Despite the political headwinds over prescription drug prices in the United States, the biotech industry has still managed to post some rather respectable gains so far this year. This rising tide, in turn, has caused valuations across the space to blossom in 2019. 

Nevertheless, there are a handful of names that have yet to truly push the envelope from a valuation standpoint. Amarin Corporation (NASDAQ:AMRN) and Heron Therapeutics (NASDAQ:HRTX), for instance, are both trading at steep discounts relative to their long-term value propositions. Should bargain-hunters pounce on these two comparatively cheap biotech stocks? Let's dig deeper to find out.   

A hand holding three yellow die with the word "buy" spelled out in red letters

Image source: Getty Images.

The stage is set

At first glance, Amarin may not come across as a particularly cheap healthcare stock. After all, the company's shares are up by a breathtaking 617% over the prior 12 months, pushing the biopharma's valuation into nosebleed territory. Amarin's stock, in fact, is now trading at approximately 11 times next year's projected revenue haul. That's an exceedingly rich valuation -- especially for a company with just one product on the market and no clinical pipeline to speak of. 

However, the market bid up this mid-cap biopharma stock for a very good reason. Namely, Amarin's prescription omega-3 treatment Vascepa appears to be on the cusp of becoming part of the standard-of-care for patients with cardiovascular disease who are unable to adequately control their triglyceride levels, despite being on statin therapy. Keeping with this theme, Wall Street's initial forecast calls for Vascepa's sales to reach a staggering $2 billion early in the next decade if the Food and Drug Administration (FDA) approves this lucrative label expansion this upcoming September.

Amarin, though, has laid a convincing case -- during its various investor presentations over the past few months -- that even this stately sales estimate might be missing the mark by a wide margin. Point blank, Vascepa may break into the top five best-selling drugs in the world by 2024 -- outpacing the likes of AbbVie and Johnson & Johnson's megablockbuster blood cancer drug Imbruvica in the process.

That might sound like a tall tale based on Vascepa's humble beginnings as a niche treatment for patients with severely elevated triglycerides. But the drug's sales have started to rise higher in the first half of 2019, suggesting that a fair number of caregivers are already prescribing Vascepa as an add-on to statin therapy. The floodgates, in turn, could open if the FDA OKs the drug's cardioprotective indication this fall. 

Time to catch this falling knife

Heron Therapeutics has had a rough 2019. In late April, the company received word from the FDA that the agency had decided to reject its experimental postoperative pain medication HTX-011. Heron, per its press release, said that the decision was based on the need for additional chemistry, manufacturing, and controls data as well as other nonclinical information. Heron's shares, in kind, have gone on to lose around half of their value from their 52-week high achieved last September. 

However, the market appears to be wildly overreacting to this rather unfortunate regulatory decision. Given that Heron shouldn't have to conduct any additional clinical trials, and the outstanding issues are largely procedural in nature, the company should be able to refile this New Drug Application with the FDA before year's end. Put simply, HTX-011's commercial launch may have been delayed, but it wasn't dealt a terminable blow. 

This abrupt and sudden drop-off in Heron's share price, though, might have created an outstanding entry point for risk-tolerant investors. HTX-011 is widely expected to generate hundreds of millions in sales in the coming decade. As a result, Wall Street has Heron's current upside potential pegged at a jaw-dropping 130%. 

Bottom line: This beaten-down biopharma stock has a fairly strong chance of returning to form soon -- especially since HTX-011's late-stage trial data did paint a rather compelling case for approval.