Analysts on Wall Street have probably spent more time thinking about the price of stocks than you have, because it's their full-time job. That doesn't mean they're always correct, but it does suggest that there's a lot to learn from understanding their estimates and thinking about how they're made.
On that note, per their consensus estimate, analysts are anticipating that two biotech stocks in particular could more than double their current value within the next 12 months. There's no guarantee it'll happen for either, but there's still a solid chance they'll appreciate in value substantially.
So let's analyze what's going on with each and see if they might be worth an investment.
1. Ginkgo Bioworks
Ginkgo Bioworks (DNA 10.60%) aims to do for biopharma businesses what semiconductor foundries do for chip developers: implement and manufacture their designs for complex components and intricate products at a lower cost than they'd be able to accomplish on their own. Broadly speaking the business model is a common one in the sector, but the analysts are doubtlessly calculating that this player's spin on the concept will be what makes it a stock worth owning.
Whereas other clinical research organizations (CROs) and clinical manufacturing organizations (CMOs) aim to be turnkey solutions, Ginkgo goes a step further and plans to hang its hat on automation technologies like robotics and artificial intelligence (AI) such that it can scale up and serve a plethora of different customer needs simultaneously and on the cheap. With that in mind, there are a couple of drivers that could cause investors to bid up Ginkgo's shares in 2024.
First, it will continue to onboard dozens of new programs while reducing its operational expenditures. If management's thesis is correct and there are tandem economies of scale to capture in bioengineering as well as biomanufacturing, it will be raking in a lot more revenue while also seeing its costs drop simultaneously. Still, analysts only see its sales rising by an average of 8% to reach $280 million, and the expectation is that the biotech will not be anywhere close to profitable by the year's close.
The second driver is the size and prestige of any newly announced collaboration programs. It's inevitable that most of the new programs the company initiates will go unnoticed by the market, perhaps even if the partner is a high-profile player like Pfizer, Novo Nordisk, or Merck, all of whom are already collaborators. That is likely to change if a billion-dollar deal is brokered or if a major biopharma business opts for a wide-ranging strategic agreement wherein Ginkgo would take on a majority of its manufacturing activities within a given vertical.
Such an announcement might seem improbable -- and on any given day it certainly isn't likely -- but the prospect is getting more plausible quite rapidly, and that might power the stock to double sooner rather than later.
2. Iovance Biotherapeutics
Iovance Biotherapeutics (IOVA 0.87%) is a traditional biotech business that's developing medicines to treat melanoma, non-small cell lung cancer (NSCLC), cervical cancer, and other similar conditions.
It has a credible chance of doubling because on Feb. 16, regulators at the Food and Drug Administration (FDA) granted their approval for the company's candidate to treat advanced melanoma, lifileucel, which is now its first to be commercialized under the trade name Amtagvi. The approval came through roughly a week earlier than anticipated, which is a very minor bullish point in the stock's favor.
Now, the drug could hit the market more or less immediately and start to deliver revenue to the company for the first time in the second quarter.
Getting the first approved medicine is a major milestone for all biotech stocks, but in Iovance's case, the real rewards could be just over the horizon. Now that its lead candidate is approved, the next step will be to continue advancing with the ongoing clinical trials seeking to expand its set of approved indications by testing its utility in combination with other medicines as well as for different variations of melanoma and eventually for other cancers altogether.
Management is confident that such moves will dramatically increase the size of its addressable market to the tune of nearly double the number of reachable patients. But with $429 million in cash, restricted cash, cash equivalents, and short-term investments as of the third quarter's close, it presently only has enough money to last it into 2025. And that's why the biotech is looking to raise in the ballpark of $211 million in a new stock offering, which is anticipated to close on Feb. 22.
Assuming the offering works as planned, Iovance will have plenty of money to buy time to launch Amtagvi and work out any kinks with its distribution. For the moment, the biggest risk to investors is that the market has already priced in the benefits of its upcoming influx of sales. But per the analysts' estimates, there's still plenty of upside in store, and based on the biotech's recent accomplishments, there's a good chance their predictions will come true.
