There are several reasons biotechnology stocks are an investor favorite. One of those reasons is that this is a vast sector. Here, companies great and small develop the next generation of treatments and medical advancements that cover everything from chronic illness to cosmetic enhancements. As such, no two companies are ever the same, and investors are afforded a lot of choices.
However, this is a risky sector. For example, many small-cap companies will never receive FDA approval for a drug. The majority of treatments entering clinical trials are thrown in the bin by regulators, and it’s estimated that roughly 90% of new drug ventures will never see the light of day.
This is an uncertainty that makes this industry costly and the shares in it incredibly volatile. It is often volatility that investors can’t afford. However, when a company is successful, shares soar, and investors reap the rewards. This is what keeps us on our toes!
Biotechnology Stocks: The Break Out Success
One such example of a break out success in 2019, is Axsome Therapeutics (NASDAQ:AXSM). Year to date, these shares have packed on over 800%. Yes, in early January, AXSM stock was selling for under $3 a share. Jump forward to mid-June, and we see an entirely different story; shares are now swapping hands for $20.85.
This success has made Axsome one of the hottest small-capped biotechnology companies at present. Its success comes from its positive results from a phase 2 clinical study on its experimental drug AXS-05. Developed to treat major depressive disorder (MDD), AXS-05 beat an established drug giant—Bupropion—in improving the symptoms of depression.
Within a week, AXSM stock soared 468%. The bullish sentiment has continued with the drug’s continued successes and now according to RNSDaily:
“Experts from research firms are bullish about the near-term performance of Axsome Therapeutics, Inc. with most of them predicting a $28.25 price target on a short-term (12 months) basis.”
This is one example of how one drug can snowball success for a biotech stock.
Biotechnology Stocks: The Ones That Could
It’s obvious when analysts are screaming “BUY” on a share that you may indeed have a near-term play on your hands.
Clinical-stage biotechnology company BioTime Inc (NYSE:BTX) currently has a mean consensus of “outperform” from six analysts. Specifically, four say outperform, and two say Buy. Akin to this, it has a consensus price target of $4.83—an increase of more than 400% of current prices.
Thus far in 2019, BioTime stock has already gained 35.82%, so the signs are pointing to the same conclusion. One reason for all the fuss is the company’s recent earnings results in March, which were impressive.
The clinical-stage biotechnology company is developing treatments for several degenerative diseases. Its flagship products include OpRegen, a treatment aimed at macular degeneration of the eye (synonymous with the elderly); OPC1, which is a treatment for acute spinal cord injuries; and VAC2, a treatment aimed at non-small cell lung cancer.
Currently, shares are selling for $1.01 USD.
In a similar position as BioTime is ADMA Biologics Inc (NASDAQ:ADMA). This company has a consensus rating of “outperform” from seven brokerages, and further, according to Marketscreener, it has an average price target of $12.50—245% over current prices.
Selling for $3.62 at present, ADMA stock has stagnated in recent weeks, but this is likely due to investors waiting on FDA approval (ADMA’s flagship treatment, called RI-002, is currently in phase 3, awaiting FDA approval).
RI-002 aims to “mend” or enhance non-existent immune systems, and it’s been a struggle to get to this stage in the process. According to Sickeconomics, the treatment has suffered “an epic series of setbacks and frustrations on its way to commercialization.”
However, it is now on the verge of approval. So if/when this is granted, the company will receive millions to produce RI-002. Effectively, this turns ADMA into a “cash positive, vertically integrated manufacturer of a hard to make, in demand, medicine.” And this position is the holy grail for biotechnology investors.
ADMA stock price is low now but could soar once approval is granted and demand comes knocking at the door.
Of course, there can be hurdles at the final stage, and FDA approval may not arrive… so then what?
Herein lies the volatility in this sector, but as Axsome proves above, a company can indeed pack on 800% in a short space of time.
Are you willing to take the risk in biotechnology stocks?
Featured Image: DepositPhotos © belchonock