Biotech stocks — CRISPR Therapeutics, Fate Therapeutics and Twist Bioscience — have had a bruising time over the past year amid a combination of poor trial results, rising fears of inflation and recession, and the move by investors to the safety of big pharma. But analysts remain confident that the sector will rebound.
Biotech stocks such as CRISPR Therapeutics [CRSP], Fate Therapeutics [FATE] and Twist Bioscience [TWST] have been hammered amid investor concerns about inflation and the threat of recession. While legacy vaccine players have held up considerably well, small-cap stocks have seen more pronounced losses.
Credit Suisse healthcare analyst Lorenzo Biasio said the reason for this is “such growth stocks have relatively long-dated assets, and moved inversely to interest rates as future profits get discounted at higher rates.
“Also, several companies will have to raise cash for operations [and] clinical trials, which will be more expensive at higher rates.”
While the safest bet, argued Biasio, would be to pick “plain vanilla, large pharma exposure, due to its relative valuation, that combines with solid fundamentals,” small-cap biotech stocks shouldn’t be overlooked. “Fortune could favour the brave here,” he said.
CRISPR Therapeutics’ bag of mixed data
The nature of biotech stocks means that investor optimism will often oscillate on the release of data. At an investors’ day on 21 June, CRISPR Therapeutics revealed only one of 14 patients in a trial for its renal cell carcinoma gene-edited treatment had shown an overall response. This sent the company’s share price tumbling by 20%.
The fall came on the back of four-day streak of gains. The share price had pulled back following a presentation Crispr gave at the European Haematology Association Congress on 11 June regarding its sickle cell disease therapy it’s developing with Vertex Pharmaceuticals [VRTX]. The stock is down 11.7% in the year to date (through 27 June).
Data so far has been promising, but one patient experienced a brain haemorrhage less than three months after treatment. This could pose uncertainty for patients, according to RBC Capital Market’s Brian Abrahams.
In a note to clients seen by Investor’s Business Daily, Abrahams said “some resilience remains, which coupled with potential limitations in [blood] transfusion, could limit or slow a sickle cell disease launch”.
RBC lowered its target for the CRISPR Therapeutics share price from $95 to $85 in May, according to MarketBeat data, which implies an upside of 27% from the 27 June closing price of $66.90. The consensus of the price targets issued in the last three months is $129.83.
FDA meeting hopes for Fate Therapeutics
As of 27 June, the Fate Therapeutics share price is down 69% in the past year and 55% since the start of 2022. The problem for the company is that some investors appear to have abandoned the stock in favour of other biotechs that are closer to getting approval from the US Food and Drug Administration (FDA).
A meeting with the FDA regarding its FT516 blood cancer therapy could be imminent, according to Seeking Alpha. Positive talks would trigger an all-important study.
Initial FT516 data released towards the end of last year wasn’t overly convincing with remission rates not meeting standards set for autologous CAR-T therapies, reported The Street. The data presented “suggest [it] to be commercially unviable, at least in solid tumours”, said Jacob Plieth, a reporter for pharma industry publication Evaluate Vantage.
Despite this, analysts appear bullish on Fate Therapeutics’ pipeline and long-term prospects. The stock has eight ‘buy’ ratings and three ‘hold’ ratings, according to MarketBeat. The consensus price target of $80.36 implies a mammoth upside of roughly 206%.
Twist Bioscience’s DNA-weaving play
A slightly different play on the biotech theme, Twist Bioscience doesn’t develop treatments but rather focuses on DNA synthesis. Part of its business discovers antibodies that could eventually be delivered by gene therapies to treat diseases including cancers.
In April, the company announced a four-year partnership with Ginkgo Bioworks [DNA]. This builds on an existing agreement signed in 2017 that has seen Ginkgo purchase a billion base pairs from Twist used in testing proteins for vaccine manufacturing as well as its cannabinoid, food, flavour and fragrance programmes.
Nonetheless, the Twist Bioscience share price has been in a spiral. The stock is down 68% in the last year and 49% since the start of 2022 (through 27 June). MarketBeat data shows the stock has three ‘buy’ ratings and two ‘hold’ ratings. The consensus price target of $52 implies a 33% upside.
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.