growth oriented health actions have been trending down since the start of the fourth quarter of 2021. Investors have been shying away from this asset class in response to rising interest rates, industry-specific risks emanating from the conflict in Ukraine, interest rates unfavorable exchange rates and a wave of earnings. -taking the next stellar healthcare performance for the period spanning March 2020 to March 2021. Speaking of this last point, the closely watched SPDR S&P Biotechnology ETF More than doubled in value during this feverish period for health care stocks in general.
The good news is that this prolonged bear market may be starting to wind down. As proof, the leader Morningstar Healthcare Index it ticked higher by a respectable 2.5% over the previous four weeks, despite a glut of less-than-ideal macroeconomic data during this period. By context, the S&P 500 lost 0.41% and the Nasdaq Composite it sank 6.22% during this same time period. Thus, health care stocks appear to be gradually emerging from their prolonged slump.
Which health care stocks are the most compelling buys as market conditions slowly improve? liver disease specialist Madrigal Pharmaceuticals (MDGL -0.41%) and manufacturer of drugs for the central nervous system Axsome Therapeutics (AXSM -5.46%) They are two names that could rise much more in the coming months. This is why.
Madrigal: This clinical catalyst could be a game changer
Wall Street expects big things from Madrigal Pharmaceuticals later this year. The truth is, the company is scheduled to announce top-line data from a phase 3 biopsy study sometime in the fourth quarter of 2022.
This pivotal trial, which is designed to assess the safety and efficacy of the once-daily oral selective thyroid hormone receptor beta agonist resmetirom in the treatment of patients with non-alcoholic steatohepatitis (NASH), could be worth pursuing. billions in future revenue. As a direct result, Wall Street believes a positive resmethyrom reading in this high-value indication could push biotech shares north as much as 134% from current levels.
What is the risk? NASH has proven to be a tough nut to crack. To date, all late-stage compounds have shown no clear signs of efficacy in this common liver ailment, have been plagued by safety concerns, and/or have shown an unfavorable drug-drug interaction profile. Consequently, the Food and Drug Administration (FDA) has yet to approve even a single drug for this often fatal liver condition.
Will resmetirom be the first NASH drug approved by the FDA? While the drug’s emerging clinical profile seems to point toward victory in this next data release, history has shown that NASH drug trials are impossible to stymie. In turn, investors may want to keep any initial positions on the small side until the results of the study are a known quantity and the market has had time to ponder the details.
Axsome: All eyes on the launch of a new biopharmaceutical drug
Just under three weeks ago, Axsome announced that its newly approved major depressive disorder (MDD) drug, Auvelity, was officially available by prescription in the United States. And since this announcement, Axsome shares are up nearly 30%.
While the exact reason As this sudden bullish trend is up for debate, there is no doubt that these trading-stage biotech stocks could still be woefully undervalued. Simply put, Axsome’s market cap of roughly $2.44 billion simply doesn’t reflect Avelity’s huge business potential.
Speaking of which, this new MDD drug is forecast to rake in nearly $2 billion in annual sales at its peak. Historically, most commercial-stage biotech stocks trade at no less than three times the estimated peak sales of their flagship products, meaning Axsome’s stock could be as much as 145% undervalued at current levels.
What’s on tap in the short term for the company? Axsome is set to reveal its Q3 2022 results next week. While the company probably doesn’t have much to report from a revenue generation standpoint, Axsome’s results could provide crucial insight into the company’s near-term trajectory.
What is the key issue investors should be aware of when Axsome reports third-quarter earnings? Most newly minted commercial-stage biotech companies struggle to get their products accepted by healthcare providers. To avoid this common pitfall, Axsome could choose to partner with a wealthy big pharma company on the commercial launch of Avelity.
What’s important to understand is that a partnership would likely come with a sizable upfront cash payment, as well as a potential equity stake, one that can turn into a full buyout, from an established player in the field. Also, a co-promotion deal, especially one with a top-tier neuroscience company, would take much of the risk out of marketing Auvelity.
Overall, Axsome stock appears poised to continue its uptrend due to the huge business opportunity in Auvelity, coupled with the distinct possibility that a big pharma could acquire an ownership stake in this MDD novel drug in the short term. term.