPRX, Chinook Therapeutics KDNY, Assertio Holdings ASRT and Sigilon Therapeutics SGTX.
Industry: Medical Drugs
Link: https://www.zacks.com/commentary/1875741/4-small-drug-stocks-that-appear-to-be-solid-bets-in-a-challenging-industry
Regulatory/pipeline updates related to COVID-19 medicines/vaccines took center stage for the drug and biotech sector in 2021. The drug/biotech sector has been witnessing developments in other pipeline areas as well like rare diseases, gene therapy, and editing and mRNA vaccines too. Overall, successful innovation resulting in new drug/product approvals, important advances in clinical studies, and strategic collaborations with strong partners have kept small drug companies like Catalyst Pharmaceuticals, Chinook Therapeutics, Assertio Holdings and Sigilon Therapeutics afloat.
Sales of some drugs/vaccines/products were hurt by business disruption due to COVID-19 in the fourth quarter due to the surge in infection rates due to the Omicron variant. The sector also witnessed its share of pipeline setbacks in 2021.
Industry Description
The Zacks Medical-Drugs Industry comprises small drug companies which make medicines for both human and veterinary use. We have a separate industry outlook discussion on some of the biggest drugmakers in the world.Most of the small drugmakers have a limited portfolio of marketed drugs or no commercial-stage drugs at all. Some of these drugmakers are dependent on just one marketed drug or pipeline candidate.
For such companies, upfront or milestone payments from collaboration partners — in most cases their larger counterparts — are the main source of revenues. These companies need ample free cash flow to fund their R&D activity.
Factors Shaping the Future of the Medical-Drugs Industry
Pipeline Success: The success or failure of key pipeline candidates in clinical studies can significantly drive the stock price of the industry players. Successful innovation and product line extensions in important therapeutic areas and strong clinical study results may act as important catalysts for the stocks.
Strong Collaboration Partners: These companies regularly seek external partners and collaborators for complementary strengths. A partnership deal with a popular drugmaker is a good sign about the potential of small pharma companies, especially when an equity investment is included in the deal. In 2021, M&A activity in pharma and biotech recovered after a dull 2020 when deal-making was hurt by pandemic-led disruption.
Though deals were not as plentiful as 2018 and 2019 and there were no mega-mergers, most of the M&A deals of 2021 were valued at more than $1 billion. It is expected that M&A activity will pick up significantly in 2022.
Investment in Technology for Innovation: For these smaller companies, succeeding in a shifting global market and evolving healthcare landscape requires adopting innovative business models, investing in new technologies, and increasing investments in personalized medicines. Over the past few years, scientific and technological advancements have made it possible to develop personalized therapies.
Other than that, adoption and information exchange through the meaningful use of health IT, development of therapies that improve overall patient outcomes and investment in developing and emerging markets are some of the new priorities for drug companies.
Pipeline Setbacks: The smaller companies have their share of risk in the form of unstable cash flows. Also, the failure of key pipeline candidates in pivotal studies and regulatory and pipeline delays can be huge setbacks for these smaller companies and significantly hurt their share price in the future.
Zacks Industry Rank Indicates Grim Outlook
The group's Zacks Industry Rank is basically the average of the Zacks Rank of all the member stocks.
The Zacks Medical-Drugs industry currently carries a Zacks Industry Rank #165, which places it in the bottom 35% of 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry's position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group's earnings growth potential. The industry's earnings estimates for 2022 have moved down 152.9% over the past year.
Despite the bleak near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it's worth taking a look at the industry's shareholder returns and current valuation first.
Industry Lags S&P 500 and Sector
The Zacks Medical-Drugs industry is a huge 230-stock group within the broader Medical sector. The industry has underperformed the S&P 500 and the Zacks Medical sector in the past year.
Stocks in this industry have collectively declined 27.8% in the past year, while the Zacks S&P 500 composite has risen 16.3%. The Zacks Medical sector has declined 14.5% in the said time frame.
