In this article, we will take a look at the 11 most undervalued biotech stocks to buy according to analysts.
The M&A activity in the biotech industry is picking up pace once again after a dismal performance last year. On March 13, Pfizer Inc. (NYSE:PFE) announced an agreement to acquire Seagen Inc. (NASDAQ:SGEN), in a transaction valuing the target company at $43 billion. Another major transaction announced in the industry since the beginning of the year is the acquisition of Prometheus Biosciences, Inc. (NASDAQ:RXDX) by Merck & Co., Inc. (NYSE:MRK) for $10.8 billion, closed in June.
Companies in the healthcare sector, especially biopharma and biotechnology space, are exploring further opportunities to expand their toplines through M&A activities. During its Q2 2023 earnings call, executives at Merck & Co., Inc. (NYSE:MRK) affirmed their appetite for further deals in the recent future. Rob Davis, CEO of the company, said:
“We continue to have a priority to do business development, so you should not necessarily expect a slowdown. If and when assets that bring important scientific opportunities present themselves—where we see an alignment with strategy and where we can see value creation—we have the capacity and we will be willing to act on those.”
The decline in healthcare stock prices can be attributed to multiple factors including the global macroeconomic environment, slowdown in the initial public offering (IPO) markets, as well as a decline in M&A activity across the industry. During the first five months of 2023, pharmaceutical and biotech companies spent $85 billion on acquisitions, compared to a measly $35.6 billion in the same period of 2022. Even though the industry has faced challenges in the recent past, there is potential for a significant recovery in the upcoming months. You can read more on this here: 10 Oversold Biotech Stocks to Buy.
Overall healthcare and biotech stocks aren’t particularly cheap according to Sio Capital’s Michael Castor. Here is what he said in his fund’s recent July investor letter:
Valuations of profitable healthcare companies are generally high, though still slightly below their peaks from two years ago. However, in contrast to two years ago, when the risk-free rate of return was near zero, it is possible to earn 5% in money market accounts or holding two-year treasury bonds. When looking at valuations factoring in that equity investors require a small premium of expected return over the risk-free rate (or even a return similar to the risk-free rate), valuations on a relative basis are not dissimilar to their 2021 peaks. We know from experience that valuations are not absolute boundaries that will constrain stock prices (this is true both for high and low levels). Prices often go further than we expect, even at the extremes. However, excessively rich or cheap valuations eventually attract enough attention to increase the probability of a change in price trend. Valuation doesn’t matter until it does.
Majority of the companies on our list of 11 most undervalued biotech stocks to buy according to analysts are late stage clinical-stage biotechnology companies working on the development of novel therapeutics for rare diseases. The list includes Moderna, Inc. (NASDAQ:MRNA), BioNTech SE (NASDAQ:BNTX), and Zymeworks Inc. (NYSE:ZYME), among others.
Photo by christina victoria on Unsplash
Methodology
We screened for biotechnology stocks that were trading at a trailing twelve-month price-to-earnings ratio of less than 15, as of August 14. We then looked at each stock’s consensus analyst rating and average price targets and narrowed down our selection to stocks that had the highest average upside potential and lowest TTM PE ratio, as of August 15, and held consensus Buy ratings among Wall Street analysts. We have also included the hedge fund sentiment for each stock, which was sourced from Insider Monkey’s proprietary database of roughly 900 elite hedge funds.
We have ranked these stocks in descending order of their upside potential based on average analyst price targets, as of August 14. Note that we haven’t included companies with market capitalizations of less than $300 million in our list as their stock prices are generally more volatile and they aren’t widely covered by Wall Street analysts.
11 Most Undervalued Biotech Stocks to Buy According to Analysts
11. Maravai LifeSciences Holdings, Inc. (NASDAQ:MRVI)
Upside Potential as of August 14: 30.48%
PE Ratio (TTM) as of August 14: 9.15
Number of Hedge Fund Holders: 26
San Diego, California-based Maravai LifeSciences Holdings, Inc. (NASDAQ:MRVI) is a leading life sciences company providing products and services in the fields of nucleic acid synthesis and biologics safety testing to many of the world’s leading biopharmaceutical, vaccine, diagnostics, and cell and gene therapy companies.
On August 8, Deutsche Bank reiterated a ‘Buy’ rating for Maravai LifeSciences Holdings, Inc. (NASDAQ:MRVI) shares and lowered the price target from $23 to $17. The target price represents a potential upside of 71.03% based on the share price on August 14.
According to the Insider Monkey database, the number of hedge funds holding Maravai LifeSciences Holdings, Inc. (NASDAQ:MRVI) shares increased to 26 from 21 in the second quarter of 2023 as compared to the previous quarter. Resultantly, the number of shares held by the hedge funds increased 20% q-o-q to 17.9 million shares with a total value of $193 million.
10. Voyager Therapeutics, Inc. (NASDAQ:VYGR)
Upside Potential as of August 14: 46.83%
PE Ratio (TTM) as of August 14: 4.25
Number of Hedge Fund Holders: 18
Cambridge, Massachusetts-based Voyager Therapeutics, Inc. (NASDAQ:VYGR) is a biotechnology company focused on gene therapy and neurology. Its pipeline includes preclinical programs in Alzheimer’s disease, ALS, Parkinson’s disease, and other diseases of the central nervous system.
