Biotech stocks can be volatile, even in a bull market. So how do investors avoid the traps?
We asked Eden Rahim of Next Edge Capital, who has had plenty of success investing in biotech. He estimates roughly 40 of the companies he’s invested in over the years have been acquired, including three companies he highlighted on Ticker Take last year.
His game plan is to own companies that are far along in drug development, where the biggest risks are behind them.
Rahim says the current bull market has cooled for two reasons. Rising interest rates are tough on biotech, since many of these companies won’t make a profit for years. In addition, Moderna shot up on cancer vaccine news, and funds that were betting against it had to sell other biotech stocks to cover their short positions.
None of this worries him, though. He told us on the latest episode of Ticker Take that it creates new opportunities in several stocks, which we’ve outlined below. Rahim says he owns or has owned most of them. As always, this is not financial advice.
Cytokinetics (CYTK)
Cytokinetics makes a heart drug for a condition where the heart muscle squeezes too hard and can’t pump enough blood, especially during exercise. More than 90 per cent of analysts rate the stock a buy. Rahim says the fact that Novartis was once reportedly interested in buying the company suggests its current valuation is more than fair.
Legend Biotech (LEGN)
Legend makes a cancer treatment with Johnson & Johnson that turns a patient’s own immune cells into cancer fighters. Sales are rising, and about 70 per cent of analysts rate the stock a buy. Rahim says the market is worried about new competition, but he sees that as an opportunity and good value for investors.
TG Therapeutics (TGTX)
TG makes a multiple sclerosis drug that is taking market share from Roche. More than 85 per cent of analysts rate it as a buy. Revenue has roughly doubled each year for three years, and Rahim says a new version of the treatment that patients can take at home could widen its reach.
Alpha Cognition (ACOG)
Alpha is a small Canadian company with a new Alzheimer’s drug. Only a few analysts cover it, but all of them like it. The drug is an improved version of an older one with fewer side effects. Rahim expects sales to keep growing over the next year.
ClearPoint Neuro (CLPT)
ClearPoint makes a device that guides treatments deep into the brain. Like Alpha Cognition, it has limited analyst coverage, but the analysts who track it like it. Rahim says dozens of partners are testing brain treatments for conditions like Huntington’s and Parkinson’s, and any that get approved could mean more business for ClearPoint.
Nektar Therapeutics (NKTR)
Nektar is developing a new eczema treatment, a condition that causes itchy, inflamed skin. The rival to beat is Dupixent, the standard drug for eczema. Rahim told us many patients don’t respond to Dupixent, and Nektar’s drug works differently, by using an immune cell that calms inflammation. It is also being tested for a type of hair loss, where the standard treatment carries a serious safety warning. More than 70 per cent of the analysts who track Nektar rate it a buy.
The Ticker Take
Rahim estimates big drug companies are about to lose patent protection on more than $100 billion in revenue by 2030. In his opinion, they’ll need new drugs to replace what they’re losing, and buying a biotech company is one way to fill the pipeline.
While the stocks he’s highlighted can be volatile, he sees all of them offering opportunities that big pharma may eventually notice too.
Jon Erlichman is a BNN Bloomberg contributor and the host of Ticker Take on YouTube.
