Biotech stocks have endured a pummeling thus far in 2019 as a slowdown in drug approvals by the US Food and Drug Administration as well as the failure of a clutch of high-profile clinical trials continue to take a toll on this promising sector.
But in a fresh report, a pair of analysts from Noble Capital Markets suggest with some confidence that a turnaround for biotechs is likely by the year’s end.
Indeed, in a foreshadowing of what could turn into a marked reversal in sentiment, Noble’s Ahu Demir and Cosme Ordonez are quick to illustrate how a dose of good news from Biogen Inc (NASDAQ:BIIB) boosted the fortunes of biotech stocks last week. After Biogen revealed its plans to seek the FDA’s approval for its experimental Alzheimer drug aducanumab last week, biotech stocks enjoyed a rally, with the BTK and NBI indices climbing by more than 2%.
READ: Genprex's gene therapy candidate Oncoprex targeting new approach for non-small cell lung cancer
“In our opinion, a potential approval by FDA regulators of Biogen’s aducanumab early next year could be a significant catalyst for the sector,” said Demir and Ordonez in their analysis.
“There is no doubt of the tremendous commercial opportunity the Alzheimer’s market represents. The introduction of a disease modifying drug could certainly have a significant impact on future earnings and generate economic value and improve return on invested capital (ROIC) for the industry overall,” they added.
Adding to the resurgence in optimism is the fact that the sector is reaping the benefits of a surge in capital raising this year as well. As much as $546 million has been ponied up so far in 2019, which trumps the $526 million amassed last year, according to Noble Capital. In another sign of improvement, this year’s M&A activity — both in terms of transaction volume and deal count — is also ahead of totals achieved in 2018.
To sum it up, Demir and Ordonez make the case that the sector is set to rebound in the months ahead thanks to the even earnings growth of its bellwether stocks as well as a pick-up in mergers and acquisitions. Looking ahead, the strengthening of balance sheets will also rachet up drug innovation and clinical trial readouts could drive stocks higher too from the last quarter of 2019 into the first half of 2020.
In preparation for a sea change, Demir and Ordonez are taking bets on various stocks. Two which stand out are the Florida-based biotechnology company Dyadic International Inc (NASDAQ:DYAI), which leverages its proprietary C1 fungal gene expression technology to bring vaccines, enzymes, proteins and drugs to market faster and at a lower cost, and the gene therapy company Genprex Inc (NASDAQ:GNPX), which is banking on its flagship immunogene therapy Oncoprex for the treatment of non-small cell lung cancer.
The Noble Capital team has tagged Dyadic with an Outperform rating and a $9 price target, citing the promise of its C1 technology, as well as the expected release of bio-comparability data from the company’s certolizumab biosimilar program next year – which could act as catalysts for the stock. C1, Dyadic's filamentous fungi, produces certolizumab at a single use bioreactor with the same efficiency and performance level as at stainless steel bioreactors
Demir and Ordonez are almost as bullish on Genprex and now have an Outperform rating on the Austin, Texas company as well as a $5 price target on the view that further trials with humans for its lead drug Oncoprex in combination with erlotinib (Tarceva) in 2020 will advance its prospects for commercialization. On top of this, the Noble team are hopeful about the start of human clinical trials next year that will assess the ability of Oncoprex, working together with Merck’s blockbuster cancer drug Keytruda, to curb the corrosive spread of lung cancer.
In early afternoon trade, Dyadic shares slipped 2.3% to hit $6.33 while Genprex shares fell 4.9% to hover at $0.48.