If you're looking for a hidden gem in the biotech sector, you might want to check out Stoke Therapeutics (STOK 6.16%). This company is developing innovative therapies for rare genetic diseases that represent a high degree of unmet medical need.
And according to Wall Street analysts, the small-cap biotech has the potential to deliver a staggering 277% return over the next 12 months.
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Value proposition
What makes Stoke Therapeutics an intriguing growth play? The company is using a novel approach called Targeted Augmentation of Nuclear Gene Output (TANGO) to ramp up the expression of genes that are underproduced due to mutations. By doing so, Stoke aims to restore the balance of functionally important proteins in cells to correct the underlying cause of the disease.
Stoke's lead candidate is STK-001, a TANGO therapy for Dravet syndrome. Dravet syndrome, a severe form of childhood epilepsy, is caused by a mutation in the SCN1A gene, which leads to a deficiency of a protein called Nav1.1 that regulates the electrical activity of neurons. STK-001 is designed to increase the production of Nav1.1, thus reducing the frequency and severity of seizures.
STK-001 is currently in phase 1/2a clinical trials, with the next batch of data expected in early 2024. If successful, STK-001 could become the first disease-modifying treatment for Dravet syndrome, which affects about 35,000 patients across Canada, Europe, Japan, the U.K., and the United States. As a treatment for a rare disease with a high unmet medical need, STK-001 represents a multibillion-dollar-a-year market opportunity for the biotech.
But STK-001 is not the only asset in Stoke's pipeline. The company is also developing a novel therapy, STK-002, for an inherited optic nerve disorder known as autosomal dominant optic atrophy. Stoke plans to initiate a phase 1 trial to evaluate STK-002 in this patient population in early 2024. In addition, the biotech has an ongoing collaboration with Acadia Pharmaceuticals to assess TANGO-derived therapies for multiple neurological disorders.
Stoke sports a fairly decent financial position for a development biotech company, with $231.4 million in cash, cash equivalents, and marketable securities as of June 30. This amount should be enough to fund its operations through 2025. That being said, investors can probably expect a handful of public offerings over the next few years.
Stoke's shares have fallen by over 40% this year in response to safety concerns for STK-001. However, most analysts have maintained a bullish outlook on the stock in 2023. The average price target among analysts covering the stock is $21, which implies a whopping 277% upside from current levels. Eight of the 10 analysts actively covering the stock also have a buy rating on it, indicating a broad consensus on the biotech's strong growth prospects.
Is Stoke Therapeutics stock a buy?
Stoke is a rare opportunity to invest in a cutting-edge biotech company that could revolutionize the treatment of genetic diseases. With a limited yet high-value pipeline, a reasonably solid balance sheet, and a bullish outlook from Wall Street, this speculative growth stock could be a stellar pick for aggressive investors on the hunt for unusual growth opportunities.
On the flip side, Stoke's drug development platform is far from a proven commodity. Therefore, this clinical-stage biotech is an inherently high-risk investing vehicle, meaning that investors may want to keep any starter positions on the small side until more data is available.
