Biotech Stock Bottom Picks from Professional Research Analysts

March 29, 2022
Matt Phipps, Ph.D., is a biotechnology analyst, with William Blair & Company

Matt Phipps, Ph.D., Biotech Analyst, William Blair & Company

David Nierengarten, Ph.D., is the Managing Director and the Head of Healthcare Equity Research at Wedbush Securities

David Nierengarten, Ph.D., Managing Director, Biotech, Wedbush Securities

Kumaraguru Raja, Ph.D., MBA, is the Vice President, Biotechnology Research at Noble Life Science Partners

Kumaraguru Raja, Ph.D., MBA, Vice President, Biotech Research, Noble Life Science Partners

Steve Brozak is the Managing Partner and President of WBB Securities

Steve Brozak, Managing Partner and President, WBB Securities

Biotech stocks have been hammered in 2021 and so far into 2022 despite the focus on drug development that has accompanied the 2 years of COVID 19 therapy development.  These biotech stock research analysts have determined the best case for biotech stock investors and have current recommendations for investors.

Matt Phipps, Ph.D., a biotechnology analyst, joined William Blair & Co, L.L.C. in November 2014, after working as a postdoctoral research fellow at Texas Scottish Rite Hospital for Children.

In the 2019 StarMine Analyst Awards from Refinitiv, Dr. Phipps was ranked the No. 1 earnings estimator in biotechnology and No. 3 across all industries.

“…For a number of companies with new drug launches or recently approved drugs — it’s been tough for them. They can’t have their salespeople go out and meet with doctors face to face to talk about these new approved drugs. So while some companies have benefited significantly, there’ve been plenty that haven’t.

So there is obviously hope that this year, if we return to somewhat of a normal surrounding environment, a lot of the other companies in the biotech world can start to recover to pre-COVID levels in regard to clinical trial enrollment, utilization rates of physicians, diagnoses of diseases, and other things like that. So there are two sides to the COVID pandemic…

My top name for 2022 is a company called Pieris Pharmaceuticals (NASDAQ:PIRS). It’s just over a $250 million market cap company. So it’s a smaller biotech company, but they have a very important Phase II trial readout coming later this year, which I expect to be in the back half of the year. And it’s a program that offers an inhaled drug for asthma patients that hopes and aims to be as effective as some of the newest injectable drugs are.

The market leader in asthma is really DUPIXENT and Pieris’s drug, called PRS-060, goes after the same mechanism of action, but it uses Pieris’s platform technology, which is a much smaller protein than the antibody DUPIXENT.

And so it can be delivered via an inhaler, and asthma patients are very familiar with using inhalers daily. So this would be kind of an add-on to that, as opposed to asking them to get a shot every two weeks.

The early data has looked very promising. It’s been in patients with less severe asthma just because you want to start with patients who are a little bit healthier when you’re trying something new like this.

And then, as they move into this more uncontrolled moderate-to-severe asthma patient, which is really the patient who would need this type of therapy — we’re going to see the results from that trial in the second half of this year.

And this is a collaboration with AstraZeneca (NASDAQ:AZN), one of the leaders in asthma drugs, both inhalers and injectable drugs.”

David Nierengarten, Ph.D., is Managing Director and Head of Healthcare Equity Research at Wedbush Securities. He mainly covers development-stage therapeutic companies. He began his career on the financial side of biotechnology at a venture capital firm that focused on early-stage therapeutic and medical device companies.

“What has affected our companies a bit more than the broad market is that we saw a real decrease in clinical trial readouts over the past year due to the aftereffects of clinical trial start delays.

We saw a slowdown in recruiting due to COVID, and the FDA slow to sign off on INDs or clinical trials or manufacturing sites. And those delays in data readouts have affected our companies even more than the perceived threat of increased interest rates over the near term.

Will that change? Yes, I think it will change. It will change more towards the latter part of this year, Q3, Q4.

Then, we see at least a pickup in our estimates guided to data points for companies under coverage. And generally speaking, in the small/mid-cap space, we expect to see a bit of a recovery in data readouts. And if they’re positive of course, that overwhelms any negative effect from a couple interest rate hikes, or again a tightening of the financial conditions…”

The research analyst has several picks despite the biotech stock headwinds:

Theseus Pharmaceuticals, they are developing targeted oncology drugs focused on targeted kinase inhibitors, one of which is focused in on the GIST — gastrointestinal stromal tumor — market. They started up a clinical trial recently in late-line GIST patients. They have a promising technology, or research programs, that look for what are called pan-kinase inhibitors.

