Most of the major US stock market indices have rebounded strongly since reaching a multi-year low on March 23, 2020. The Dow Jones Industrial Average has gained a healthy 26% in the past two and a half weeks, while the S&P 500 increased by almost 23% over the same period. Despite this remarkable turnaround, however, there are still tons of stocks trading in bargain territory. Small to mid cap growth stocks, for example, have yet to fully participate in what turns out to be a V-shaped recovery in many ways.
Which growth stocks are the best buys right now? Heron Therapeutics (NASDAQ: HRTX) and Intercept Pharmaceuticals, Inc. (NASDAQ: ICPT) are two biopharmaceutical companies that could easily double in value before the end of the year. Here is a brief overview of the pros and cons associated with each stock.
Heron Therapeutics: a major catalyst at your fingertips
Heron, a commercial biotechnology, is down almost 50% from its 52-week high at the moment. Investors punished this small-cap biotech mainly because of the extremely slow pace of the regulatory process for the company’s investigational pain reliever HTX-011. In April 2019, the U.S. Food and Drug Administration (FDA) rejected the drug due to manufacturing issues. After a successful new submission, the agency then extended the drug review period by three months last February until June 26, 2020. Unfortunately, biotechnology investors are not exactly known for their patience.
Heron’s actions were particularly sensitive to the HTX-011 regulatory cycle for two reasons. First, the company’s franchise for chemotherapy-induced nausea and vomiting (CINV) has slowly grown in recent quarters, with net annual sales reaching a respectable total of $ 146 million. of 2019. But this CINV franchise should never be a huge money-maker for the business. In fact, Heron’s CINV sales are expected to drop nearly 50% in 2020 before resuming growth in 2021.
This brings us to the second reason. HTX-011 is without a doubt the company’s flagship product. There is a well-documented need for effective non-opioid pain relievers in acute care settings. HTX-011 appears capable of meeting this need based on its advanced stage test data. Heron, in turn, believes that the HTX-011 could generate at least $ 1 billion in annual sales. In addition, the drug is expected to have an unusually long shelf-life since the vast majority of non-opioid pain relievers have failed in advanced stage trials.
The main point to remember is that Heron has an above-average chance of obtaining regulatory approval for a potential pain reliever by the middle of 2020. It is a huge catalyst for a company with a market capitalization of only 1 , $ 26 billion at the time of writing.
Interception: a key advantage of the first arrival in NASH
Intercept stock is currently down 46% from its 52-week high. Investors soured the name thanks to the COVID-19 pandemic and security concerns over its nonalcoholic steatohepatitis, or NASH, a candidate called Ocaliva (obeticholic acid).
The background is that Ocaliva is already approved for another non-viral liver disease known as primary biliary cholangitis, an indication that is expected to generate approximately $ 300 million in sales spikes for the drug. Intercept’s current goal is to extend the Ocaliva label to the United States and the EU to include patients with NASH hepatic fibrosis.
The big problem is that about 20 million Americans could be suffering from this life-threatening liver disease. Additionally, there are no approved therapies for NASH in the United States or the EU. Ocaliva could therefore become the first drug approved for this high-value indication, which could translate into billions of annual sales.
The catch is that the expansion of Ocaliva labels is far from certain. In advanced stage tests, the drug produced a worrisome pruritus (itching) rate at its most effective dose as well as high levels of LDL (bad cholesterol). Regulators can ignore these safety signals given the huge need for viable NASH therapy, as well as the fact that Ocaliva may be the only game in town for a few years. But it is never a good idea to completely ignore important safety data, especially when it is a regulatory decision.
The big picture is that Intercept may have a mega-blockbuster NASH product on its hands – in fact, a drug capable of generating more than $ 5 billion in annual sales. That said, there is a significant regulatory risk associated with this stock. So, investors probably shouldn’t get wild with the name before Ocaliva’s regulatory decision, which is currently slated for June 26, 2020. A small position in this biotech, mid-cap could however be a smart move. After all, Intercept’s shares could most likely double following a positive regulatory decision this summer.