7 Cheap But Risky Biotech Stocks? Funds moving from big corporations to Small Caps?
Biotech stocks remain depressed, nearly two years into a dip that has seen the SPDR S&P Biotech ETF XBI 0.05% drop nearly 50%.
The other most-watched exchange-traded fund that tracks the biotech sector, the i Shares Biotechnology ETF IBB -0.45% (ticker: IBB), is down 20% over the same period, since early February of 2021. The S&P 500 SPX -0.22% is up just over 2% since then.
The selloff has been so sharp, and the turn away from biotech by investors so extreme, that a substantial number of small- and mid-cap biotech stocks have negative enterprise values, meaning that their reported cash on hand exceeds their market values.
This grim situation for biotech firms appears to be here to stay. Investors and others who closely follow the biotech sector aren’t expecting a resurgence across the board any time soon. Still, positive news can still drive the prices of individual biotech stocks, and there remains an opportunity for stock picking.
We screened the SPDR S&P Biotech ETF XBI 0.05% (XBI) and IBB for biotech stocks with negative enterprise values that analysts still think have room to grow, limiting our screen to stocks with mean analyst target prices at least 400% over their recent price.
These stocks are all very risky bets. Their negative enterprise values imply that investors have zero faith in the drugs they have under development. Still, in these cases, some analysts seem to think they have a shot.
The stocks that passed the screen include BioAtla BCAB -5.52% (BCAB), a cancer-focused biotech with two drugs in Phase 2 trials. BioAtla BCAB -5.52% shares are down 73% over the past 12 months, as of the close of trading on Tuesday, to $3.36. The mean analyst target price on the stock is $26.14.
Also on the list is Gracell Biotechnologies (GRCL), a China-based biotech also developing cancer treatments. Its American depository receipts are down 55.3% over the past 12 months to a recent $2.05. The ADR’s mean target price is $14.29. Developments in late December that lowered the risk of the wholesale delisting of Chinese stocks was good news for Gracell, though the ADR’s price has not climbed.
Another stock that passed the screen was Eiger BioPharmaceuticals (EIGR), down 69% over the past 12 months to $1.48. Eiger shares fell to current levels from nearly $4 in early December, after a study of the company’s experimental hepatitis delta virus treatment appeared to show that the drug was less effective than a treatment from Gilead Sciences GILD 0.47% (GILD).
At the time, Citi Research analyst Yigal Nochomovitz wrote that he was maintaining his Buy rating on the stock anyhow, though lowered his target price to $4 from $19, given the stock’s negative enterprise value.
Eiger has since announced the resignation of its CEO. The stock’s mean price target is now $9.20.
Other stocks to pass the screen include Affimed AFMD -1.75% (AFMD), Instil Bio TIL 2.79% (TIL), Nkarta NKTX -0.31% (NKTX), and Immuneering IMRX 27.44% (IMRX).
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NoNo444 : how do they even come up with thoee valudations