Please ensure Javascript is enabled for purposes of website accessibility

2 Small-Cap Biotech Stocks to Watch in 2020

By George Budwell - Jan 23, 2020 at 8:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

HOOKIPA Pharma and Viking Therapeutics could catch first at some point this year. Here's why.

Small-cap biotech stocks have consistently been one of the best-performing groups of equities for almost 10 straight years. The advent of several game-changing technologies, broader access to healthcare globally, and an aging population in the United States have all helped to boost valuations among small-cap biotechs over this period.

Which small-cap biotech stocks should investors have on their radar right now? HOOKIPA Pharma (HOOK -3.89%) and Viking Therapeutics (VKTX 1.77%) are two under-the-radar names that growth-oriented investors may want to circle back to in 2020. Here's why.  

An open road with 2020 painted across it.

Image source: Getty Images.

HOOKIPA: A fresh face in the field of immunotherapy

If you haven't heard of small-cap immunotherapy company HOOKIPA, you certainly aren't alone. Although the company incorporated back in 2017, it didn't go public until April 2019. And since then, the market hasn't been overly kind to it, with the biotech's shares losing nearly 14% since their IPO less than a year ago. Brighter days for HOOKIPA and its shareholders may be close at hand, however. 

Why should investors have this name on their radar screen right now? The big picture is that HOOKIPA's proprietary arenavirus vector platform -- indicated for both infectious diseases and cancer -- stands apart from the broader field of competitors in many important ways. That's key because big pharma is always on the hunt for differentiated early stage clinical assets. HOOKIPA, in turn, may evolve into a top buyout candidate in lockstep with the maturation of its clinical program. 

Keeping with this theme, the biotech already has a research partnership with industry heavyweight Gilead Sciences (GILD 0.80%) to develop functional cures for hepatitis B and HIV. If things go well, this initial deal could transform into something else entirely. Gilead, after all, has a long history of gobbling up early-stage biotechs with novel drug development platforms. And HOOKIPA fits that description to a tee. 

What's the risk? Like all early-stage biotechs with unproven platforms, HOOKIPA's unique approach to drug development could turn out to be nothing more than an interesting science experiment. On the flip side, there's also the chance that this largely unknown immunotherapy company may be a hidden gem. Thus, HOOKIPA's stock arguably deserves far more attention from investors than what it's been getting so far as a public entity. 

Viking: Buy the dip

Viking's shares have lost a worrying 13% since the start of 2020. The good news is that this downward trend has really nothing to do with the company. Rather, investors have been backing away from the entire field of nonalcoholic steatohepatitis (NASH) biotech stocks this year.

There are three reasons for this trend. First off, the underdeveloped NASH market isn't expected to turn into a commercial bonanza overnight. Right now, the gold standard for diagnosing NASH is a liver biopsy. Until a less invasive diagnostic procedure is developed, NASH drug sales will probably be fairly sluggish.

Next up, Gilead Sciences' repeated clinical failures in NASH have clearly spooked investors. Even though Gilead's NASH pipeline isn't considered to be the cream of the crop, it's never a good thing when one of the biggest names in the industry can't seem to break into a novel indication.

Thirdly, the U.S. Food and Drug Administration's decision to slow roll the regulatory process for Intercept Pharmaceuticals' Ocaliva as the first-ever NASH treatment isn't sitting well with Wall Street. Most onlookers thought the agency would make NASH a top priority, but that no longer seems to be the case.  

That brings us to Viking and its NASH candidate VK2809. VK2809 posted outstanding mid-stage results as a treatment for a related fatty liver disease back in 2018. The company has since advanced the drug into another mid-stage trial for biopsy-confirmed NASH. Top-line data from this trial are slated for the first half of next year. If successful, there's a chance that Viking could end up with this most potent NASH candidate in the field. That's a huge deal because even a minor drug in this space has a legitimate shot at generating a billion in annual sales. 

Bottom line: Viking's latest pullback could turn out to be a great buying opportunity. There is a considerable amount of risk involved due to the unpredictable nature of clinical trials in general. But this biotech stock is at least worth keeping a close eye on as its high-value NASH candidate steadily makes progress in the clinic. 

 

 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

HOOKIPA Pharma Inc. Stock Quote
HOOKIPA Pharma Inc.
HOOK
$1.73 (-3.89%) $0.07
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
GILD
$63.08 (0.80%) $0.50
Intercept Pharmaceuticals Stock Quote
Intercept Pharmaceuticals
ICPT
$13.56 (0.22%) $0.03
Viking Therapeutics, Inc. Stock Quote
Viking Therapeutics, Inc.
VKTX
$2.88 (1.77%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.