David Nierengarten, Managing Director, Wedbush Securities
David Nierengarten, Ph.D., is Managing Director and Head of Healthcare Equity Research at Wedbush Securities specializing in biotech stocks.
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.
Additionally, prior to joining Wedbush, he worked in a clinical-stage, venture-backed biotechnology company, in business development and clinical trial operations.
This biotech stock specialist received his bachelor’s degree in biochemistry from the University of Wisconsin-Madison and his Ph.D. in molecular and cell biology from the University of California-Berkeley.
“In my specific therapeutic areas, that means for oncology companies in the space where there are treatments for some of the less severe cancers, or cancers that do have other treatments that are more established, which makes it a little bit more challenging for my companies to launch new drugs into the space.
In this 2,488 word interview, exclusively in the Wall Street Transcript, Dr. Nierengarten reveals his top picks for biotech stock upside in 2021.
“My coverage list is all really small mid-cap companies, about two-thirds focused on oncology drug development and about one-third in rare diseases, which in this environment means several gene therapy companies.
So I cover all different kinds of therapeutic modalities from small molecules, all the way up to engineered cell therapies.
For the gene therapy companies, the major impact has been felt on clinical trial recruitments. And since last year there have been several delays in patient recruiting, and in opening clinical sites in particular.
So if a company has to open new clinical sites, it’s been a real challenge, because a lot of the academic centers and hospitals are focused, and we’re all focused, on treating COVID patients and staying ahead of the curve in that way.
So many of these sites literally did not have the time to deal with trying to function as a new clinical trial site for new and different therapies.”
Dr. Nierengarten points out that capital availability drives biotech stock volatility:
“Small- and mid-cap biotechs are exquisitely dependent on the availability of capital.
They have a higher beta than stocks in general. And that’s because once the stock market starts going negative, for example, the biotechs will go more negative, further down, because the assumption is that people will pull back from committing capital to these riskier investments.
And so they have wider swings in the broader market.”
Biotech stocks are a concern at this stage of the economic recovery cycle, according to Dr. Nierengarten:
“The small-cap biotech index peaked out probably late January, early February and has trended down significantly. However, it’s been masked because large-cap performance can mask it a bit.
But small caps look like they peaked out right around February 8, 9 and they’re actually down at around 20% on average since then. So we’ve already seen the beginning of the downturn here.
I think looking ahead into summer in the second half of the year, what concerns me a bit specifically for biotech — but it’s good for the rest of the economy — is as the economy does reopen, will people shift their growth dollars to reopening names that are even more closely tied to the sectors that are recovering, and reopening?
So hotels or cruise lines, airlines, areas like that.
And it’s not necessarily that biotech is doing poorly, or companies are failing or anything like that, but just as an investor, I might see a better opportunity in a highly leveraged hotel chain that now can open up and entertain tourists again.
So that’s my biotech-specific concern for the summer and the rest of the year.
And that’s certainly true in a market downturn where capital becomes less available. And the reverse is also true when capital is more available and the stock market’s doing well, when people often pursue higher beta names to generate even higher returns, and that makes the capital available to the biotech.
So they’re definitely pro-cyclical in that regard. And also just generally speaking throughout the year, they are much more volatile than the average stock.”
Biotech stocks that outperform will be well capitalized, according to Dr. Nierengarten:
“One example tied to clinical readouts coming up soon that I’m quite confident in is Magenta Therapeutics (NASDAQ:MGTA).
The company is working on transplant-related improvements to the stem cell transplant process. They have a couple of data points coming up in the third quarter or fourth quarter of this year. And I think they’ll be positive.
Another name we like is SpringWorks Therapeutics (NASDAQ:SWTX). They have quite a bit of cash, along with a key clinical readout, probably in the third quarter, which is a Phase III for their lead drug, nirogacestat, and desmoid tumors — relapsed desmoid tumors, a rare tumor type.
I have high confidence in a positive readout.
They’ll also have several other earlier stage, clinical readouts throughout the year. So that’s one with multiple data points, and a fair bit of cash to hold them through the foreseeable future.”
There are also some biotech stock standouts:
“One that had a bit of a rough go relating to bluebird bio (NASDAQ:BLUE) is Orchard Therapeutics (NASDAQ:ORTX).
I think they were unfairly grouped in with bluebird bio’s serious adverse events they reported. Actually Orchard and Avro (NASDAQ:AVRO), both are lentiviral-focused gene therapy companies like bluebird, but I think that bluebird’s problems are bluebird-specific to treating sickle cell disease patients, while Avro and Orchard both have not had any similar kind of problems.
And Orchard has a gene therapy now approved in Europe that there should be a bit higher risk tolerance for.
Metachromatic leukodystrophy — MLD — which is a deadly disease — even if you believe that there could be potential problems from their lentiviral gene therapy, I think, the prognosis for that disease is so dire, you take whatever treatment there is available for those patients.
So that one was, I think, unfairly punished. Both of them were hit with the bluebird bio news, and they shouldn’t have been, and they should recover.”
Get all the top biotech stock picks from Dr. Nierengarten by reading the entire 2,488 word interview, exclusively in the Wall Street Transcript.
David Nierengarten, Ph.D., Managing Director & Head of Healthcare Equity Research
email: david.nierengarten@wedbush.com
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