Biotech stocks are defensives that could be just what the doctor ordered for the market’s current uncertain conditions
- Arcus Biosciences (NYSE:RCUS): Cancer biotech having multiple big-pharma collaborations that ensure revenue streams
- Vir Biotechnology (NASDAQ:VIR): Diversified infectious disease play
- BioNTech (NASDAQ:BNTX): Potential for replicating its Covid-19 success with its rich oncology pipeline
- Beam Therapeutics (NASDAQ:BEAM): Gene-editing platform technology company has high-profile collaborations
The overall market mood is risk averse, influenced by the macroeconomic uncertainty and intensification of geopolitical tensions. Biopharma stocks are historically considered defensives since their fortunes are very loosely tied to external factors.
This safe-haven appeal could position these companies in good stead in the near term, given the prospect of steady returns even in the face of market upheavals.
The biotech sector has underperformed over the past year, giving back the gains it notched up following the outbreak of Covid-19 in early 2020. The SPDR S&P Biotech ETF (NYSE:XBI) has lost about 37% since mid-April 2021 as opposed to the roughly 8% gain for the SPDR S&P 500 ETF Trust (NYSE:SPY). The sector per se is undervalued vis-à-vis the broader market.
What would it take for the sector to rediscover its mojo? Breakthrough innovation, a pickup in deal flow, successes in clinical trials, hassle-free regulatory pathways and removal of regulatory overhang can go a long way in restoring investor confidence in the sector.
When the sector does make a comeback, there is a likelihood that stocks of companies with a promising pipeline and strong cash position could rally big from the bottom, particularly these four:
I used the following screening criteria:
- Price-to-Book of less than 4 times
- Average daily trading volume greater than 500,000 shares
- Market capitalization of $2 billion or above
- Promising Pipeline/commercial portfolio
- Average analysts’ rating of “buy” or stronger
- 50% or more upside to analysts average price target
Undervalued Biotech Stocks: Arcus Biosciences (RCUS)
Hayward, California-based Arcus is a clinical-stage, cancer-focused biopharma that has a broad portfolio of small molecules, enabling differentiated combination therapies. It has two late-stage investigational assets and a host of mid-stage compounds in its pipeline.
The company has a long-standing collaboration with Gilead Sciences (NASDAQ:GILD) for developing cancer immunotherapies. Arcus would receive a $725 million payment from Gilead following the latter opting to exercise options for three small molecules. Gilead will also share costs as the two companies co-develop these molecules.
Also, Arcus is partnering with AstraZeneca (NASDAQ:AZN) for developing a combo therapy for lung cancer.
The second half of the year is a catalyst-rich one for the biotech, with several clinical readouts scheduled for the period.
Arcus stock is down over 20% in the year-to-date. Analysts, on average, expect it to more than double from the current levels.
Vir Biotechnology (VIR)
Vir Biotechnology calls itself a company that combines “immunologic insights and cutting-edge technologies” to treat and prevent infectious diseases. The San Francisco-based company was in the spotlight during the Covid outbreak, as it teamed up with GlaxoSmithKline (NYSE:GSK) to develop monoclonal antibody treatments, VIR-7831 and VIR-7832.
The former, marketed as Sotrovimab, has already been authorized by the Food and Drug Administration for treating mild-to-moderate Covid-19. The company is evaluating an intramuscular version for the same indication and is also testing it in hospitalized Covid patients as well as a prophylactic option.
Aside of its Covid portfolio, Vir is evaluating small interfering RNA molecules as monotherapy and combo treatment for hepatitis B virus. It is also developing an antibody treatment candidate as prophylactic treatment for influenza A and a T-cell vaccine candidate for HIV.
Since the start of the year, the stock has lost almost half of its market value, partly reflecting skepticism over the extent to which Vir’s Covid portfolio can support its valuation.
Sell-side analysts are uber-bullish on this beaten-down biotech and project nearly 250% upside from current levels.
Undervalued Biotech Stocks: BioNTech (BNTX)
This once-obscure German biopharma shot to the spotlight with its mRNA technology that came in handy for the expeditious development of Covid-19 vaccine when the pandemic struck in 2020. Along with collaboration partner Pfizer (NYSE:PFE), BioNTech struck gold with its Covid-19 vaccine, named Comirnaty.
BioNTech’s share of Comirnaty revenue topped $20 billion in 2021 and it expects to rake in another $14 billion to $18 billion revenue in 2022.
The stock has declined about 40% since the start of the year amid the market-wide pessimism and fears over the sustainability of Covid vaccine revenue growth.
To be sure, BioNTech isn’t a one-trick pony. It has a rich pipeline targeting infectious diseases and cancer. Particularly for cancer, the company has tie-ups with Sanofi (NASDAQ:SNY) and Roche’s (OTC:RHHY) Genentech unit.
The average analysts’ price target of $243.80 suggests that the stock offers upside potential of about 54%.
Beam Therapeutics (BEAM)
Cambridge, Massachusetts-based Beam is a platform technology company developing precision genetic medicines. Its proprietary base-editing technology enables precise, predictable and efficient single-base changes, at targeted genomic sequences.
Beam’s pipeline candidates have yet to enter clinics. Three investigational new drug-enabling studies are ongoing for indications such as sickle cell disease, beta thalassemia and certain type of blood cancers.
The company has a multi-target R&D collaboration with Pfizer for in-vivo base-editing programs for a range of rare diseases. The partnership could fetch the company up to $1.35 billion in upfront and milestone payments.
The stock is down about 41% year-to-date, but could advance by about 150%, based on the average analysts’ price target of $113.57.
This article originally appeared at InvestorPlace.
On the date of publication, Shanthi Rexaline did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Shanthi is a contributor to InvestorPlace.com as well as a staff writer with Benzinga. Equipped with a Bachelor’s degree in Agriculture and an MBA with specialization in finance and marketing, she has about two decades of experience in financial reporting and analysis, and specializes in the biopharma and EV sectors.