3 Biotech Stocks Under $4 That Could Surge Over 50%

It has been almost three months since the coronavirus-driven volatility hit the global economy, and the market continues to rapidly move into both the green and the red. Yet, since its March 16 low, the S&P 500 has come a long way, rising nearly 18%.

Wall Street pros remind investors that one area of the market has performed significantly better than the S&P 500: the biotech sector. As a result, names inhabiting this space have found themselves under the Street’s microscope.

Having said that, there is something to consider when making these investment decisions. Biotech stocks are especially volatile due to the characteristics of the industry itself. For these companies, there are only a few key indicators like study results or regulatory approvals to determine whether or not sustainable revenues are on the horizon. As a result, a favorable outcome can act as a catalyst that sends shares flying out of the ballpark. For this reason, risk-tolerant investors flock to these stocks. However, biotech stocks are famous for being risky as the opposite also holds true.

This makes it difficult to separate the biotechs with massive growth prospects from those poised to strike out. Don’t worry, Wall Street analysts can lend a hand with that.

During our search for compelling biotech stocks, we turned to the analysts for help. Using TipRanks’ database, we found exactly what we were looking for: three Buy-rated biotech stocks trading for under $4 with massive upside potential. We are talking returns of at least 50% over the next months.

Osmotica Pharmaceuticals (OSMT)

Osmotica Pharmaceuticals boasts a diverse product portfolio that addresses needs in the specialty neurology and women’s healthcare space, with it also developing non-promoted complex formulations of generic drugs. Following a strong quarter in which it held up well despite COVID-19’s impact, at $3.86 apiece, several members of the Street think now is the time to snap up shares.

Weighing in for RBC Capital, analyst Randall Stanicky tells investors he is optimistic ahead of the July 16 PDUFA date for its lead candidate, RVL-1201 (blepharoptosis). The company still plans on launching the product right after the PDUFA, with pricing expected to be in the $75-$100 range. It should be noted that COVID-19 has forced OSMT to scale down the launch and the initial sales force. That being said, the company has a new plan. The launch will instead be more “controlled” and kick off with a core group of KOLs and other eye care professionals, with it ramping up after more states and practices reopen.

Stanicky fully supports this approach, noting that the strategy “makes sense.” “The U.S. is unlikely to have returned to normal by mid-summer, which is reason enough for caution. And importantly, OSMT has a diversified book of business (and liquidity) that reduces the urgency to launch. We might also add that a ‘soft’ launch keeps the door open to a potential U.S. therapeutic partnership, adding further optionality,” the analyst explained.

As for the aesthetics opportunity, the approach is very similar. Stanicky points out that while OSMT has a few potential partners lined up, it isn’t in a rush to finalize the decision. “Either way, we think there could be strong demand for RVL-1201 from aesthetics providers as a complementary offering to facial toxins/fillers (and as a way to help make up for lost revenue due to COVID-19). OSMT also expressed interest in adding additional eye care or aesthetics offerings to leverage its commercial infrastructure, while potentially divesting non-core assets (eg. Women’s Health),” the analyst commented.

If that wasn’t enough, Stanicky cites the Ontinua ER (arbaclofen) NDA re-submission, which is slated for June, as well as the potential for both U.S. and international partnerships for RVL as possibly representing additional catalysts for shares.

Taking all of this into consideration, Stanicky reiterates an Outperform (i.e. Buy) rating on OSMT stock, along with a $10 price target. Should this target be met, a twelve-month gain of 159% could be in store.

Turning now to the rest of the Street, other analysts also like what they’re seeing. 3 Buys and a single Hold have been assigned in the last three months, making the consensus rating a Strong Buy. While less aggressive than Stanicky’s, the $8 average price target still leaves room for 107% upside potential. (See Osmotica stock analysis on TipRanks)

Iterum Therapeutics (ITRM)

With at least two million people infected with bacteria that’s resistant to antibiotics every year in the U.S., Iterum Therapeutics develops differentiated anti-infectives to combat these multi-drug resistant (MDR) pathogens. As the data readouts for its SURE 1/2 trial are expected any day now, the analyst community is telling investors to pull the trigger before its $3.45 share price goes up.

