The market has been on a rough ride the past couple of weeks, and biotechs have been hit particularly hard. Especially small-cap, clinical stage biotech companies.
But while these stocks have been hammered of late, there are diamonds in the rough that should be on your radar.
Here are three beaten-down biotech stocks that could offer massive returns over the next twelve months.
Paratek Pharmaceuticals (NASDAQ: PRTK)
Paratek Pharmaceuticals (NASDAQ: PRTK) has had a rough year and is down 63% in the last twelve months. But the stock rose 32% in just four days early this month on news that the FDA had approved two of the company’s antibiotic treatments, Nuzyra (omadacycline)—a treatment for community-acquired bacterial pneumonia (CABP) and certain acute skin infections—and Saysara, which treats moderate to severe acne.
Since then, however, the stock has again taken a turn downward, and has fallen to a new 52-week low. But this looks to me like a good buying opportunity for PRTK. And here’s why.
Paratek is in the business of developing new antibiotics at a time when antibiotic resistance is becoming a serious problem and the world is in need of new antibiotic treatments.
“Antibiotics are a very serious public health problem for us, and it’s getting worse. Resistant microbes outstrip new antibiotics. It’s an ongoing problem. It’s not like we can fix it and it’s over. We have to fight continuous resistance with a continual pipeline of new antibiotics and continue with the perpetual challenge,” said Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases.
This company just had two new antibiotics approved in a single day. It’s Nuzyra treatment is especially promising as it counters many of the resistant bacteria strains commonly seen today, which sets it apart from other tetracyclines that are effective against fewer strains.
With the approval of its two new treatments, Paratek will move from just a drug research company into a revenue generating company once it begins to market and sell these new drugs. The company sees a potential $5.4 billion addressable patient market opportunity for its Nuzyra treatment by 2028 in just the U.S. alone.
It has also partnered with Zai Lab, a Chinese biopharmaceutical company, to commercialize the antibiotic in China as well, which is the second largest pharmaceutical market in the world. The deal comes with a $7.5 million upfront payment to Paratek and “tiered royalties at a low double digit to mid-teen percent on net sales of the licensed product” for sales in China, which could represent a massive payout over time for the company.
The other thing to like about Paratek is its attractiveness to other, larger pharma companies. The company has two newly FDA-approved antibiotic treatments, one that has already been proven to be very versatile and could see massive demand, and the company would be an inexpensive buyout considering its market cap is only around $268 million right now. I wouldn’t be at all surprised to hear buyout chatter about this company at some point in the future, so keep an eye out.
Given all this, it’s no wonder why the average analyst price target for PRTK is $33.34, suggesting possible upside of 314% over the next 12 months. Cantor Fitzgerald recently rated the stock a Buy and gave it a price target of $50 – 525% higher than Thursday’s closing price.
Sorrento Therapeutics (NASDAQ: SRNE)
Sorrento Therapeutics (NASDAQ: SRNE) has also been beat up this year and is currently down 55% year-to-date.
The company’s stock was hit hard earlier this year after the FDA approved its ZTildo lidocaine patch treatment to treat post-shingles pain. The stock dropped after the big announcement after it had seen a big run-up in anticipation of the treatment’s approval.
The big concern with ZTildo is that it is essentially a better version of Lidoderm, a patch that has been on the market for nearly 20 years, and it could be difficult to get doctors to make the switch to prescribing ZTildo instead. The other issue is that there are already generic versions of Lidoderm to compete with as well, which may mean it could be difficult to get insurance companies to cover the new treatment.
But Sorrento is more than just ZTildo, and the company actually has a pretty interesting pipeline. This pipeline includes a range of CAR-T cancer treatments, a rapidly growing and competitive immuno-oncology therapies segment. The company has also hinted at possibly spinning-off ZTildo to raise cash to focus solely on cancer treatments.
The average twelve month price target for SRNE is $21.08, indicating potential upside of nearly 543%. Earlier this month HC Wainwright rated the stock a Buy and set their price target at $40 – 1,119.5% above the current price.
Ocular Therapeutix (NASDAQ: OCUL)
As you might have guessed from its name, Ocular Therapeutix (NASDAQ: OCUL) is focused solely on ophthalmology treatments, and its pipeline drug Dextenza could prove to be a big winner for the company once it is approved.
Dextenza treats eye pain and inflammation post-surgery. The FDA has already rejected the company’s new drug application (NDA) for the Dextenza twice, though things appear to now be back on track.
Earlier this month, Ocular received a warning letter from the FDA in regards to the company’s compliance with data collection and reporting obligations. However, in a research note to clients, HC Wainwright analyst Ram Selvaraju wrote that “the study was agreed upon by the previous management team and has been found to be impractical to implement in its current design. The current management has already been in discussion with the FDA before receiving the letter. We expect the company to work with the FDA to resolve this issue…”
Piper Jaffray’s Joseph Catanzaro believes there’s “significant upside” ahead for OCUL, and thinks Dextenza will be approved before the end of the year. “After discussions with management we are confident that the issues raised in Dextenza’s CRLs have been sufficiently addressed to warrant an FDA approval before YE18,” Catanzaro said.
“We believe that a favorable label and reimbursement environment will drive U.S. Dextenza sales in the post-surgical setting in excess of $250MM by 2025,” he added.
Of the five analysts covering OCUL, all five rate the stock a Buy. Their average price target for the stock is $13,67, suggesting possible upside of 153.6% over the next twelve months. At the beginning of the month, Cantor Fitzgerald set their price target for OCUL at $22 – 308% higher than Thursday’s closing price.