Last year was a period of transition for biotech firms. Following significant investment, the availability of cheap capital, and public recognition for companies developing COVID-19 treatments and vaccines, the initial public offering market stalled in 2022, and there was a reduction in the number of new drug approvals. As biotech companies plan for the remainder of this year, they must contend with ongoing uncertainty. Nevertheless, these challenges and uncertainties create several opportunities for well-funded companies.
It is expected that small private biotech firms will make a comeback in the initial public offering market in the later part of 2023 as the rate of interest rate hikes slows down. However, due to challenging economic conditions, investors are likely to be more selective in their choices and prioritize companies with drugs in human trials. After a successful year in 2021, the number of initial public offerings (IPOs) across all industries took a sharp decline worldwide in the past year. This decline was due to central banks' implementation of aggressive interest rate hikes to combat inflation, thereby ending the period of easily available and low-cost capital. The biotech sector experienced a significant drop in initial public offerings in the last year, with only 47 IPOs that raised a total of roughly $4 billion. This was in contrast to 2021, where there were 152 IPOs that generated over $25 billion in funds.
A report by EY revealed that as of December 2022, biopharma companies held dealmaking capacity of over $1.4 trillion. This is due to the fact that pharmaceutical giants are facing the expiration of patents on their key drugs and are searching for new promising assets. Analysts have identified developmental obesity treatments, Alzheimer's disease drugs, cell and gene therapies, and the breakthrough messenger-RNA technology as areas that are attracting investor interest. Sean Sun, portfolio manager at Thornburg Investment Management, said:
"Now we're in this sweet spot where you're seeing signs of disinflation, you're seeing risk appetite improve. All we need is one or two biotech IPOs to get good interest and the floodgates will open."
To determine the most promising biotech stocks, we focused on pure-play biotech companies. We narrowed down our selection to biotech stocks that had the highest upside potential based on average analyst price targets. We have ranked our picks in ascending order of their average upside potential, as of February 24.
10 Most Promising Biotech Stocks According to Analysts
Average Upside Potential as of February 24: 57.48%
Legend Biotech Corporation (NASDAQ:LEGN) is a clinical-stage biopharmaceutical company focused on the discovery and development of novel cell therapies for oncology and other indications in the United States, China, and internationally. On January 27, Legend Biotech Corporation (NASDAQ:LEGN) made an announcement that its CAR-T cell therapy called Carvykti, which is co-developed with Johnson & Johnson (NYSE: JNJ), achieved the primary objective in a Phase 3 clinical trial for individuals suffering from multiple myeloma. Legend Biotech Corporation (NASDAQ:LEGN) plans to present the trial results at an upcoming medical conference and to discuss the findings with regulatory agencies in order to make submissions for approval.
On January 27, Edward Tenthoff, an analyst at Piper Sandler, reaffirmed his positive stance on Legend Biotech Corporation (NASDAQ:LEGN) by maintaining an Overweight rating and setting a $78 target price. This comes after the company's announcement that its Phase 3 trial for Carvykti, a treatment for relapsed and lenalidomide-refractory multiple myeloma in adults, achieved its primary endpoint. Piper Sandler forecasts a significant growth of Carvykti's sales by 157% to $344 million in 2023 and highlighted Janssen's expectation of peak sales of $5 billion for Carvykti.
According to Insider Monkey’s data, 28 hedge funds were long Legend Biotech Corporation (NASDAQ:LEGN) at the end of Q4 2022, compared to 29 funds in the prior quarter. Lei Zhang’s Hillhouse Capital Management is the largest stakeholder of the company, with a position worth $256.4 million.
In addition to Pfizer Inc. (NYSE:PFE), Amgen Inc. (NASDAQ:AMGN), and Intellia Therapeutics, Inc. (NASDAQ:NTLA), Legend Biotech Corporation (NASDAQ:LEGN) is one of the prominent biotech plays to watch.
