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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Highly Undervalued Biotechnology Stocks To Watch

Companies / BioTech Aug 28, 2019 - 06:45 AM GMT

By: Joshua_Rodriguez

Companies The biotechnology industry is an exciting one. As continued innovation drives a better scientific understanding of the human body and the ailments that weigh on it, we are seeing better outcomes for patients who are living longer, more fulfilling lives.

However, it’s not only the patients that are seeing tremendous benefit out of this innovation. Investors are benefiting greatly as well. After all, as new medications hit the market, tremendous revenue opportunities are being created for the companies creating these treatments.

Nonetheless, 2019 hasn’t been a great one for the biotechnology industry as a whole.

Nektar Therapeutics (NKTR): Beaten Down YTD But Creating A Compelling Opportunity

Nektar Therapeutics has had an incredibly rough year so far in 2019. Unfortunately, the stock has been cut nearly in half throughout the year. Nonetheless, it is showing incredible promise, and recent declines may be nothing more than a half-off discount.

Nektar Therapeutics is an immuno-oncology company. Their flagship candidate, known as NKTR-214, has the potential to treat several different types of cancer.

With regard to the development of the drug, Nektar Therapeutics partnered with Bristol-Myers Squibb (BMY) after the large pharma player made a $1.85 billion investment in Nektar back in 2018. As part of the deal, Nektar has the potential to receive up to $1.8 billion in milestone payments associated with NKTR-214.

At the moment, there’s a Phase 3 clinical program surrounding the drug in more than 20 indications involving 9 different types of cancer. Not to mention, with a strong focus on lung cancer, the company is addressing high-value indications.

Maybe that’s why analysts seem to be so impressed with the stock. According to Tip Ranks, the average price target on the stock is $40.80, suggesting an upside well over 100%. Even the most bearish of analysts give the stock a price target of $21.00, suggesting upside potential of more than 20%. All in all, the undervaluation here is clear!

AbbVie (ABBV): Tumbles In 2019 With A Strong Recovery Ahead

AbbVie is a massive player in the biotechnology space with a name that’s well known globally. Unfortunately, that name has slipped into the mud a bit in 2019, with year-to-date declines of more than 30%.

The company’s claim to fame is its Humira product. Unfortunately, it’s this product that’s leading to all of the concern. Humira currently generates about 61% of the revenue seen by AbbVie, creating a heavy dependence on the drug’s success.

In October of 2018, biosimilars to Humira found their way onto the European market. This competition has already begun to take part of Humira’s market share. Investors are also concerned about competition in AbbVie’s core market, the United States, as biosimilars have the greenlight to compete in 2023. 

I believe that the concerns with regard to competition are overblown. The truth of the matter is that AbbVie is working on multiple phase 3 clinical studies for a long line of existing drugs. These drugs are likely to see label expansions soon, giving the company more opportunities to expand revenue.

The company also has multiple new drugs in late stages of clinical development. Between two of these, risankizumab and upadacitinib, AbbVie said that it expects to reach revenues of $10 billion annually by 2025.

It’s also worth keeping in mind that the company has several drugs in blockbuster indications that have raked in great sales. Imbruvica, a cancer drug, and Mavyret, a hepatitis C virus drug, are both generating strong revenues.

Although concerns about Humira are rising, investors can’t deny the 16% year-over-year growth in revenue seen in 2018, nor the adjusted EPS growth of 41%. With a market acting on fear and an opportunity that should elicit greed, I believe that AbbVie is primed for strong growth ahead.

Spherix (SPEX): A Small Company With Dynamite Potential

Spherix is by far the smallest company on this list, but it’s definitely not the smallest opportunity. At the moment, the company primarily acts as a hedge fund, making investments in biotechnology companies and reaping the rewards of their growth.

Interestingly, the argument that Spherix is undervalued is very easy to make. Just take a look at the company’s market cap and the book value of the company’s assets. When you do, you’ll see that the company trades on a market cap that represents less than half of the value of its assets.

The book value has seen dramatic growth in recent years. These gains have largely been due to an investment made in Hoth Therapeutics worth about $700,000. Today Hoth Therapeutics is a NASDAQ listed company worth around $50 million. The original ~$700,000 investment is now worth more than $10 million.

The company also made a relatively large investment in CBM recently, purchasing a 20% stake in the oncology-focused biotechnology company. Moving forward, Spherix intends to acquire CBM Biopharma, with a vote expected to take place early next month to decide the fate of the deal.

It’s also worth mentioning that the company recently proposed a dividend worth about $500,000 and intends on proposing more down the road. This is something that you don’t see companies of this stage doing, making it that much more of an eye catcher.

Should all go well, Spherix would immediately become a development-stage biotechnology company with plenty of cash to get through several catalysts. Moreover, considering the fact that the stock has lost nearly a third of its value this year, the opportunity is heavily discounted, making this stock one that’s hard to ignore.

Ligand Pharmaceuticals (LGND): Looked At As Speculative; In Reality, Anything But

Ligand Pharmaceuticals is another stock that has had a pretty rough year. Year to date, the stock has lost nearly a third of its value as analysts largely pass it off as a speculative investment. When you dig into the opportunity, you’ll likely find that it’s anything but.

In my view a large part of the value in Ligand Pharmaceuticals is its business model. While it is a biotechnology company, the company doesn’t actually develop drugs. Well, at least, it doesn’t do it on its own.

The company is focused on developing platforms and licensing them out to drugmakers. These platforms essentially help developers producer new treatments more effectively.

At the moment, Ligand’s technologies are used in 10 different products on the market, inclusive of products from very big names. These technologies are found in Kyprolis by Amgen (AMGN) and Promacta by Novartis (NVS).

To put an end to the speculation conversation, just take a look at the company’s revenues. In 2018, the company generated 78% year-over-year growth. EPS was up more than 10 times on a year-over-year basis.

Moving forward, there are several opportunities to watch for. The company’s technologies are used in 8 late-stage candidates, 21 Phase 2 candidates, and 24 phase 1 candidates. Any positive news out of any of these may act as positive catalysts ahead.

While Ligand has taken a beating so far this year, the stock seems to be doing nothing more than presenting a discount on long-run growth.

Aerie Pharmaceuticals (AERI): Rocklatan Could Quickly Become A Blockbuster

Aerie Pharmaceuticals is another stock that has felt quite a bit of pain this year. The stock is down by almost 40% year to date, but again, this may prove to be a strong opportunity.

Recently, Aerie Pharmaceuticals has announced the regulatory approval of two different treatments; Rhopress was launched in 2018 and Rocklatan was approved in early 2019.

Although Rhopress had a strong start in 2018, the most valuable of these two drugs is Rocklatan, in my view. Indicated as a potential option for patients with glaucoma, the treatment has limited competition in the space.

Considering a strong start with the company’s first drug, Rhopressa, I’m expecting to see more of the same with Rocklatan in an indication that offers up a larger opportunity.

In my view, once sales reports start to show growth in Rocklatan revenues, the stock will start to find its way back up to a more realistic valuation. This is likely why analysts followed by Tip Ranks suggest a potential to see 200% gains based on average price target. All in all, Aerie Pharmaceuticals is a stock that’s well worth watching.

Final Thoughts

While the stocks listed above have lagged behind their peers in the biotech space, I believe that they each represent a strong opportunity. Due to a rough year in 2019, these stocks are trading at incredible discounts. Based on the assets they possess, these discounts shouldn’t last long!

This article is a paid advertisement. View all relevant disclosures here.

By Joshua Rodriguez

© 2019 Copyright Joshua Rodriguez - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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