Growth stocks have been in full rebound mode in 2023. Underscoring this point, growth-oriented funds like the ARK Innovation ETF and Vanguard Growth ETF have dramatically outperformed the broader market so far this year.
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Which growth stocks are top buys right now? I plan on adding Roivant Sciences (ROIV 1.38%) and Viking Therapeutics (VKTX 7.92%) to my growth portfolio this month. Here's why.
Roivant Sciences: A novel approach to drug development
Roivant is a commercial-stage biotech that develops drugs through specialized subsidiaries it calls "Vants." The company achieved a major milestone in 2022 when it received Food and Drug Administration approval for Vtama cream, a novel treatment for psoriasis. Roivant's portfolio also includes several other promising candidates in the fields of immunology and inflammation, which are areas of high unmet medical need and strong commercial potential.
One of the most exciting candidates in Roivant's pipeline is RVT-3101, a dual inhibitor of inflammation and fibrosis that is being developed by its Telavant subsidiary for inflammatory bowel disease (IBD). IBD is a chronic and debilitating condition that affects millions of people worldwide and has a significant impact on their quality of life.
The currently approved treatments for IBD are often ineffective, have serious side effects, or lose efficacy over time. As a result, there is strong demand for new and better therapies that can address the underlying causes of the disease and provide long-term relief.
The biotech licensed RVT-3101 from Pfizer in late 2022. Since then, the drug has shown tremendous promise in the clinic, setting the stage for an upcoming pivotal trial in ulcerative colitis (UC). RVT-3101 has also reportedly attracted acquisition interest from pharma heavyweight Roche. Besides UC, RVT-3101 is slated to yield mid-stage data in Crohn's disease in late 2024.
What's the investing thesis? Roivant is home to multiple value drivers, but RVT-3101 should steer the ship in the near term for a few reasons. IBD has been a red-hot area for deal-making in biopharma of late, and RVT-3101 could become a leading treatment. As a result, Roivant's $9 billion market capitalization doesn't seem to reflect its true worth -- especially given its pipeline of candidates targeting an array of high-value opportunities.
Viking Therapeutics: A potential hidden gem
Viking Therapeutics is a clinical-stage biotech specializing in metabolic and endocrine disorders. The company's shares have been on fire this year over excitement about its weight loss and nonalcoholic steatohepatitis (NASH) drug candidates, VK2735 and VK2809, respectively.
While analysts' estimates vary, these two experimental treatments could both hit mega-blockbuster status (greater than $5 billion a year in annual sales) by the middle of the next decade. That's an intriguing revenue forecast for a company with a market capitalization that's just under $1.4 billion at the time of this writing.
What's the draw? Viking might be one of the most undervalued stocks in the entire market right now. Weight loss drugs are expected to generate over $40 billion in annual sales by the decade's end, and NASH treatments are forecast to haul in over $30 billion in yearly sales by 2035.
What's the risk? Viking is a clinical-stage biotech, and such companies face significant possibilities of outright failure, regulatory setbacks, and commercialization delays. The company is also targeting two of the hottest areas in all of biopharma, so competition should be fierce in both indications.
What's the bottom line? Viking isn't an appropriate stock pick for conservative investors. Although the biotech screens as "significantly undervalued," its value proposition is tied to the success -- or failure -- of its clinical-stage assets. As such, Viking is best-suited for aggressive investors who are comfortable with elevated levels of risk.
