After a stock endures a beating from the public market, it can be tempting to abandon ship. As any seasoned investor knows, if a stock has fallen from grace and is trading at lower levels, there could be a good reason. Whether it be overwhelming recent obstacles or poor underlying fundamentals, all have the potential to hamper a company’s long-term growth prospects and keep them down in the dumps.
By the same token, stocks that have been hit hard can present investors with an attractive entry-point before they take off and shoot for the moon. So, how are investors supposed to separate the stocks poised for a recovery from the ones facing insurmountable headwinds? We suggest taking a cue from the pros on Wall Street.
Using the Stock Screener tool from TipRanks, we were able to scan the market for compelling yet beaten-down stocks, specifically focusing on those inhabiting the biotech space. The results? 3 biotech names backed by enough Wall Street analysts to earn a “Strong Buy” consensus rating. Adding to the good news, each boasts over 50% upside potential.
Zogenix, Inc. (ZGNX)
First up is Zogenix, a company focused on developing products that can potentially improve the lives of patients suffering from rare diseases. While data from a Phase 3 study evaluating its Fintepla candidate for Lennox-Gastaut syndrome (LGS), a rare form of epilepsy, had some investors worried, several analysts advocate staying on board.
On February 7, ZGNX shares shed 39% of their value following the most recent data readout for Fintepla. The results were actually positive, with the candidate demonstrating a statistically significant reduction in the rate of seizures compared to the placebo, which was the primary endpoint of the study. However, it was the level of difference between the drug and the placebo that left a bad taste in investors’ mouths. A 70% difference in the reduction rate had been achieved when Fintepla was evaluated in Dravet syndrome, another form of epilepsy, but it was only able to produce an 18.7% difference in patients with LGS.
Piper Sandler analyst Danielle Brill does acknowledge that the data was underwhelming, but points out that overall, the trial was still positive and should be seen as encouraging. According to the analyst, the data still supports approval, even if the drug will be used less frequently than competing drug, Epidiolex. “With this data, we’re almost certain Fintepla use in LGS will be limited to Epidiolex failures. However, it’s worth noting again that this was always our base case assumption,” she stated.
With Brill expecting Fintepla to be priced at a premium to Epidiolex given its likely last-line therapy status, the five-star analyst sides with the bulls. To this end, she reiterated her Overweight rating as well as the $64 price target, implying a whopping 114% upside potential. (To watch Brill’s track record, click here)
All in all, other Wall Street analysts are on the same page. Out of 9 ratings that have been published in the last three months, 8 were bullish, making the Street consensus a Strong Buy. In addition, the $56.75 average price target puts the upside potential at 88%. (See Zogenix stock analysis on TipRanks)
Biohaven Pharmaceutical Holding (BHVN)
Biohaven boasts a portfolio of innovative products designed to combat neurological and neuropsychiatric diseases.
Yesterday, investors got some bad news as the company announced that troriluzole failed to meet its primary endpoint in a Phase 3 clinical trial evaluating its efficacy in treating generalized anxiety disorder (GAD), with shares dipping 8% in response. This prompted the company to discontinue the drug’s development as a monotherapy for the condition. That being said, several members of the Street believe there’s still hope for the company.
While calling the data “an unfortunate miss”, Wedbush’s Laura Chico brings up the question of dosing. “We spoke with management who noted the dosing in GAD differs from the other indications with the highest dose (280 mg) being explored in Alzheimer’s disease (AD). For our part, we do wonder if that came into play,” she noted.
Management is continuing to develop the drug for other indications including obsessive-compulsive disorder (OCD), AD and spinocerebellar ataxia (SCA), a degenerative brain disease that can impact movement. This combined with the lack of tolerability issues related to troriluzole are promising.
Chico’s primary focus, though, remains on the upcoming rimegepant migraine prevention data and the acute treatment PDUFA slated for later this month. As the analyst thinks eventual approval is very likely, she remains in favor of this biotech. “With shares pulling back below $50 on the troriluzole anxiety results, we see favorable risk/reward into the upcoming rimegepant catalysts,” she commented.
Bearing this in mind, Chico maintained an Outperform rating on the stock. It should also be noted that the analyst’s $75 price target conveys her confidence in BHVN’s ability to surge 59% over the next twelve months. (To watch Chico’s track record, click here)
What does the rest of the Street have to say? In general, other analysts are also bullish on the biotech name, 8 out of 9 to be exact. This makes the consensus rating a Strong Buy. Not to mention the $74.13 average price target suggests a 58% twelve-month rise could be in the cards. (See Biohaven stock analysis on TipRanks)
Acasti Pharma (ACST)
Acasti Pharma’s primary goal is to develop new krill oil-based omega-3 phospholipid therapies that can be used to treat cardiometabolic diseases. CaPre, its lead candidate, was designed as a mixture of polyunsaturated fatty acids (PUFAs) to lower triglycerides while also potentially benefitting LDL-C and HDL-C in patients with severe hypertriglyceridemia. While unexpected trial data contributed to its 77% year-to-date decline, analysts are still betting that ACST can deliver a hefty dose of upside.
On February 10, the company released an update noting that a review of Phase 3 TRILOGY 1 results for CaPre in patients with severe hypertriglyceridemia is underway, which includes specific clinical site audits as well as an audit of the central testing laboratory. The original data showed an uncommon placebo response in its topline triglyceride reduction primary endpoint, which was much greater than seen in any previous omega-3 triglyceride reduction trials. Even though management claims to have monitored the trial, several inconsistencies were identified that possibly could have impacted the topline results.
Weighing in on ACST for Echelon Wealth Partners is analyst Douglas Loe, who writes, “Though there is no denying that TRILOGY 1 failed to achieve its primary endpoint, independent of any explanations of this that would be irrelevant to statistical analysis of data anyway, we remain optimistic that data audit could reveal secondary details that bear more positively on CaPre’s own triglyceride-lowering activity, activity that has actually been well-documented in prior clinical studies conducted by Acasti itself.”
Loe doesn’t dispute the fact that the clinical and regulatory risk remains high, but he does see it as a good sign that it’s making progress in interpreting the unusual data. Additionally, even with TRILOGY 2 data scheduled for release much later than previously expected, the analyst remains optimistic based on his “long-standing positive of CaPre’s published pharmacology and of omega-3 supplementation in general.”
In line with this view, Loe reiterated a Buy recommendation. While he set a lower price target of $1.05, the forecast still leaves room for a possible 85% twelve-month gain. (To watch Loe’s track record, click here)
As for the rest of the Street, other analysts take a similar approach when it comes to ACST. 3 Buys and 1 Hold issued in the last three months add up to a Strong Buy analyst consensus. The $3.35 average price target suggests that shares could skyrocket 509% in the next twelve months. (See Acasti Pharma price targets and analyst ratings on TipRanks)