TimesSquare Capital made the following comment about Legend Biotech Corporation (NASDAQ:LEGN) in its Q3 2022 investor letter:
“New to the strategy this quarter is Legend Biotech Corporation (NASDAQ:LEGN), a clinical-stage biopharmaceutical company engaged in the discovery and development of novel cell therapies for oncology and other indications. The company’s lead product is a CAR-T treatment for multiple myeloma and is currently in joint development/commercialization with Janssen Biotech. Chimeric antigen receptor T cells are genetically engineered for use in immunotherapy.”
Average Upside Potential as of February 24: 58.97%
Moderna, Inc. (NASDAQ:MRNA) is a Massachusetts-based biotechnology company that discovers, develops, and markets messenger RNA therapeutics and vaccines for the treatment of infectious diseases, immuno-oncology, rare diseases, cardiovascular diseases, and auto-immune diseases in the United States, Europe, and internationally. On February 23, Moderna, Inc. (NASDAQ:MRNA) reported a Q4 GAAP EPS of $3.61, missing estimates by $1.14. The revenue of $5.1 billion outperformed Wall Street consensus by $80 million.
On February 23, Morgan Stanley decreased its price target on Moderna, Inc. (NASDAQ:MRNA) to $185 from $205 due to higher expenses and capital expenditures, and maintained an Equal Weight rating on the company's shares. Morgan Stanley reported that Moderna, Inc. (NASDAQ:MRNA)’s Q4 performance was generally consistent with expectations. However, the 2023 cost of goods sold estimate of 35%-40% exceeded expectations and was a significant downside factor in Morgan Stanley's projections. On the other hand, the firm highlighted that potential early filings for PCV, launches of flu and RSV vaccines in 2024, and a stronger U.S. commercial COVID market could act as potential drivers for near-term growth.
According to Insider Monkey’s Q4 data, Moderna, Inc. (NASDAQ:MRNA) was part of 52 hedge fund portfolios, up from 44 in the prior quarter. Philippe Laffont’s Coatue Management is the biggest stakeholder of the company, with 6.3 million shares worth $1.14 billion.
ClearBridge Select Strategy made the following comment about Moderna, Inc. (NASDAQ:MRNA) in its Q4 2022 investor letter:
“Moderna, Inc. (NASDAQ:MRNA) became a household name during the pandemic as one of the first developers of a COVID-19 vaccine. But the stock sold off sharply as COVID momentum, including high expectations for booster shots, began to wear off, causing investors to slash its fiscal 2023 earnings estimates by two-thirds over the last year. We believe those downward revisions clouded the prospects for the company’s fully funded pipeline of platform opportunities, including cancer, RSV and flu. The cash-rich company also recently expanded its partnership with Merck to improve cancer treatments.”
Average Upside Potential as of February 24: 61.18%
Roivant Sciences Ltd. (NASDAQ:ROIV) is a London-based biopharmaceutical and healthcare technology company that develops product candidates for the treatment of solid tumors, sickle cell diseases, hypophosphatasia, oncologic malignancies, psoriasis, atopic dermatitis, vitiligo, hyperhidrosis, acne, myasthenia gravis, warm autoimmune hemolytic anemia, thyroid eye diseases, sarcoidosis, and staph aureus bacteremia. Roivant Sciences Ltd. (NASDAQ:ROIV) is one of the most promising biotech stocks as per Wall Street analysts.
On February 13, the company reported its Q4 earnings. The GAAP loss per share of $0.49 missed Street consensus by $0.09. Roivant Sciences Ltd. (NASDAQ:ROIV)’s revenue of $17.05 million exceeded estimates by $2.27 million. As of December 31, 2022, the company had cash, cash equivalents and restricted cash of approximately $1.5 billion.
Neena Bitritto-Garg, an analyst at Citi, increased the company's price target on Roivant Sciences Ltd. (NASDAQ:ROIV) to $14 from $11 and has maintained a Buy rating on its shares on January 5.
