When you’re looking for a stock sector with potential for big gains, you can’t help but look at the biotechs. These stocks are famous for their long product lead times and high overhead – bringing a new pharmaceutical to market can take years, and cost tens of millions of dollars – but for investors, their attraction lies in their potential. One piece of good news, be it a positive clinical trial result or meeting a regulatory milestone, can give a major boost to the share price.
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The trick is finding shares whose potential outweighs the sector’s natural headwinds. Fortunately, the TipRanks Smart Score can help sort through the noise tossed up by the markets. The Smart Score is an advanced data sorting tool, based on collecting and collating stock data in real time – and its AI-based algorithm then rates every stock according to a set of factors known to correlate with strong share appreciation.
We’ve used the Smart Score to locate 2 biotech stocks that Wall Street’s analysts like as well. These are shares that have earned the ‘Perfect 10,’ the highest rating from the Smart Score, and have picked up accolades from the analysts as compelling buys are current price levels. Here are the details on both, along with comments from the Street’s analysts.
Celldex Therapeutics (CLDX)
The first stock we’ll look at is Celldex. This biopharma company is working with a next generation bispecific antibody platform to develop new antibody-based therapeutic agents capable of addressing serious inflammatory, allergic, and autoimmune conditions. The company’s focus, bispecific antibodies, are single molecules capable of engaging two independent immune reaction pathways. This gives the company’s drug candidates a wider potential field of application.
This is visible in the company’s leading drug candidate, barzolvolimab, or barzol. This drug candidate has taken Celldex’s inflammatory disease research pipeline into the latter stages of the clinical trial track. The drug candidate, which is described as a ‘humanized monoclonal antibody that specifically binds the receptor tyrosine kinase KIT,’ is currently under study in the clinic for four separate indications: chronic spontaneous urticaria (CSU), chronic inducible urticaria (CIndU), prurigo nodularis (PN), and eosinophilic esophagitis (EoE).
The first of these tracks is the most advanced. In November, the company announced positive Phase 2 topline data on the CSU track, and further data releases from the Phase 2 study are scheduled for presentation at the American Academy of Allergy, Asthma & Immunology on February 23 to 26. Also of note, in November the company released positive data from the Phase 1b study of barzol in the treatment of PN.
This provides a background for Celldex, and lets us make sense of Roger Song’s review of the stock. The Jefferies analyst is bullish on barzol, particularly on the drug candidate’s potential for treating multiple indications. He writes of the stock, “We continue to see CLDX, one of our 2024 top ideas, to be well positioned in the KIT/ urticaria space, with multiple data catalysts during ‘24. With a few recent setbacks from CSU comp, Co is moving the first-in-class and potential best-in-disease barzol into pivotal soon, supported by increasingly comforting clinical results. Beyond the lead indication CSU, barzol is building a ‘pipeline in a product’ addressing various mast cell-driven diseases (rash, itch, GI) with a multi-$B market opportunity.”
Looking ahead, Song finds plenty of additional reasons for optimism here: “Co will report the 52W data in 4Q24 which we believe could continue to provide incremental comfort around safety and efficacy with long-term treatment. Co will be having EOP2 meeting, and initiate Ph3 CSU in summer ‘24 upon the agreement. Additionally, Co is on track for barzol in other indications, including Ph2 CIndU data expected in 2H24, Ph2 PN initiation in 1H24, and Ph2 EoE data likely in ‘25.”
These comments back up Song’s Buy rating on the shares, and his $68 price target indicates room for a 78% upside on the stock in the next 12 months. (To watch Song’s track record, click here)
There are 4 recent analyst reviews on file for Celldex stock, and they break down to 3 Buys and 1 Hold – for a Strong Buy consensus rating. The shares are trading for $38.25 and the $53.50 average price target implies a 40% upside potential for the coming year. (See Celldex’s stock forecast)
Royalty Pharma (RPRX)
The second compelling stock we’ll look at here is Royalty Pharma, an interesting company that gives investors an option when it comes to putting their money into biotech. Royalty is what its name suggests – a royalty company. That is, the firm buys up the rights to biopharmaceutical royalties, providing what it describes as a ‘rich pipeline of opportunities,’ that generates a solid revenue stream.
Royalty has a wide portfolio of leading therapeutic agents, and currently counts more than 35 approved drugs among its investments, as well another dozen development-stage drug candidates. Of these portfolio components, 15 are described as ‘blockbusters,’ generating more than $1 billion each in annual sales. And Royalty taps into those sales proceeds.
In its last quarterly report, for Q4 and full year 2023, Royalty reported total portfolio receipts of $736 million for the quarter and $3.049 billion for the full year. The company generated plenty of net cash from its operating activities, reporting $773 million for the quarter and $2.988 billion for the year. Adj. EBITDA for the quarter came in at $682 million.
We can check in now with JPM analyst Chris Schott, who takes an upbeat view on Royalty’s ability to leverage its portfolio for gains. He particularly notes the company’s success in adding high-revenue therapies to its portfolio, writing, “RPRX continues to see a healthy market for royalty transactions and is coming off a year of $4bn in announced deals (including $775mm in synthetic royalties). Overall, we see RPRX’s valuation as increasingly compelling with shares reflecting little value from future investments and with risks to the cystic fibrosis royalty stream appearing fully priced into shares. While investors continue to perceive the higher rate environment as a headwind to the business (we see little actual impact to results), RPRX should continue to benefit from a strong deal environment given the company’s lower cost of capital relative to peers and the still difficult biotech funding environment.”
Backing his stance, Schott gives Royalty’s shares an Overweight (i.e. Buy) rating with a $45 price target that implies a one-year upside potential of 50%. (To watch Schott’s track record, click here)
The Strong Buy consensus rating on Royalty’s stock is based on 3 unanimously positive analyst reviews. The stock’s current trading price, $29.92, and average target price, $45.33, together suggest an upside for the coming year of 51.5%. (See Royalty’s stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a 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.
