If you're looking for stocks that can make big moves in a small amount of time, the biotech industry has plenty to choose from. Clinical trial readouts, Food and Drug Administration decisions, and new-drug launch trajectories can cause small-cap biotech stocks to shoot higher, or collapse, overnight.
All three of these companies are working on new drugs that could be worth a mint, according to Wall Street. Read on to see why their stock prices don't match up with analyst expectations.
Compass Pathways' (CMPS -4.10%) first year as a publicly traded company was a great one for its shareholders. Unfortunately, this biotech stock has fallen 30% so far this year.
Wall Street analysts think Compass Pathways can bounce back and then some. The consensus price target on this stock represents a 117% premium over its recent price.
Compass is still a leader in the psychedelic neuroscience revolution, and it stands to benefit from increasingly flexible regulators. The company hasn't given investors a good reason to retreat, so they're right to wonder if it's a bargain now.
Despite the stock's slide this year, its recent market cap of around $1.4 billion says there's still a lot of enthusiasm for Compass Pathways' psychedelic-based depression treatments. The company's lead candidate, COMP360, an experimental psilocybin-based therapy, is in a phase 2 trial with treatment-resistant depression patients.
Investigators have finished treating more than 200 patients with three different dosages of COMP360. This puts the company on track to read out topline results before the end of 2021.
If patients who receive COMP360 exhibit evidence of a strong benefit, the stock could blow right past price targets. An estimated 19 million adults in the U.S. experience debilitating bouts of depression annually. Nearly two-thirds of this population isn't adequately served by their first line of treatment with today's available drugs.
Axsome Therapeutics (AXSM 1.07%) is another clinical-stage drugmaker developing a new depression therapy. This company's lead candidate, AXS-05, combines two well-known drugs that interact to produce benefits that are stronger than the sum of their parts.
Shares of the stock plummeted in August after the FDA delayed an expected approval. Clearly, the average analyst on Wall Street thinks the setback is a minor one. The consensus price target of $92 per share is around 243% higher than its price at the moment.
Axsome's market cap has drifted down to just $1 billion at recent prices. Bupropion, one of AXS-05's main ingredients, is one of America's most prescribed drugs, with more than 20 million scripts annually. Serving a portion of the generic bupropion population with its more effective version could quickly lead to several billion dollars in annual sales.
The company says the FDA has been tight-lipped about its reasons for delaying the approval of AXS-05. The application is supported by solid data, but we still can't say if or when it can reach pharmacy shelves.
Before taking a chance on this stock, investors should know that management teams can misrepresent private FDA communications with impunity. Some even withhold from their shareholders the fact that they've received a complete response letter.
Shares of Zogenix (ZGNX) have retreated around 40% from a peak last September. Despite recent weakness, the average target on Wall Street is still about 190% above its latest closing price.
This company's recent market cap of around $828 million is lower than its peers on this list. This is a little surprising because it's the only company here with a dependable revenue stream.
The FDA approved Zogenix's first drug, Fintepla to treat a rare form of epilepsy last June. In the second quarter this year, sales of the drug reach an annualized $70 million.
Fintepla's addressable patient population is currently limited to those with Dravet syndrome, but this could change soon. The company's on track to submit an application to the FDA meant to expand Fintepla's approval to include children born with Lennox-Gastaut syndrome. In other words, an already successful drug launch could accelerate next year.