Oppenheimer says biotech stocks look a little brighter right now;  Here are 2 names to consider

The biotech sector, like most segments of the market, was hit hard in the first half of the year. Recently, however, the segment’s performance has improved and this has helped the NASDAQ Biotechnology Index (NBI) outperform the NASDAQ (Up 13% over the past 3 months vs. the NASDAQ’s 3%).

Oppenheimer’s biotech team believes there is a simple explanation for this: “We believe much of the recent outperformance is due to SMID constraints, many of which have risen admirably over the past few months… We are seeing a number of successful results from key clinical trials in this group [Alnylam Pharma, Caribou Biosciences, Cincor Pharma, amongst others].” Additionally, “A growing number of high-profile M&A announcements may reignite interest among professionals and specialists.”

This led Oppenheimer to state that the sky looks “a little brighter” for the biotech industry in 2H. In fact, Oppenheimer analysts expect two names to follow in their colleagues’ footsteps, soon publishing successful trial results that could help them move forward.

We ran both tickers through TipRanks platform to see what the rest of the street predicted for them. It seems Oppenheimer analysts aren’t the only ones showing confidence; both are rated as strong buys by the analyst consensus with plenty of upside potential. So, let’s get into the details.

Madrigal Pharmaceuticals (MDGL)

The first Oppenheimer pick we’ll look at is Madrigal Pharmaceuticals, a clinical-stage biopharmaceutical company focused on finding new treatments for fatty liver disease. Specifically, the company seeks to discover a viable treatment for the disease NASH (non-alcoholic steatohepatitis). This is a more advanced form of non-alcoholic fatty liver disease (NAFLD).

About 20% of adults worldwide are estimated to be affected by NAFLD and 30% of adults in the US; 20% of this population have NASH. Given that there are currently no FDA-approved drugs specific to NASH, there will likely be ample reward for whoever is the first to bring a viable solution to market.

Madrigal’s lead product candidate is resmetirom (MGL-3196), a liver-targeted selective thyroid hormone receptor β-agonist currently in Phase 3 clinical trials indicated for the treatment of NASH. As such, the drug could potentially become the first drug to receive approval for this disease.

In June, the company presented data at the European Association for the Study of the Liver International Liver Congress (EASL 2022), where Madrigal announced in-depth results from the phase 3 MAESTRO-NAFLD-1 double-blind/placebo-controlled segment of the trial.

Oppenheimer Analyzer Jay Olson noted that the results were decidedly positive, highlighting the fact that resmetirom led to “beneficial changes in Fibroscan and MRE, where the greatest improvements were seen in the most advanced patients.” In fact, the analyst believes the results lay the groundwork for upcoming data reporting.

“We believe the Ph3 MAESTRO-NAFLD-1 results provide support for the risk reduction of the Ph3 MAESTRO-NASH biopsy study in NASH patients (N≈2,000), which is ongoing with interim results expected in 4Q22 that would potentially could support submitting Subpart H for expedited approval,” the analyst explained. “Previous Ph2 data showed that reduced liver fat on MRI-PDFF translates into NASH resolution and fibrosis improvement.”

What does this all mean for investors? While Olson thinks negative results could send the stock down ~80%, positive survey results could more than double the stock.

Olson is clearly confident that Madrigal will deliver the goods. Supporting the analyst rating of Outperform (i.e. Buy) is the $170 price target; this figure makes room for 12-month gains of a whopping 162%. (To watch Olson’s record, Press here)

It’s not like other street analysts are worried about predicting big things for this name either. With 9 buys and 1 hold received over the past three months, the consensus is that MDGL is a strong buy. While lower than Olson’s forecast, the $149.44 average price target still shows significant upside potential of 130%. (See MDGL stock forecast at TipRanks)

Milestone Pharmaceuticals (FOG)

Let’s now look at Milestone Pharmaceuticals, another biotech, but with an entirely different mission. The company aims to find treatments for arrhythmias and other heart diseases.

Milestone is committed to the development of etripamil, a self-administered nasal spray indicated as a therapy for patients with paroxysmal supraventricular tachycardia (PSVT) and atrial fibrillation (AFib).

The drug is currently in a phase 2 proof-of-concept study where it is being evaluated for the acute treatment of AFib with a rapid ventricular rate (RVR). But more important right now is the more advanced program, for which there is an upcoming catalyst.

Etripamil is being tested in the phase 3 RAPID trial for the treatment of paroxysmal supraventricular tachycardia (PSVT), a condition in which the heart’s abnormal electrical ‘wiring’ leads to an unpredictable and repetitive rapid heartbeat. The condition affects the lives of an estimated 1.6 million people in the US, and finding a solution would not only represent a major development, but also a way to reduce healthcare burden and costs.

Milestone expects to report top-line survey data in mid-2H22, and heading into the report, Oppenheimer’s Leland Herschel like the ‘risk-reward’ here.

“Success of the primary endpoint (time to episode termination in the first 30 minutes) should meet registration requirements and allow for an NDA submission in 2023,” the analyst noted. “We believe that etripamil represents an important therapeutic advance as well as a means to reduce healthcare burden and cost, and that it is poised to generate peak net sales of $500 million in PSVT alone.” A Phase 2 trial of atrial fibrillation with a rapid ventricular rate has begun and could pave the way for a key off-label expansion opportunity.

It is therefore not surprising that Gershell rates Milestone as Outperform (i.e. Buy) along with a $16 price target. The implications for investors? Potential upside of ~84% from current levels. (To watch Gershell’s record, Press here)

Clearly, Wall Street likes that name; MIST collected 3 other analyst reviews recently and all are positive, giving the stock a consensus rating of Strong Buy. If the average target of $14.50 is reached in one year, this stock will be 66% more valuable than it is now. (Check out the MIST stock forecast at TipRanks)

To find good ideas for trading biotech stocks at attractive valuations, visit TipRanks The best stocks to buya recently launched tool that brings together all of TipRanks equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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