Maya Sasson

About the Author Maya Sasson

Maya Sasson, originally from San Francisco, California, is a financial writer focusing on U.S. stocks as well as analyst activity. Before diving into the world of financial writing, she earned a B.S. in Mathematics from Tufts University, and began her career as a data analyst for a software company.

3 Biotech Stocks With Plenty of Upside in the Pipeline

A sense of cautious optimism is looming over the Street given the progress in the reopening of the U.S. economy, and while the recent uptick isn’t necessarily indicative of a full recovery, it’s certainly a step forward.

Against this backdrop, Wall Street pros argue that certain sectors are holding up substantially better than the rest, and within these areas, compelling plays can be found. Highlighting the biotech space, the pros say there are names that have not only received a lot of love from the analyst community, but also stand to deliver hefty returns through 2020 and beyond.

Inspired by the pros, we used TipRanks’ database to pinpoint noteworthy biotech stocks. We found three that tick the boxes; each has amassed enough bullish calls to earn a “Strong Buy” consensus rating and offers up serious upside potential.

Cytokinetics, Inc. (CYTK)

Historically, diseases related to heart failure have been treated the same way, but Cytokinetics is shaking things up. Unlike its peers, it focuses on normalizing muscle contractility rather than solely on volume or rate control. For this reason, several analysts believe this biotech’s future is only going to get brighter.

One of these analysts is Mizuho Securities’ Salim Syed. Speaking to CYTK’s differentiated approach, he commented, “In our view, there’s good clinical evidence that it’s not just a theory. In this regard, the therapies that Cytokinetics is working on, beginning with its lead asset, omecamtiv mecarbil, have the potential to be foundational ‘backbones’ and shift the broader treatment paradigm that really had its start decades ago.”

Given how common heart failure is in the U.S., with the condition affecting more than 6 million people, Syed argues that the possibility of a new treatment angle is “extraordinary”. Compare this to the prevalence of Alzheimer’s, which afflicts over 5 million people, and the significance of diseases that cause heart failure becomes clearer.

On top of this, Syed points out that investor focus has locked in on a key upcoming catalyst. A data readout for omecamtiv mecarbil in the Phase 3 heart failure cardiovascular outcomes trial (CVOT), GALACTIC-HF, is slated for the fourth quarter of 2020, with investors anxiously waiting to see if the therapy can reduce cardiovascular death and heart failure events.

After conducting a deep and step-wise analysis of each parameter of the GALACTIC-HF trial design, looking at historical CVOTs, available regression data and other nuances, Syed believes the probability of success (PoS) is high. “Overall, through our work, what seems to be a competitive / clinically meaningful bar on the primary endpoint and also CV death alone is about a 15-20% relative risk reduction, and we believe that omecamtiv mecarbil may produce an 18-22% relative risk reduction on the primary endpoint (with a similar number on CV death), which would likely be a win,” he stated.

With a 70% PoS, Syed estimates that worldwide end-user unadjusted sales could come in at $4.2 billion. Not to mention CYTK is using its contractility work to find solutions for indications in the skeletal muscle disease space like ALS and SMA.

It should come as no surprise, then, that Syed decided to join the bulls. He initiated coverage with a Buy rating and $31 price target, implying upside potential in the shape of 88%. (To watch Syed’s track record, click here)

Does the rest of the Street agree with Syed? As it turns out, they do. With 100% Street support, or 5 Buys to be exact, the message is clear: CYTK is a Strong Buy. At $26.60, the average price target puts the upside potential at 62.5%. (See Cytokinetics stock analysis on TipRanks)

Keros Therapeutics (KROS)

Leading the way when it comes to understanding the role of the Transforming Growth Factor- β (TGF- β) family of proteins, which regulate red blood cell and platelet production as well as the growth, repair and maintenance of muscle and bone, Keros develops treatments for patients with hematologic and musculoskeletal disorders. Based on its strong pipeline of assets targeting TGF- β, Wall Street has high hopes for this biotech, which IPO’d only a month ago.

Writing for H.C. Wainwright, five-star analyst Andrew Fein told clients, “As a pioneer in developing novel TGF- β targeted therapies, Keros is able to rapidly translate biological insights into drug candidates. Following strong IPO performance since last month, we believe components of Keros’ pipeline and platform remain underappreciated by the Street for multiple reasons.”

These reasons include the recent approval of Acceleron’s Reblozyl as it validates the clinical utility of TGF- β ligand traps in multiple hematologic diseases. Fein also points out that Keros’ lead protein therapeutic product candidate, KER-050, which was designed for use in patients with myelodysplastic syndromes (MDS) and myelofibrosis (MF), is differentiated and even superior to Reblozyl. He backs up this claim by citing data in healthy volunteers that demonstrated favorable safety as well as PK/PD.