These can really prevent the emergence of resistant mutations, which has affected a lot of targeted oncology agents and therapies. So we’ll see how they go through the rest of the year.

They’re recruiting patients into that study. So we expect them to open up a study in second-line patients after they understand dosing and scheduling in the later-line patients. And that would open up a potentially larger opportunity for them…

iTeos Therapeutics (NASDAQ:ITOS). That is an immuno-oncology company. They don’t have a lot of their own data coming out this year, but they are working on an anti-TIGIT antibody as one of their lead compounds.

There will be data readouts from related companies, the main one being Roche  (OTCMKTS:RHHBY), that should be updating data for their anti-TIGIT antibody. And I think that if Roche shows a positive data outcome, then iTeos should do well also.

They have a lot of cash. So they don’t need to raise money in the near term. ITOS’s anti-TIGIT antibody is a potentially better anti-TIGIT antibody than Roche’sITOS is developing it in partnership with GSK (NYSE:GSK), who’s helping to fund that development there too. So that’s one longer-term pick that I like a lot.”

Dr. Kumaraguru Raja is a Senior Biotech Analyst at Brookline Capital Markets. Previously, he was Vice President, Biotechnology Research at Noble Life Science Partners. He started his equity research career in 2010 as a Senior Associate Analyst on the Citi Research biotechnology team.

His expertise includes bottom-up scientific and financial analysis on companies across therapeutic areas and across a spectrum of market capitalizations.

“In my coverage, for example, Veru (NASDAQ:VERU) has over $100 million in cash, and they are also a revenue-generating company. But if you look at the biotech space, in my coverage universe, there are not a lot of companies that are generating revenues or have sales.

So in that aspect, Veru is comparatively well positioned. Their incoming revenues help them offset some of the expenses with moving the pipeline forward. And they also raised money last year, so they have over $100 million in cash. And of course, that is going to help them.

Then Arcturus (NASDAQ:ARCT) also has at least two years of cash in their balance sheet.

So some of these companies are well positioned in terms of cash. Whereas others, they need to raise cash. And given the current market condition, compared to the valuations last year which were comparatively higher, they would raise cash probably at a much lower valuation right now…

I also like Cyclacel (NASDAQ:CYCC), with a very small market cap, about $35 million.

They are also in the oncology space. They also have multiple clinical trials going on. And they are developing targeted therapies for oncology, both solid cancers as well as for blood cancers.

They have a drug called fadraciclib, which is a CDK2 and CDK9 inhibitor. Basically, this drug prevents the cell cycles from progressing, so it prevents the cells from dividing. And this is an oral drug that is being developed for both blood cancers as well as for solid cancers. And they have already started the clinical trials and they will have data readouts later this year.

They also have another drug called CYC140, which targets another pathway called PLK1. That’s also a Phase I/II trial that also will have some data this year. And they are trading probably less than the cash that they have. So I like the risk/reward as the pipeline moves forward.”

Steve Brozak is the Managing Partner and President of WBB Securities, LLC.

In 2013, Dr. Brozak was selected as a top analyst in the pharmaceuticals sector by the StarMine/Financial Times Industry Analyst Awards. He also was named to The Wall Street Journal’s “Best on the Street” list in the category of medical equipment and supplies.

“In the past few years, several mostly smaller companies have evolved with new products to fight infections. The first two I would like to discuss are in the antifungal space and they are SCYNEXIS (NASDAQ:SCYX) and Cidara (NASDAQ:CDTX).

Scynexis is developing a new class of antifungal products. Their lead product has just been approved and launched. It’s called ibrexafungerp and the trade name is BREXAFEMME. It has a broad-based potential for treating a wide range of fungal pathogens.

It’s first market indication is VVC, which is a serious issue that affects practically all women. The other company, Cidara, also has an antifungal platform that I believe also will be critically important in the near future.

I am watching this space because fungal infections are a growing problem.

Fungal pathogens have always been present but are now becoming more recognizable. And these pathogens are not going away. As a matter of fact, their presence is only increasing with issues of temperature and climate change. So I would look very closely at the threat of all infective pathogens, and examine very carefully the two companies I mentioned…

I would say that for both SCYNEXIS and Cidara, the timeline is right now based on price, and for SCYNEXIS, also based on the recent product launch.

I think antifungals are important because we’re now seeing that COVID presents multiple problems, specifically around opportunistic infections, including both bacterial and fungal infections.

Here is why. There are large segments of the U.S. population that are Type 2 diabetic and morbidly obese. And sadly, for that population, fungal infections are at an all-time high.”

Read the full interviews with all of these biotech stock analysts and more, exclusively in the Wall Street Transcript.