According to Insider Monkey’s Q4 data, 35 hedge funds were long Roivant Sciences Ltd. (NASDAQ:ROIV), compared to 28 funds in the prior quarter. Daniel Gold’s QVT Financial is the largest investor in the company.
Average Upside Potential as of February 24: 61.78%
Beam Therapeutics Inc. (NASDAQ:BEAM) is a Massachusetts-based biotechnology company that develops precision genetic medicines for patients suffering from serious diseases in the United States. Beam Therapeutics Inc. (NASDAQ:BEAM) is one of the most promising biotech plays according to analysts, with an average upside potential of nearly 62% as of February 24.
On February 1, Rick Bienkowski, an analyst at Cantor Fitzgerald, started coverage of Beam Therapeutics Inc. (NASDAQ:BEAM) with an Overweight rating and a $62 price target. In a research note to investors, the analyst suggested that despite only recently commencing Phase 1 clinical trials for sickle cell disease, Beam Therapeutics Inc. (NASDAQ:BEAM)’s platform, pipeline, and ability to establish partnerships with advantageous economics offer long-term value. The firm also recognizes substantial scarcity value in Beam Therapeutics Inc. (NASDAQ:BEAM)’s base-editing technology and believes that partner Verve Therapeutics' Phase 1 data presentation in 2H23 could confirm the validity of Beam's base-editing platform and in vivo treatment approach.
According to Insider Monkey’s fourth quarter database, 18 hedge funds were bullish on Beam Therapeutics Inc. (NASDAQ:BEAM), compared to 27 funds in the preceding quarter. Cathie Wood’s ARK Investment Management is the biggest stakeholder of the company, with 8.2 million shares worth $321.2 million.
Here is what Baron Health Care Fund has to say about Beam Therapeutics Inc. (NASDAQ:BEAM) in their Q1 2021 investor letter:
“Beam Therapeutics Inc. is a biotechnology company pioneering a novel technology called base editing, which allows for individual base pairs (the letters of DNA) to be modified. Shares fell along with other biotechnology stocks driven by a sudden rise in treasury yields. Early stage biotechnology stocks are particularly sensitive to interest rates because their cash flows are further in the future. We believe we are entering into a phase of significant advancement for the gene editing field that will eventually lead to curative therapies, and we think Beam has a unique platform technology.”
Average Upside Potential as of February 24: 77.43%
CRISPR Therapeutics AG (NASDAQ:CRSP) is a gene editing company focused on developing gene-based medicines for serious diseases using its CRISPR-associated protein 9 (Cas9) platform. CRISPR Therapeutics AG (NASDAQ:CRSP) shares gained nearly 14% on February 22, the biggest intraday gain since January 2021, a day after the firm announced its Q4 2022 results with a corporate update.
On February 23, Oppenheimer maintained an Outperform rating on CRISPR Therapeutics AG (NASDAQ:CRSP) but reduced its price target on the shares to $102 from $110 following the release of the company's Q4 results. The firm believes that the main focus this year will continue to be on the potential approval and commercial readiness of Exacel. According to recent disclosures, both the European Medicines Agency and the UK's Medicines and Healthcare products Regulatory Agency have validated the Marketing Authorization Application submissions for exa-cel, and the rolling submissions to the US Food and Drug Administration are expected to be completed in the first quarter of 2023.
According to Insider Monkey’s Q4 data, 28 hedge funds were long CRISPR Therapeutics AG (NASDAQ:CRSP), compared to 29 funds in the prior quarter. Steven Boyd’s Armistice Capital is a prominent stakeholder of the company, with 1 million shares worth $42 million.
Like Pfizer Inc. (NYSE:PFE), Amgen Inc. (NASDAQ:AMGN), and Intellia Therapeutics, Inc. (NASDAQ:NTLA), elite hedge funds are piling into CRISPR Therapeutics AG (NASDAQ:CRSP) for exposure to the biotech sector.