On August 7, Oppenheimer reiterated an ‘Outperform’ rating for Voyager Therapeutics, Inc. (NASDAQ:VYGR) shares with an unchanged price target of $16. The price target represents a potential upside of 71.86% based on the share price on August 14.
As of Q2 2023, Voyager Therapeutics, Inc. (NASDAQ:VYGR) shares were owned by 18 of the 910 hedge funds tracked by Insider Monkey, with a total value of $126 million. Notable hedge fund investors included EcoR1 Capital, Armistice Capital, and Farallon Capital, among others.
9. Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA)
Upside Potential as of August 14: 50.56%
PE Ratio (TTM) as of August 14: 4.64
Number of Hedge Fund Holders: 20
Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) is a biopharmaceutical company focused on discovering, acquiring, developing, and commercializing therapeutic medicines for patients suffering from cardiovascular and autoimmune diseases.
On July 25, Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) released its financial results for Q2 2023. Its revenue increased by 165% y-o-y to $71 million, while it generated a net income of $15 million compared to a net loss of $20 million. At $0.21, its normalized EPS for the quarter exceeded consensus estimates by $0.34.
In addition to a strong quarterly performance, Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) also raised the net product revenue guidance for ARCALYST, an FDA-approved therapy for recurrent pericarditis, from a range of $200-$215 million to a range of $220-$230 million for 2023.
8. BioNTech SE (NASDAQ:BNTX)
Upside Potential as of August 14: 51.43%
PE Ratio (TTM) as of August 14: 3.77
Number of Hedge Fund Holders: 21
Founded in 2008, Mainz, Germany-based BioNTech SE (NASDAQ:BNTX) is a next-generation immunotherapy company pioneering novel therapies for cancer, infectious diseases, and other serious diseases. Its approach to drug discovery is based on multiple technology platforms and includes mRNA vaccines, cell and gene therapies, targeted antibodies, small molecule immunomodulators, Ribologicals, and next generation immunomodulators.
In addition to its first commercial product, COMIRNATY, an mRNA-based covid vaccine, the clinical pipeline of BioNTech SE (NASDAQ:BNTX) includes more than 25 product candidates in oncology and infectious diseases, including five randomized Phase 2 clinical trials in oncology.
On July 31, BioNTech SE (NASDAQ:BNTX) announced the completion of the acquisition of the remaining shares of InstaDeep Ltd., a leading technology company with expertise in AI and machine learning, for a total consideration of approximately €500 million in cash, shares, and future milestone payments.
7. Avid Bioservices, Inc. (NASDAQ:CDMO)
Upside Potential as of August 14: 55.02%
PE Ratio (TTM) as of August 14: 6.76
Number of Hedge Fund Holders: 11
Tustin, California-based Avid Bioservices, Inc. (NASDAQ:CDMO) is a dedicated contract development and manufacturing organization (CDMO) focused on development and CGMP manufacturing of biologics. Its services include CGMP clinical and commercial drug substance manufacturing, bulk packaging, release and stability testing and regulatory submissions support.
On June 22, following the company’s latest earnings release, RBC Capital reiterated an ‘Outperform’ rating for the shares of Avid Bioservices, Inc. (NASDAQ:CDMO) and lowered the price target on its shares to $17 from $20.
As of June 30, Avid Bioservices, Inc. (NASDAQ:CDMO) shares were held by 11 leading hedge funds according to the Insider Monkey database. These hedge funds held an aggregate $69 million worth of shares amongst them.
6. Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY)
Upside Potential as of August 14: 81.62%
PE Ratio (TTM) as of August 14: 10.34
Number of Hedge Fund Holders: 29
Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY) is a commercial-stage pharmaceutical company dedicated to developing and commercializing innovative therapies for people living with rare neurological disorders who have unmet medical needs.
Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY) received FDA approval for its first commercial product, WAKIX® (pitolisant), for the treatment of excessive daytime sleepiness or cataplexy in adult patients with narcolepsy in 2019. The drug has been commercially available in the U.S. since Q4 2019.
On August 14, Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY) announced a definitive agreement to acquire Zynerba Pharmaceuticals, Inc. (NASDAQ:ZYNE), in a transaction valued at $200 million including an upfront payment of $60 million and potential additional payments of up to $140 million subject to certain milestones. Zynerba Pharmaceuticals, Inc. (NASDAQ:ZYNE) is a leader in innovative pharmaceutically produced, synthetic transdermal cannabidiol therapies for orphan neuropsychiatric disorders.
5. Moderna, Inc. (NASDAQ:MRNA)
Upside Potential as of August 14: 83.25%
PE Ratio (TTM) as of August 14: 8.52
Number of Hedge Fund Holders: 40
Cambridge, Massachusetts-based Moderna, Inc. (NASDAQ:MRNA) is a leading biotechnology company pioneering messenger RNA (mRNA) therapeutics and vaccines. In addition to the commercial stage covid19 vaccine, the clinical pipeline of the company includes therapeutics and vaccines for infectious diseases, immuno-oncology, rare diseases, cardiovascular diseases, and auto-immune diseases.
