We recently published a list of 10 Oversold Biotech Stocks to Buy Now. In this article, we are going to take a look at where Scholar Rock Holding Corporation (NASDAQ:SRRK) stands against other oversold biotech stocks to buy now.
Biotech Sector Performance and Challenges in 2024:
Biotechnology stocks are among the most volatile in the market, primarily due to the high risks associated with their performance. The success or failure of FDA clinical trials and the real-world effectiveness of therapies often lead to significant price fluctuations. The biotech sector gained widespread attention in 2020, with the rapid development of COVID-19 vaccinations catapulting the industry into the spotlight. As major pharmaceutical companies began pursuing acquisitions, investor interest surged in late 2023 and early 2024.
However, the momentum soon faded, leading to a stagnation in biotech stocks. For months, the market saw little movement, with few mergers and acquisitions (M&A) or initial public offerings (IPOs) breaking the silence. The second quarter of 2024 experienced a sharp decline in biopharma deal activity, following a robust first quarter where pharmaceutical giants utilized their large cash reserves for acquisitions.
Despite the challenges biotech companies faced in 2024, JPMorgan maintains an optimistic outlook, forecasting significant growth for some firms in the coming months. Johan Hueffer, senior partner and principal of investments at Novo Holdings, addressed this shift on CNBC on November 28. While acknowledging the difficulties biotechs have had in raising funds over the past few years, Hueffer noted that recent quarters have seen a positive change, with investment conditions improving. The impact of these fluctuations has also extended to companies that support the pharmaceutical industry, including contract research organizations (CROs), contract manufacturing organizations (CMOs), and providers of tools for research and development.
Similarly, firms that manufacture production tools for the pharmaceutical and biotech sectors have faced similar challenges. Although these industries have experienced their share of ups and downs over the past two years, trends are beginning to stabilize. Hueffer believes that the sector is now on the verge of considerable opportunity, with conditions starting to normalize and potential for growth emerging once again.
Growth Potential and Investment Opportunities:
Goldman Sachs clarified biotech as a frequently disregarded area of the investment world. John Flood, Head of Americas Equities Sales Trading at Goldman, wrote in a letter to clients that biotech equities offered an unnoticed opportunity for investors hoping to profit from the Fed’s recent rate decreases. Because biotech equities are sensitive to interest rate changes and frequently depend on anticipated future revenues, they are particularly impacted. The cost of capital has a significant effect on these equities as well. These equities have substantial upside potential and, should clinical studies be successful, offer an “option-like structure,” even though they are now quite unprofitable. Because of this, they are particularly sensitive to shifts in interest rates.
The Fed has lowered the funds rate by one full point since September. The present market pricing indicates that there will only be one or two additional declines in 2025, according to CNBC. The Federal Open Market Committee (FOMC) members voted to lower the central bank’s benchmark borrowing rate to the 4.25%–4.5% target range, according to a January 8 CNBC report. But they also trimmed their projections for anticipated rate cuts in 2025, assuming quarter-point increases, from four to two. Biotech stocks are anticipated to be impacted by these changes.
Precedence Research projects that the worldwide biotech market will reach a valuation of $4.61 trillion by 2034, growing at a compound annual growth rate of 11.5%. This growth is expected to be fueled by favorable government laws, more investment, the need for synthetic biology, and an increase in chronic diseases such as high blood pressure, heart disease, and cancer. Government initiatives to modernize laws and enhance reimbursement practices are driving market growth.
IQVIA projects that global pharma spending will reach $2.30 trillion by 2028, growing at a compound annual growth rate (CAGR) of 5% to 8%. While immunology spending may decrease as biosimilars become accessible, obesity and cancer treatments are expected to be the primary drivers of this expansion. It is anticipated that biotech will reach $892 billion by 2028, or 39% of total spending, with the highest growth occurring in cell and gene therapies.
The biotechnology sector in the United States, in particular, was estimated to be worth $246.18 billion in 2023 and is projected to rise at a compound annual growth rate (CAGR) of 11.6% between 2024 and 2034, reaching over $830.31 billion. Asia Pacific had a revenue proportion of 23.99%, whereas North America had a revenue share of 37.79%. While the bioindustry application category generated 24.33% of total revenue in 2023, the biopharmacy segment held a 41.73% revenue share by application.
Our Methodology
For our methodology, we selected stocks with a market cap over 2 billion and Relative Strength Index (RSI) of 40, and strong hedge fund sentiment and then ranked these stocks based on their RSI values.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A scientist holding a flask of liquid in a laboratory, highlighting the research and discoveries of new treatments.
Scholar Rock Holding Corporation (NASDAQ:SRRK)
Relative Strength Index (RSI): 36.75
Scholar Rock Holding Corporation (NASDAQ:SRRK) is a biopharmaceutical company focused on developing innovative therapies for serious diseases. Fundamentally, the company focuses on finding and creating medications that target growth factors, which are proteins essential to many cellular functions.
Apitegromab is the company’s primary candidate and is showing great promise in treating SMA. Scholar Rock Holding Corporation (NASDAQ:SRRK) intends to file regulatory applications in the US and the EU in Q1 2025, opening the door for a possible commercial launch after the Phase 3 SAPPHIRE experiment revealed significant improvements in motor function. Furthermore, the Phase 2 EMBRAZE trial for obesity by apitegromab may expand market prospects; topline results are anticipated in Q2 2025.
After a public offering in October 2024, Scholar Rock Holding Corporation (NASDAQ:SRRK) reported $463.5 million in cash, extending its runway until late 2026. In Q3 2024, R&D expenditures rose to $48.7 million, demonstrating its dedication to pipeline advancement. The company’s novel myostatin inhibition strategy, robust clinical evidence, varied programs in SMA, obesity, and oncology, and sound financial base all attract investors.
As of Q4 2024, 48 hedge funds held stakes in Scholar Rock Holding Corporation (NASDAQ:SRRK) with Fmr Llc being the largest stakeholder in the company with stakes worth $589 million. Street analysts have given the stock a Strong Buy rating.
Overall, SRRK ranks 9th on our list of oversold biotech stocks to buy now. While we acknowledge the potential of biotech companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SRRK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.