Going against prevailing market trends can be tricky, but it can also be a rewarding strategy. Uncovering gems in the stock market that most other investors are ignoring -- or actively avoiding -- can be highly profitable in the long term. Of course, scooping up shares of beaten-down stocks comes with risks. These companies are often struggling, financially or otherwise, and there is no guarantee that they will turn things around.
That's why it's essential to proceed with extreme caution when considering such stocks. And for investors comfortable with above-average risk and volatility, here are two biotech companies that have been hammered in recent years but that could stage a strong comeback in the coming months: bluebird bio (BLUE -40.54%) and Provention Bio (PRVB).
1. bluebird bio
Bluebird is a clinical-stage, gene-editing specialist whose shares have declined by about 97% in the past three years due to clinical and regulatory setbacks. Recently, Bluebird itself explicitly warned investors that there might be even darker days ahead. In its fourth-quarter 2021 update, the company highlighted its constant operating losses and negative operating cash flows.
Bluebird's management was not confident that the company's $442 million in cash and cash equivalents as of Dec. 31 would be enough to fund its operation for the fiscal year 2022. The good news is that Bluebird has since started implementing various cost-cutting measures to decrease its expenses. The company estimates potential cost savings of $160 million over the next couple of years if all goes well.
Also, Bluebird has a couple of promising gene-editing therapies in the pipeline. First, there is a potential treatment for transfusion-dependent beta-thalassemia (TDT, a rare blood disorder) called beti-cel. The U.S. Food and Drug Administration accepted Bluebird's regulatory application for beti-cel in November, initially setting a PDUFA goal date (the latest date by which the agency will complete its review of the treatment) of May 20.
This date has since been pushed back to Aug. 19. There are few safe and effective treatments for TDT. Beti-cel was approved as Zynteglo in Europe back in 2019, and Bluebird set a price tag of 1.58 million Euros for the medicine in the Old Continent. Bluebird has since pulled Zynteglo out of the European market due to being unable to strike deals with third-party payers.
But if beti-cel is approved in the U.S., expect a high price tag for the medicine. Bluebird is also awaiting word from regulators for eli-cel, a potential therapy for cerebral adrenoleukodystrophy (CALD, a pediatric neurodegenerative disorder). The FDA accepted Bluebird's application for eli-cel in December with an initial PDUFA goal date of June 17, which has since been pushed back to Sept. 16.
Eli-cel earned approval as Skysona in Europe last year, but just like Zyntenglo, Bluebird pulled it out of the region. These two therapies could help Bluebird address its financial problems if approved. Bluebird is working on other programs, including a potential treatment for sickle cell disease (SCD). There is no guarantee that Bluebird's candidates will hit the market, and it is worth also keeping the company's financial issues in mind. In addition, the company could eventually face competition in the market for TDT therapies, even if beti-cel is approved.
With these caveats, it is worth noting that Bluebird's market capitalization is currently just $255 million. The company's late-stage candidates could be worth substantially more, and if both are approved by the end of the year, the biotech's shares could rise significantly from their current level of about $3.33. The company's promising gene-editing platform could also deliver more wins in the coming years. That's why Bluebird is worth considering for those with above-average risk tolerance.
2. Provention Bio
Provention Bio is seeking to develop therapies that will delay the onset of various autoimmune diseases. The company's leading candidate, teplizumab, targets type 1 diabetes (T1D). In a clinical study, teplizumab was able to delay the onset of clinical disease and insulin dependence in T1D patients for about three years.
Despite these terrific results, the FDA declined to approve the medicine in July of last year. Naturally, investors dumped the stock.
But there is good news. First, the health regulatory agency did not dispute teplizumab's safety or efficacy. Instead, the rejection was related to manufacturing issues. Fortunately, Provention Bio seems to have addressed the issues raised by the FDA, and in the first quarter, the biotech resubmitted an application for teplizumab.
The agency plans to have an answer for Provention Bio by Aug. 17.The company's shares could soar if regulators agree to approve teplizumab. On the other hand, another regulatory roadblock related to teplizumab could be catastrophic for the company and leave investors with practically worthless shares.
Provention Bio does have a couple of other pipeline candidates, including a potential therapy to prevent systemic lupus erythematosus (SLE) called PRV-3279. SLE is an autoimmune disease in which a patient's autoimmune system attacks its own tissue -- it can sometimes be life-threatening.
If approved, Provention Bio's programs would be worth a lot more than its minuscule market cap of $274 million and price per share of just over $4 suggest. While serious risks remain, this biotech stock might be a decent target for contrarian investors.