On August 3, Moderna, Inc. (NASDAQ:MRNA) released its financial results for Q2 2023 and provided business updates. The company expects COVID-19 vaccine sales of $6 billion to $8 billion in 2023, dependent on U.S. vaccination rates. Four infectious disease vaccines being developed by the company are in Phase 3 trials stage including RSV, and neoantigen therapy melanoma, among others.
Moderna, Inc. (NASDAQ:MRNA) ranks #1 on our list of 11 most undervalued biotech stocks to buy according to analysts based on the number of hedge funds that held its shares at the end of Q2 2023. Its shares were owned by 40 leading hedge funds with the total shares held by them valued at nearly $2.0 billion.
4. POINT Biopharma Global Inc. (NASDAQ:PNT)
Upside Potential as of August 14: 84.00%
PE Ratio (TTM) as of August 14: 8.46
Number of Hedge Fund Holders: 25
POINT Biopharma Global Inc. (NASDAQ:PNT) is a globally focused radiopharmaceutical company building a platform for the clinical development and commercialization of radioligands that fight cancer. Its active clinical trials include FRONTIER, a phase 1 trial for PNT2004, a pan-cancer program targeting fibroblast activation protein-α (FAP-α), and SPLASH, the phase 3 trial for PNT2002 for people with metastatic castration resistant prostate cancer.
On July 20, Jefferies assumed coverage of POINT Biopharma Global Inc. (NASDAQ:PNT) shares with a price target of $14 and a ‘Buy’ rating. The price target represents a potential upside of 60.00% based on the share price on August 14.
As of Q2 2023, POINT Biopharma Global Inc. (NASDAQ:PNT) shares were held by 25 hedge funds with the total shares held by these hedge funds valued at $255 million.
3. Zymeworks Inc. (NYSE:ZYME)
Upside Potential as of August 14: 89.81%
PE Ratio (TTM) as of August 14: 2.86
Number of Hedge Fund Holders: 22
Founded in 2003, Vancouver, Canada-based Zymeworks Inc. (NYSE:ZYME) is a global biotechnology company focused on the discovery, development, and commercialization of novel, multifunctional biotherapeutics targeting difficult-to-treat cancers and other diseases.
On August 10, Zymeworks Inc. (NYSE:ZYME) released its financial results and operational update for Q2 2023. It has engineered and developed zanidatamab, a HER2-targeted bispecific antibody using its proprietary Azymetric™ technology. Zanidatamab is currently being evaluated in global Phase 1, Phase 2, and Phase 3 clinical trials, including certain ongoing pivotal clinical trials as a treatment for patients with HER2-expressing cancers.
Zymeworks Inc. (NYSE:ZYME) has the lowest TTM PE ratio of 2.86 on our list of 11 most undervalued biotech stocks to buy according to analysts. The second lowest PE ratio on our list belongs to BioNTech SE (NASDAQ:BNTX) at 3.77.
2. Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT)
Upside Potential as of August 14: 109.73%
PE Ratio (TTM) as of August 14: 6.62
Number of Hedge Fund Holders: 17
San Diego, California-based Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) is a global late stage-clinical messenger RNA medicines company focused on the development of infectious disease vaccines within liver and respiratory rare diseases.
On August 14, Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) announced that its manufacturing joint venture in Japan to support the production of mRNA vaccines and therapeutics has been awarded $115 million in two separate grants from the Japanese government. The company owns 49% equity stake in the joint venture.
As of June 30, 2023, Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) shares were owned by 17 prominent hedge funds with the total shares held by these hedge funds valued at $102 million. Catherine Wood’s ARK Investment Management was the largest hedge fund shareholder with ownership of 1.9 million shares valued at $55 million.
1. Cullinan Oncology, Inc. (NASDAQ:CGEM)
Upside Potential as of August 14: 146.34%
PE Ratio (TTM) as of August 14: 8.87
Number of Hedge Fund Holders: 22
Cambridge, Massachusetts-based Cullinan Oncology, Inc. (NASDAQ:CGEM) is a biopharmaceutical company focused on modality-agnostic targeted oncology therapies.
On August 11, HC Wainwright & Co. lowered the price target on Cullinan Oncology, Inc. (NASDAQ:CGEM) shares to $34 from $39 and maintained a ‘Buy’ rating for the shares. The price target represents an upside potential of 202.44% based on the share price on August 14.
Cullinan Oncology, Inc. (NASDAQ:CGEM) ranks #1 on our list of 11 most undervalued biotech stocks to buy according to analysts based on its TTM PE ratio of 8.87 and the highest upside potential on its share price according to the average analyst price targets. The shares of the company were also widely owned by hedge funds, as of Q2 2023, with 22 prominent hedge funds tracked by Insider Monkey holding its shares valued at $192 million.
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Disclosure: None. 11 Most Undervalued Biotech Stocks to Buy is originally published on Insider Monkey.
