Biotech stocks are going through a painful correction at the moment. The closely watched SPDR S&P Biotech ETF has lost a whopping 40% of its value over the last 12 months. As a result of this industrywide downturn, scores of clinical-stage biotechs are trading at less than cash on hand right now. Despite the severity of this emerging bear market, however, a small handful of biotechs could still produce monstrous gains for investors this year.
Which biotech stocks have what it takes to swim against the current in this bear market? Axsome Therapeutics (AXSM 3.29%) and Checkpoint Therapeutics (CKPT 2.76%) are two developmental-stage biotechs with an outside chance of generating 10x returns for risk-tolerant investors in 2022. Here's an overview on the risks and potential rewards associated with each stock.
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Axsome Therapeutics: A waiting game
Axsome Therapeutics, a small-cap biotech developing drugs for central nervous system disorders, has seen its share price tumble by a hefty 64% over the last 12 months. Investors have punished this promising drug company due to a regulatory delay for its highly anticipated major depressive disorder candidate known as AXS-05. The drug's regulatory review by the Food and Drug Administration (FDA) was originally slated to wrap up last August. However, two question marks regarding the chemistry, manufacturing, and controls section of its regulatory filing have prolonged this review by over five months at this point. Earlier this month, Axsome announced via a regulatory filing that it has responded to the FDA's points of concern. Now, investors will simply have to wait for a final decision.
Why is this drug a big deal? AXS-05 has the potential to generate between $1 billion and $3 billion in U.S. sales at peak. To put this sales figure into the proper context, Axsome's market cap is hovering around $1.2 billion right now. So, if AXS-05 does get approved in the U.S. before much longer, this beaten-down biotech stock ought to soar later this year. What's more, Axsome also has an experimental migraine drug under review with the FDA, which could push its shares to new all-time highs if approved. Long story short, Axsome's stock might be gearing up for a radical revaluation over the course of 2022.
All that being said, the FDA's regulatory review process is highly unpredictable. Investors, in turn, probably shouldn't take an oversize stake in the company until this regulatory risk is off the table.
Checkpoint Therapeutics: This biotech is poised for a banner year
Checkpoint is a small-cap biotech with enormous promise as a growth vehicle. The key reason is that the company's advanced skin cancer drug, cosibelimab, recently scored a big win in a registration-enabling trial. Checkpoint expects these strong top line data to form the basis of a regulatory filing with the FDA later this year. European regulatory filings for the drug are also expected to occur sometime soon.
The headline for investors is that Wall Street's most optimistic price target of $26 per share -- issued by H.C. Wainwright analyst Joseph Pantginis -- implies that this developmental biotech stock might rise by a staggering 956% over the next 12 months. That's not quite a 10-bagger but it's awfully close.
The one drawback with this story is that Checkpoint will likely need to raise capital to support cosibelimab's commercialization. After all, the biotech's last stated cash position of $60 million probably won't cover the costs associated with launching a new cancer drug, along with the continued development of its pipeline.
All told, this biotech stock definitely has tremendous upside potential. But it might be wise to wait until the company shores up its long-term financing needs before buying shares.
