So far, 2022 has been an ugly year for a lot of stocks. But if you look out over the next five years, you can find some amazing opportunities. Our roundtable of three Motley Fool contributors has found three biotech stocks that might be 11-baggers in five years.
Patrick Bafuma is bullish on Legend Biotech (LEGN -3.78%) and thinks it might be worth $55 billion by 2027. George Budwell believes his pick, Heron Therapeutics (HRTX -4.22%), could jump 1,000% in that time frame. And Taylor Carmichael feels tiny Pieris Pharmaceuticals (PIRS 1.79%) could leap from micro-cap to small-cap and pull off an 11-bagger in five years. Here's why we think these biotechs could seriously outperform the market.
A multibillion-dollar opportunity? Check.
Patrick Bafuma (Legend Biotech): Lost amid the recent market doldrums has been some incredible news. A promising new one-time CAR-T therapy called Carvykti has been recently approved for multiple myeloma in the U.S. With a 50-50 partnership with Johnson & Johnson outside China (and a 70-30 partnership in its favor in Greater China), Legend Biotech has a deep-pocketed friend watching over sales of Carvytki. And at a $5.3 billion market cap, Legend seems like a bargain.
The J&J partner's one-time treatment for multiple myeloma produced a 98% overall response rate, with a 78% stringent complete response. Meaning that just under four out of five patients had no detectable cancer in either their blood or bone marrow at 18 months after a Carvytki infusion. Not to mention that all patients had received at least three prior lines of therapy, with 66% of patients receiving five or more prior lines of treatment.
These results were in a difficult-to-treat population who had already received a median of six prior lines of therapy. With data seemingly better than its competition, Johnson & Johnson has high hopes for the treatment, estimating peak sales of over $5 billion.
While Carvykti alone might not push Legend into 11-bagger territory, the company has a few other CAR-T therapies in the pipeline. The cutting-edge biotech has four different treatments across an array of cancers that it is developing.
And the company has proved it can move briskly through trials. The first data was revealed for its recently approved multiple-myeloma therapy just five years ago at the 2017 American Society for Clinical Oncology conference. By bringing a highly effective treatment to market with a deep-pocketed partner in combination with a budding pipeline, Legend has 11-bagger potential.
Nowhere to go but up
George Budwell (Heron Therapeutics): Heron Therapeutics has been one of my worst stock picks ever. Over the past seven years, I've consistently picked this company as a top growth play due to the commercial potential of its non-opioid pain medication Zynrelef.
During this period, however, the Food and Drug Administration (FDA) has rejected the drug not once but twice. And when the agency finally did approve it last year, Zynrelef's initial label was so restrictive that it generated less than $1 million in net revenue in the fourth quarter of 2021. As a result of this series of unfortunate events, Heron's stock has lost approximately 85% of its value since I first called it a buy back in late 2015.
All that being said, I still think Heron's stock is a table-pounding buy -- especially at these depressed levels. The key reason I'm convinced that it is finally ready to shine is Zynrelef's recent label expansion. This all-important decision will reportedly increase the drug's target market by 7 million patients per year, according to a recent investor presentation.
What's more, Heron is also working toward a second major label expansion that could turn this acute pain drug into a blockbuster product before the end of the decade. The company expects to have this second label-expansion application for orthopedic and soft-tissue surgical procedures in front of the FDA later this year.
What's the big picture? Wall Street thinks Zynrelef ought to generate sales in excess of $500 million by 2025. And given the well-documented need for nonaddictive pain medications in the acute-care setting, this revenue forecast is probably on the conservative side.
So while Heron's value proposition has taken far longer to come to fruition than most expected, the company does appear to be close to an inflection point. As such, I'm not willing to throw in the towel on this stock just yet. In fact, I think Heron's shares will deliver 11X returns for shareholders within the next five years.
Pieris owns the rights to a new class of molecules
Taylor Carmichael (Pieris Pharmaceuticals): Pieris Pharmaceuticals is a tiny micro-cap right now, with a $220 million valuation. It's an early-stage biotech that's flying under the radar. Normally I'm not interested in drug companies that are so far away from any FDA approvals. But this is a special situation.
Pieris owns the rights to a new class of molecules called Anticalins. These are artificial proteins that are eight times smaller than monoclonal antibodies (mAbs).
That small size might make a huge difference in patient outcomes. For instance, in respiratory diseases like asthma, Anticalins can go directly to the lungs (something antibodies cannot do). You can't inhale a monoclonal antibody, but you can inhale an Anticalin.
That's why AstraZeneca (AZN -1.06%) has partnered with Pieris. Five years ago, AstraZeneca paid $57 million and agreed to a possible $2.1 billion in milestone payments if the Anticalin drugs make it through clinical trials. The lead drug candidate, PRS-060, is a treatment for moderate to severe asthma. That's a potentially large market opportunity with almost 30 million patients in the U.S. and Europe. AstraZeneca is running the phase 2 trial, and we're expecting a topline readout later this year. If it's a positive readout, that will be a validation for Pieris' whole platform.
Other collaborators include Roche in respiratory and ophthalmology cases, and Seagen in cancer. Pieris stands to earn up to $8 billion in milestone payments if these various programs are successful. (And that doesn't include royalties from sales.)
While Pieris is a micro-cap now, any success at all will catapult this company much higher. An 11-bagger would take Pieris into the small-cap range, so the upside is pretty significant. 2022 promises to be a pivotal year for the company, as it will have phase 2 readouts from its asthma drug with AstraZeneca, as well as efficacy data for a gastric cancer drug Pieris is keeping in-house.