Industry's Current Valuation
On the basis of the trailing twelve months price-to-sales ratio (P/S TTM), which is a commonly used multiple for valuing these small drugmakers, the industry is currently trading at 2.03 compared with the S&P 500's 4.60 and the Zacks Medical sector's 2.74.
Over the last five years, the industry has traded as high as 4.31X, as low as 1.76X, and at the median of 2.46X.
4 Small Drug Stocks to Keep an Eye On
Assertio Holdings: This Lake Forest, IL-based specialty pharma company, which markets neurology, inflammation and pain medications, has a Zacks Rank #2 (Buy). Earnings estimates for 2022 have improved from 20 cents per share to 35 cents per share over the past 60 days. The stock has declined 50.9% in the past year.
Assertio Holdings has undergone a major transformation. Its restructuring is now complete and the company has now shifted focus on growing its business. Assertio Holdings has invested in digital capabilities, resolved several legacy legal uncertainties and set up a new commercial model. The company's successful execution of its restructuring plan has resulted in significant cost savings, which has boosted its profits despite product sales decline. The company should release its fourth quarter and full-year 2021 results later this month.
Sigilon Therapeutics: This Cambridge, MA-based company makes engineered cell-based therapies for chronic diseases through its Shielded Living Therapeutics platform. The stock has declined 94.9% in the past one year. The loss estimates for 2022 have narrowed from $1.15 per share to $1.10 per share over the past 60 days. Sigilon Therapeutics enjoys has a Zacks Rank of 2.
The FDA placed a clinical hold on Sigilon Therapeutics' phase I/II study of SIG-001 in severe or moderately severe hemophilia A in July 2021 after fibrosed spheres were observed during a retrieval procedure in a patient. Following the pipeline setback, Sigilon Therapeutics smartly announced a strategic decision to re-focus its pipeline and prioritize its MPS-1 (a rare a rare lysosomal disease) and diabetes programs, which it believes has have the potential for success.
It will also reduce its workforce by 38% which should help extend its cash runway to 2024. The company should release its fourth- quarter and full-year 2021 results later this month.
Catalyst Pharmaceuticals: Coral Gables, FL-based Catalyst Pharmaceuticals develops and markets therapies targeting rare neurological diseases and disorders such as LEMS, epilepsy (initially infantile spasms) and Tourette syndrome. Catalyst Pharmaceuticals' lead drug, Firdapse is approved to treat adult patients with Lambert-Eaton Myasthenic Syndrome (LEMS), an ultra-rare disease. The drug has witnessed a solid uptake so far since its launch in January 2019. Catalyst's efforts to develop Firdapse for other rare neuromuscular indications are impressive too.
The stock of Catalyst Pharmaceuticals has risen 111.7% in the past one year. The consensus earnings estimate for 2022 has gone up from 50 cents to 71 cents over the past 60 days. The company has a Zacks Rank #2 (Buy). The company is scheduled to release its fourth quarter and full-year 2021 results on March 16.
Chinook Therapeutics: This Berkeley, CA- based biotech makes precision medicines for kidney diseases. Though this Zacks Rank #2 stock has declined 26.3% in the past one year, its loss estimate for 2022 has narrowed from $3.02 per share to $2.84 per share over the past 60 days. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Chinook Therapeutics' lead clinical programs are atrasentan and BION-1301, which are being developed for IgA nephropathy (IgAN), a serious progressive disease. Data presented from the ongoing phase I/II study of BION-1301 in patients with IgAN showed that the candidate led to consistent mechanistic biomarker responses and clinically meaningful reductions in proteinuria within three months of initiating treatment.
Moreover, Chinook Therapeutics believes that atrasentan, which is in phase III development for IgAN, has the potential to provide benefit in multiple chronic kidney diseases by reducing proteinuria and having direct anti-inflammatory and anti-fibrotic effects to preserve kidney function. The candidate was granted orphan drug designation by the European Commission for IgAN in December.
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