Since the Great Recession ended more than 12 years ago, innovative, high-growth companies have ruled the roost on Wall Street. Historically low lending rates and an abundance of cheap capital have allowed fast-paced companies to borrow in order to hire, acquire, and innovate.
But even after a monster rally in equities, Wall Street still sees significant upside in a handful of companies. In particular, biotech stocks have the attention of select analysts and investment banks.
Based on the high-water price target issued by analysts or investment banks, the following five biotech offer upside ranging from 105% to as much as 386% over the next 12 months.
Novavax: Implied upside of 105%
Arguably the best-known biotech stock on this list is clinical-stage drug developer Novavax (NVAX 2.82%). Novavax, which is one of a small number of companies developing a coronavirus disease 2019 (COVID-19) vaccine, is projected to hit $305 a share, according to analyst Mayank Mamtani at B. Riley. If Mamtani's 12-month price target is accurate, Novavax would more than double.
In terms of vaccine efficacy (VE), there's plenty of momentum in Novavax's sails. The company has run two extensive late-stage studies in the U.K. and the U.S./Mexico, which respectively yielded VE's of 89.7% and 90.4%. Although VE is just one of numerous important metrics in terms of vaccine effectiveness, this roughly 90% VE should be enough to allow NVX-CoV2373, Novavax's COVID-19 vaccine, to leapfrog Johnson & Johnson and AstraZeneca on the vaccine front.
The biggest issue for Novavax has been executing beyond the lab. New drug application filings in developed markets have been delayed, and there are now concerns about the purity level of its manufactured vaccine. Though these errors are costing Novavax some easy short-term revenue potential, there are billions of inoculations yet to be administered. Considering how inexpensive Novavax is relative to other COVID-19 vaccine producers, a $305 price target isn't out of the question.
Ligand Pharmaceuticals: Implied upside of 112%
Next up is Ligand Pharmaceuticals (LGND 0.82%), which is part biotech company and part development platform. According to projections from H.C. Wainwright analyst Joseph Pantginis, Ligand could hit $310 a share over the next year. This implies upside of 112%.
Unlike traditional biotech stocks that see drugs from the discovery stage through clinical development, Ligand primarily focuses on licensing its intellectual property (IP), which includes drug development platforms and/or early stage compounds. There's a lot less risk involved with licensing out its technology because it gives Ligand a greater chance of diversifying its revenue stream. Instead of being reliant on a couple of drugs with a finite period of exclusivity, Ligand has seen approximately 80 new clinical-stage programs utilizing its OmniAb platform start this year alone.
The downside of Ligand's royalty-based portfolio is that revenue recognition can be lumpy at times, especially when milestone payouts are mixed in. Ligand also finds itself at risk of losing royalty revenue when exclusivity periods end. This means quite a bit of Ligand's growth has been based on acquisitions, which can raise short-term costs.
Already valued at a multiple of roughly 36 times forward-year earnings, it's tough to envision Ligand's share price heading significantly higher.
CRISPR Therapeutics: Implied upside of 141%
Another big-name clinical-stage biotech stock with some serious upside potential is CRISPR Therapeutics (CRSP 4.58%). Of the more than one dozen investment banks covering CRISPR, the Wall Street high calls for $220 a share. A move to $220 from where it closed this past weekend ($91.33) would entail 141% upside for its shareholders.
The excitement surrounding CRISPR has to do with its approach of using gene-editing technology to alter genomic DNA in order to tackle hard-to-treat diseases. What gives validity to this approach is the partnership CRISPR landed with Vertex Pharmaceuticals (VRTX 0.13%), which itself has a rich history of developing blockbuster drugs for hard-to-treat diseases. The duo are developing CTX001 as a treatment for transfusion-dependent beta thalassemia and sickle cell disease. CRISPR received a $900 million collaboration payment from Vertex during the second quarter.
As my Foolish colleague Alex Carchidi recently pointed out, CRISPR is also involved in the development of off-the-shelf immunotherapies that could greatly speed up treatment for patients with multiple myeloma and blood cancers.
However, it should be noted that CRISPR's treatments, while encouraging, are all relatively early in their development process. It'll likely be some time before investors know whether a $220 price target is reasonable or achievable.
Vaxart: Implied upside of 168%
Small-cap clinical-stage biotech stock Vaxart (VXRT 2.78%) might also have a lot of room to run, if Wall Street is correct. Analyst Yasmeen Rahimi of Piper Sandler currently has the high-water price target on Vaxart of $18. If Rahimi is correct, Vaxart's share price could climb 168% over the coming 12 months.
What makes Vaxart so unique is its approach to tackling the COVID-19 pandemic. It's one of only a very small number of global drug developers working on an oral COVID-19 treatment. In fact, on Oct. 26, the company announced that the first patient in its phase 2 study involving VXA-CoV2-1.1-S had been dosed (don't these drug names roll off the tongue?). Vaxart's Vector-Adjuvant-Antigen Standardized Technology (VAAST) platform is designed to create oral treatments that can activate systemic and mucosal immunity, which should give patients better odds of fighting back against targeted viruses.
The concern is that VXA-CoV2-1, which was targeted at the nucleoprotein (N) and spike protein (S) of COVID-19, didn't perform all that well in early stage clinical trials. Despite inducing a clear immune response in trial participants, high levels of neutralizing antibodies weren't present. High levels of neutralizing antibodies have been witnessed following traditional COVID-19 vaccines.
Vaxart's phase 2 trial specifically targets the S protein, which the company believes will produce more favorable results. Nevertheless, we're likely a ways away from knowing whether a viable oral treatment can be developed for COVID-19.
Intercept Pharmaceuticals: Implied upside of 386%
However, the crème-de-la-crème of upside opportunity among biotech stocks on this list is small-cap liver disease-focused drugmaker Intercept Pharmaceuticals (ICPT 0.16%). Piper Sandler's Rahimi is the most bullish here, as well, with a price target of $82. Considering that Intercept closed out the previous week at less than $17 a share, it implies an increase of 386% over the next year.
Fueling Rahimi's optimism is the company's most-promising treatment, obeticholic acid (OCA). OCA is designed as a treatment for nonalcoholic steatohepatitis (NASH), which is a liver disease that affects 2% to 5% of U.S. adults and can lead to fibrosis, cancer, and even death. There's no cure or approved treatments for this potential $35 billion market.
The good news for Intercept is OCA met one of its co-primary endpoints in the late-stage Regenerate trial -- a statistically significant reduction in fibrosis without a worsening of NASH. The bad news is this still wasn't enough for the Food and Drug Administration to give OCA the green light. With additional safety data being gathered, the expectation is that Intercept will (again) seek approval in 2022.
Even with the highest dose of OCA leading to a significant uptick in bouts of pruritus during the Regenerate trial, relative to the placebo, this drug could prove useful for certain subsets of NASH patients. If Intercept gains approval, $82 could be an eventual realistic price target. Hitting $82 over the next year, though, is asking a bit much.