Growth stocks have abruptly lost momentum. After a sizzling start to the year, growth equities have broadly turned southward since the start of fall, thanks to a multitude of factors such as rising bond yields, high interest rates, and global instability. Keeping with this theme, the Vanguard Growth Index Fund raced higher by an impressive 36% through the first eight months of the year. However, this closely watched growth fund has dipped by nearly 5% since hitting this high-water mark less than two months ago.
Growth stocks, though, can reverse course in the blink of an eye. In the biopharmaceutical space, for example, large drug manufacturers often buy up smaller competitors at enormous premiums in an effort to restock their product portfolios and clinical pipelines. As a result, it's not unheard of for big pharma to bargain hunt when the market becomes irrational regarding developmental biotech valuations. Here are two small-cap drug companies trading near their 52-week lows that may be worth buying for both their organic growth prospects and appeal as potential buyout candidates.
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A specialist in rare neurological diseases
Amylyx Pharmaceuticals (AMLX -1.12%) stock has shed over half of its value this year. The perplexing part is that the biotech's fundamentals have actually improved – dramatically so – since the start of the year. Thanks to its newly approved amyotrophic lateral sclerosis drug Relyvrio, Amylyx Pharmaceuticals has been able to strengthen its balance sheet, grow revenue at an exponential rate, and advance its other pipeline candidates.Yet, the drugmaker's stock is currently one of the cheapest within its peer group at just two-times projected sales, and its stock price is close to a 52-week low at the time of this writing.
What's with all the bearishness? The market is punishing the biotech for one reason: uncertainty. Relyvrio may fail to land an important European regulatory nod in the near term, and its commercial performance globally may depend on the results from an ongoing phase 3 trial. Amylyx Pharmaceuticals expects to announce top-line data from the study by mid-2024. Now, this risk-averse market may abhor uncertainty, but its distaste for the unknown may have also created a stellar buying opportunity for aggressive investors in this case.
What's the bull thesis? In the U.S., Relyvrio's commercial launch has been nothing short of amazing, with the drug on track to top $400 million in its first full year on the market. Positive late-stage trial data next year would significantly bolster its approval case in Europe (if required), and possibly open the door to a buyout soon thereafter. Wall Street, in fact, thinks the biotech's shares could rise by a whopping 167% in response to positive phase 3 data in 2024. That being said, Amylyx Pharmaceuticals' entire value proposition is dependent on this one drug, so a clinical setback is a major risk factor prospective shareholders should bear in mind.
A genomic approach to cardiovascular disease
Verve Therapeutics (VERV -0.96%) is a clinical-stage biotech developing based-edited therapies for cardiovascular disease. Base editing is a next-generation genomic medicine technique that allows for more precise alterations to a patient's DNA compared to other methods. Verve is presently trialing VERVE-101 in patients with an inherited disorder known as heterozygous familial hypercholesterolemia (HeFH). HeFH is a rare condition associated with dangerously high cholesterol levels and an increased risk of heart attack and stroke.
What's the investing thesis? Like Amylyx Pharmaceuticals, Verve Therapeutics stock has tumbled this year in response to the market's growing aversion to risk. Its stock price is close to a 52-week low as a result. Verve Therapeutics, though, is slated to release interim data from VERVE-101's early stage trial at a major scientific conference next month.
If the data paints an encouraging picture in terms of safety and perhaps provides some insight into the therapy's efficacy, Verve Therapeutics stock ought to reverse course. After all, a functional cure for a hard-to-treat cardiovascular ailment like HeFH would definitely qualify as a "big deal" from both a scientific and commercial standpoint. The biotech could also become a top buyout target -- that is if VERVE-101's interim data do indeed move the needle in terms of treating HeFH.
