The drug and biotech sector had a turbulent year in 2024, starting strong but losing momentum in the second half. This slowdown was primarily due to disappointing third-quarter earnings, reduced guidance and pipeline setbacks. These challenges highlighted the inherent volatility in biotech, amplified by broader macroeconomic uncertainties. Despite these setbacks, the demand for cutting-edge medical innovations ensures the sector remains a focal point for investors.
Looking ahead, innovation will continue to be a key growth driver, particularly in high-potential areas like obesity and oncology treatments. The sector's robust fundamentals and expectations of strong M&A activity in 2025 indicate a promising outlook. While the current environment may deter some, the long-term need for advanced medicines is expected to draw investors back to the sector, reinforcing its importance in the healthcare landscape.
Our Choices
As we approach the New Year, let us take a good look at some biotech companies like Arcutis Biotherapeutics ARQT, Mesoblast Limited MESO, Monopar Therapeutics MNPR and Kodiak Sciences KOD, which provided more than double returns in 2024. These stocks also have room for further growth.
While ARQT, MESO and MNPR currently carry a Zacks Rank #2 (Buy) each, KOD carries a Zacks Rank #3 (Hold) at present. The stocks have been mostly witnessing favorable earnings estimate revisions as well. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Arcutis Biotherapeutics
In the year-to-date period, shares of Arcutis have shot up 364.1% compared with the industry’s 12.8% decline.
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The stock price rally can be attributed to the positive regulatory updates regarding the company’s efforts to expand the label of its only marketed product, Zoryve (roflumilast) cream. A 0.3% formulation of the cream is currently approved for treating plaque psoriasis in patients aged six years and older and for seborrheic dermatitis in patients aged nine years and above. In July 2024, the FDA approved the supplemental new drug application (sNDA) for Zoryve cream 0.15% to treat mild to moderate atopic dermatitis (AD) in adult and pediatric patients aged six years and older.
Earlier this month, Arcutis announced that it would submit an sNDA to the FDA for Zoryve cream 0.05% to treat mild to moderate AD in children two to five years old. Another sNDA by Arcutis for Zoryve foam 0.3% to treat scalp and body psoriasis is currently under review by the FDA. A decision from the regulatory body is expected in May 2025. Potential approvals for these indications will further boost revenues in 2025.
Since its launch, Zoryve has witnessed a strong uptake fueled by the continued growth of unit demand. In the first nine months of 2024, Arcutis recorded product revenues of $97 million, up more than 500% from the year-ago quarter figure. This has also likely contributed to the stock price soaring.
In the past 60 days, estimates for ARQT’s 2025 loss per share have narrowed from $1.14 to $1.07.
Mesoblast Limited
In the year-to-date period, shares of Mesoblast have skyrocketed 673.6% compared with the industry’s 12.8% decline.
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The stock price rally in 2024 has been primarily driven by the FDA approval of remestemcel-L, under the brand name Ryoncil, as the only approved therapy for steroid-refractory acute graft versus host disease (SR-aGVHD) in children 2 months and older, including adolescents and teenagers, with a novel mechanism of action. This gave Mesoblast its first approved product in its portfolio. Sales of the drug are expected to provide the company with a steady source of income. The company is currently gearing up to launch the product in the U.S. market.
Mesoblast is also looking to expand Ryoncil’s label to include the treatment of adult patients with SR-aGVHD. A late-stage study is currently evaluating the drug in this patient population. Additionally, the company is also evaluating Ryoncil in a mid-stage study for certain inflammatory bowel disease indications: ulcerative colitis and Crohn’s colitis.
Meanwhile, in March 2024, MESO announced that the FDA supports an accelerated approval pathway for rexlemestrocel-L in patients with end-stage ischemic heart failure with reduced ejection fraction (HFrEF) and a left ventricular assist device. The company plans to hold a meeting with the FDA to discuss the next steps in filing for the candidate for the HFrEF indication. A potential approval in 2025 will further strengthen Mesoblast’s commercial portfolio and form another source of revenue generation. The company is simultaneously evaluating rexlemestrocel-L for chronic low back pain in a late-stage study. The study is currently enrolling patients.
In the past 60 days, estimates for MESO’s 2025 loss per share have narrowed from 57 cents to 52 cents.
Monopar Therapeutics
In the year-to-date period, shares of Monopar have gained a whopping 1196.3% compared with the industry’s 12.8% decline.
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The phenomenal stock price rally was fueled by a licensing agreement between Monopar and AstraZeneca, which granted the former an exclusive worldwide license to ALXN-1840 (bis-choline tetrathiomolybdate), an investigational once-daily, oral medicine for Wilson disease. AstraZeneca had earlier announced that a phase III study evaluating the candidate for the above indication had met its primary endpoint. Although AZN terminated the ALXN-1840 program in 2023, Monopar took up the candidate upon the request of the Wilson Disease Association.
Following the licensing deal, Monopar has assumed responsibilities for all future global development and commercialization activities related to ALXN-1840 to treat Wilson disease. Management believes that the company’s expertise in rare disease drug development and commercialization will catapult ALXN-1840 into a successful product for the above indication. Per Monopar, ALXN-1840 has significant market opportunity as one in 30,000 live births in the United States are affected by Wilson disease.
The company will initially be focusing on developing ALXN-1840 for patients with more severe Wilson disease symptoms. It is gearing up to hold discussions with the FDA to figure out a path forward for the candidate. Apart from ALXN-1840, MNPR is currently evaluating several other candidates for various oncology indications in separate early-stage studies. Further updates from the study regarding the Wilson disease program will likely boost the stock in 2025.
In the past 60 days, estimates for MNPR’s 2025 loss per share have narrowed from $1.82 to $1.48.
Kodiak Sciences
In the year-to-date period, shares of Kodiak have rallied 224.7% compared with the industry’s 12.8% decline.
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Kodiak’s impressive turnaround in 2024 has been underscored by updates from the developmental program of its lead investigational candidate, tarcocimab. It is a novel anti-VEGF antibody biopolymer conjugate being evaluated for treating retinal vascular diseases.
In late 2023, Kodiak rebooted the development program of tarcocimab following positive phase III results from the GLOW study, which evaluated the treatment in patients with moderately severe to severe non-proliferative diabetic retinopathy. Leveraging the GLOW1 study's success, Kodiak initiated the GLOW2 study in late 2023 to further investigate tarcocimab for diabetic retinopathy (DR) and began dosing patients in May 2024, with enrollment expected to be completed soon. The success of the GLOW2 study is expected to serve as the basis for a single biologics license application submission for tarcocimab, seeking its approval for DR.
Kodiak is advancing KSI-501, a dual inhibitor for retinal diseases, into phase III development through the DAYBREAK study, focusing on wet AMD. This study, which is currently enrolling patients, will assess the efficacy, durability, and safety of KSI-501 as the first investigational arm and tarcocimab as a second. By initiating this second phase III study, Kodiak aims to strengthen its late-stage pipeline and mitigate risks if one program faces setbacks.
In the past 60 days, estimates for KOD’s 2025 loss per share have narrowed from $3.90 to $3.82.
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