Previously, ITRM landed in some hot water after announcing at the end of March that the data release would be pushed back until early in the second quarter. However, RBC Capital analyst Gregory Renza believes the delay is “unsurprising given the quick development of COVID-19 and how the company has been framing their progress and study wrap-up over this month.”

“Today’s update mirrors our recent conversation with management as active COVID-19 assessments have been underway where, given enrollment had already wrapped, the impact was initially viewed as minimal, but the coronavirus has affected the process of final data staging by a few weeks – we consider it as reasonable given the various restrictions under the macro-environment,” Renza added.

After the data is released, management stated it doesn’t foresee any delays for the NDA filing, given that the manufacturing sites were approved by the FDA before COVID-19 and the clinical module could be prepared after the SURE trial readouts. Offering further explanation, Renza said “If positive, ITRM believes that they could make a swift transition into the next phase of development, and believes that the current supply of sulopenem would be sufficient for the first year of launch.”

It should come as no surprise, then, that Renza has high hopes for this biotech. To this end, he kept both an Outperform call and $8 price target on the stock. This target conveys the five-star analyst’s confidence in ITRM’s ability to soar 132% in the next year. (To watch Renza’s track record, click here)

Do other analysts agree with Renza? As it turns out, they do. With 100% Street support, or 3 Buy ratings to be exact, the message is clear: ITRM is a Strong Buy. In addition, the $8 average price target matches Renza’s. (See Iterum stock analysis on TipRanks)

Verastem, Inc. (VSTM)

Focused on developing small molecule drugs that inhibit critical signaling pathways that promote cancer cell survival and tumor growth, Verastem believes its approach could potentially help stomp out cancer. With clinical and regulatory updates slated for late 2020, some analysts think that its $1.76 share price represents a compelling entry point.

On April 27, VSTM presented the most updated results from the ongoing investigator-sponsored Phase 1 study of VS-6766, which was formerly known as CH5126766, in combination with defactinib for the treatment of KRAS mutant solid tumors. The company acquired the candidate, a RAF/MEK dual inhibitor, back in January from Chugai Pharmaceuticals. As the asset could overcome key resistance mechanisms seen with traditional MEK inhibitors such as Mekinist, it’s no wonder Wall Street focus has locked in on this biotech.

Among the bulls is H.C. Wainwright analyst Sean Lee. He argues that the most encouraging outcomes were seen in eight patients with low-grade serous ovarian cancer (LGSOC). Four demonstrated a response to the therapy and all eight patients achieved disease control. Additionally, the therapy generated a response from 67% of the participants with KRAS mutant tumors, with three of the four responding patients having previously failed MEK inhibitor therapy. Not to mention the dose exhibited a strong safety profile and was well-tolerated.

Expounding on this, Lee stated, “Considering that LGSOC is an orphan indication with less than 1,000 patients diagnosed in the U.S. each year and has no specific approved therapy, we believe that these results are highly relevant and could lead to an accelerated path to approval. According to management, the company plans to meet with the FDA in 1H20 to discuss the path forward, and we believe the company could initiate a registrational study in LGSOC in late-2020.”

That being said, when it comes to VS-6766’s use in KRAS mutant non-small cell lung cancer (NSCLC), the results varied much more across the board. The response rate was significantly lower than what is produced by KRAS inhibitors from its peers, but Lee highlights the fact that these agents only target patients with the G12C mutant form.

“Conversely, VS-6766 plus defactinib targets all KRAS mutations, and initial results suggest that the combination may be particularly effective in treating G12V and G12D mutants. Therefore, while these early results in NSCLC may appear well short of expectations, we note that the number of treated patients so far remain very small and that targeting underserved patient populations could allow Verastem carve out a niche in the KRAS NSCLC market,” Lee explained.

As the company is also set to enroll additional patients with G12V and G12D mutant NSCLC and pancreatic cancer, with it potentially releasing the results by the end of 2020, the deal is sealed for Lee. The analyst reiterated both his Buy recommendation and $2.75 price target, implying 56% upside potential from current levels. (To watch Lee’s track record, click here)

Looking at the consensus breakdown, VSTM has received 2 Buys and 1 Hold over the last three months. As a result, the biotech earns a Moderate Buy consensus rating. At $4.50, the average price target puts the upside potential at 156%, which flies past Lee’s forecast. (See Verastem stock analysis on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.