Looking at the MDS market, which is valued at $1.6 billion, Fein argues initial data from the Phase 2 study could inflect substantial value, while validating the platform as a whole. It also doesn’t hurt that KER-050’s opportunity in the MDS market can be viewed along with additional diseases caused by ineffective hematopoiesis and exhibiting anemia and/or thrombocytopenia, including myelofibrosis (MF) and beta-thalassemia.

If that wasn’t enough, KROS also boasts promising earlier stage therapies. Both KER-047 and KER-012 have already seen encouraging results, and are supported by strong scientific rationale. This gives the company optionality in the near- to mid-term, in Fein’s opinion.

Fein added, “Led by industry veterans from Acceleron, the Keros team possesses not only the scientific know-how as related to creating TGF- β targeted therapies, but also deep insights into the clinical pathway for each of their drug candidates. As such, we view Keros as a true platform play that should continuously fuel its pipeline with highly differentiated assets to drive value in the long run.”

To this end, Fein kicked off his KROS coverage by putting a Buy recommendation and $50 price target on the stock. Should this target be met, a twelve-month gain of 72% could be in store. (To watch Fein’s track record, click here)

Judging by the consensus breakdown, other analysts are also impressed. 4 Buys and no Holds or Sells add up to a Strong Buy consensus rating. The $41 average price target is less aggressive than Fein’s but it still leaves room for shares to surge 37.5% in the next year. (See Keros stock analysis on TipRanks)

Black Diamond Therapeutics (BDTX)

Using its technology platform that’s focused on identifying previously-undrugged allosteric mutations, Black Diamond wants to stomp out cancer. As this technology allows it to identify more selective, orally-bioavailable compounds that can exhibit greater efficacy and better safety and tolerability than currently marketed drugs as well as agents in development, some members of the Street are betting on BDTX.

H.C. Wainwright’s Ram Selvaraju is doing just that. The five-star analyst notes that “Black Diamond as a leader in the discovery and design of novel therapeutics aimed at allosteric mutations in well-known oncogenes, hitherto unaddressable with existing medications.”

Highlighting its Mutations-Allostery-Pharmacology (MAP) platform, Selvaraju said, “MAP provides a unique edge in pinpointing previously undrugged mutations and prioritizing those with the greatest oncogenic potential—i.e., the highest propensity to cause and drive cancer… Black Diamond intends to position its molecules as safer and more potent, capable of rapid advancement via pathways established for precision medicines in oncology. These can be deployed across cancers regardless of tissue of origin to treat those patients carrying specific mutations.”

Selvaraju’s excitement isn’t limited to BDTX’s platform. Pointing to its most advanced pipeline candidate, BDTX-189, which is currently in a Phase 1/2 trial, MasterKey-01, designed to evaluate the molecule in patients with non-small cell lung cancer (NSCLC), breast cancer and other solid tumors, the analyst likes what he’s seeing. The candidate has already demonstrated high selectivity for allosteric HER2 mutations and exon 20 insertions in the HER2 and EGFR gene, which are known to cause cancerous cell creation. Thanks to its highly selective nature, Selvaraju thinks BDTX-189 will be able to produce more anti-tumor activity, as well as be safer and better tolerated.

As a result, BDTX-189 could see peak total annual sales hit $2.5 billion by 2030 in the U.S. and Europe, but this only factors in NSCLC patients with exon 20 insertion mutations and HER2 allosteric mutations in breast cancer plus other solid tumors.

Expounding on this, Selvaraju commented, “In our view, the drug could be priced at $22,000 per month—over $260,000 per year—given pricing for other precision oncology drugs in the $20-30,000 per month range and pricing for tucatinib at over $18,000 per month for a larger patient population. We note that these markets constitute areas of high unmet medical need in which existing standard-of-care medications have already proven unsuccessful. We expect BDTX-189 to be deployed across tumor types, similar to drugs like Vitrakvi (larotrectinib) and Rozlytrek (entrectinib) but targeting larger patient groups overall.”

Based on all of the above, it’s no wonder Selvaraju started out his coverage of this biotech by publishing a Buy rating. His $53 price target coveys his confidence in BDTX’s ability to climb 47% higher in the next year. (To watch Selvaraju’s track record, click here)

Turning now to the rest of the Street, other analysts are also bullish. Only Buy ratings have been assigned in the last three months, making the consensus rating a Strong Buy. Not to mention the $48 average price target suggests 33% upside potential. (See Black Diamond stock analysis on TipRanks)

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