My top 3 choices of biopharmaceutical stocks for 2022

TThanks to the double headwinds of skyrocketing inflation and the threat of rising interest rates, biopharmaceutical stocks appear poised for a turbulent 2022. response to these tightly nested macro variables.

This year therefore seems destined to be a real “stock picking market” for biopharmaceutical investors. With those macroeconomic headwinds in mind, here are my top three biopharmaceutical stock picks for calendar year 2022.

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Two ways to win

Pharmaceutical Aurinia (NASDAQ: AUPH) could be in the danger category as an early stage biopharmaceutical, but this company has an exceptional chance of producing above-market returns for shareholders in 2022. The singular reason is the oral lupus nephritis (LN) drug Aurinia, Lupkynis (voclosporin). Lupkynis was approved in January 2021, and so far the drug appears to be grabbing a respectable share of the LN market. In the first nine months of 2021, for example, the drug generated $ 22.2 million in sales, which isn’t a bad start for a new drug marketed by a new commercial biopharmaceutical company. Even more impressively, Wall Street expects Lupkynis to experience exponential sales growth this year, with the average analyst estimate for 2022 currently standing at $ 206.4 million.

From a global perspective, Aurinia shares appear to be woefully undervalued in light of Lupkynis’ underlying value proposition. From an organic growth perspective, Wall Street estimates the drug will exceed $ 1 billion in annual sales by 2026. And by the end of the decade, Lupkynis could cross the $ 2 billion sales mark. annuals, depending on how well some potential competitors are doing in their ongoing clinical studies. Aurinia’s revenue is therefore expected to grow at a compound annual growth rate (CAGR) of around 40% over the next five years, and in the best-case scenario, the company’s annual sales could even show a CAGR of 33%. through 2030. That’s a huge level of organic sales growth.

Successful drugs, defined as those that exceed the annual sales threshold of $ 1 billion, don’t exactly fall from the trees. But Aurinia has also been touted several times as one of the top buyout contenders over the past two years. While these rumors have yet to materialize, there is no doubt that this idea has a solid foundation. Many large pharmaceutical companies with a strong interest in autoimmune diseases such as LN face key patent expiries in the years to come. In addition, most of these companies currently have a massive stockpile of cash. Aurinia would thus fill a great void in their product portfolios.

All in all, Aurinia’s stock offers investors top-notch levels of organic sales growth, as well as the opportunity to realize a significant gain through a buyout scenario.

Close up image of a brain.

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A major regulatory victory could be on the way

Axsome Therapeutics (NASDAQ: AXSM) is one of the few clinical-stage biopharmaceutical stocks in which Wall Street remains confident as 2022 kicks off. After all, the 12-month consensus target price among analysts covering this stock implies a whopping 161% upside potential from current levels.

Wall Street’s confidence stems primarily from the subsequent regulatory and commercial outlook for Axsome’s investigational major depressive disorder (MDD) drug AXS-05. The drug suffered a regulatory delay last year for two analytical methods in the Chemistry, Manufacturing and Controls section of its regulatory filing with the Food and Drug Administration (FDA). Instead of outright dismissing AXS-05’s private label regulatory brief, the FDA appears to be working with the company to address these shortcomings – at least according to Axsome’s third quarter 2021 results release.

The big problem is that AXS-05 is expected to generate $ 893 million in sales as a top-notch treatment for MDD by 2026, according to Evaluate Pharma. This is a gargantuan revenue stream for a biopharmaceutical company with a current market capitalization of $ 1.24 billion. Additionally, Axsome is also awaiting a response from the FDA regarding a regulatory filing for its acute migraine drug, AXS-07. The drug is not expected to achieve blockbuster status due to the highly competitive nature of the migraine drug space. But this drug could very possibly bring in a few hundred million in annual sales at its peak.

Why is Axsome stock trading at such a depressed valuation compared to the combined business potential of the AXS-05 and AXS-07? The market is clearly not convinced that the FDA will approve AXS-05 during the current review cycle. This is an interesting point of view, given that the FDA could already have rejected the drug to force Axsome to fill the outstanding loopholes through a revised regulatory dossier. Yet the agency has not done so more than four months after the start of this extended review cycle.

Conclusion: The action of Axsome is deeply undervalued should the FDA indeed give the green light to AXS-05 this year. And if the FDA demands another round of review for AXS-05, biopharma shares are already trading as if this scenario were inevitable.

Wooden blocks describing mergers and acquisitions.

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A special buyback offer

Cardiff Oncology (NASDAQ: CRDF) has also caught the attention of Wall Street lately. Wall Street’s 12-month average price target implies a breathtaking 274% upside potential for this small-cap biopharmacy, compared to its current price.

Wall Street’s enthusiasm for Cardiff stems mainly from a recent $ 15 million investment by Pfizer (NYSE: PFE). In short, Pfizer is bursting with cash from its sales of COVID-19 products, and the pharmaceutical giant has previously announced that it is looking to be aggressive in the M&A scene to avoid the eventual commercial decline of this key franchise. Pfizer’s sudden interest in Cardiff was therefore widely seen as a prelude to a possible takeover.

What would Pfizer get by buying Cardiff? Cardiff is developing a third generation Polo-Like Kinase 1 (PLK1) inhibitor known as onvansertib. PLK1 inhibitors have shown clinical promise before, but their unfavorable safety profiles have prevented them from becoming an important new class of cancer therapy. Cardiff believes it has solved this toxicity problem with its third generation PLK1 inhibitor, onvansertib.

What should investors watch out for? Cardiff is on track to announce the first results of the onvansertib KRAS-mutated metastatic colorectal cancer study this summer. If the drug’s efficacy and safety results are there, it wouldn’t be surprising to see Pfizer pull the trigger of a deal.

Now, despite this interest from Pfizer, Cardiff is undoubtedly a super risky game. After all, cancer drug trials have an extremely low success rate.

That being said, Cardiff’s huge upside potential should appeal to the risk-tolerant crowd.

10 stocks we prefer at Aurinia Pharmaceuticals
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* Returns of the portfolio advisor as of December 16, 2021

George Budwell has no position in the stocks mentioned. The Motley Fool owns and recommends Axsome Therapeutics. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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