Investing in clinical-stage biotechs generally offers significant upside potential, along with a healthy, above-average dose of risk. Picking the right ones to put your hard-earned money into while avoiding wealth destroyers can be complicated. It might be worth considering some of the ones that prominent figures on Wall Street are investing in.
Take Steve Cohen, the billionaire founder and CEO of Point72 Asset Management, a hedge fund that has delivered outstanding returns over the long run. Point72 Asset Management owns shares of Abivax (ABVX +4.39%), a France-based clinical-stage biotech, whose shares have skyrocketed by more than 1,600% over the trailing 12 months. Is this a great stock for investors to buy?
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How to invest in risky biotech stock
Point72 Asset Management has dozens of holdings, none of which accounts for more than 2.5% of the portfolio (as of writing). That means Cohen's hedge fund is very diversified. The best way to invest in a company like Abivax, a pre-revenue biotech whose stock price could plummet on clinical or regulatory setbacks, is to do so as part of a solid, well-diversified portfolio, just like Cohen is doing here. Abivax accounts for a mere 0.43% of the fund's holdings as of the fourth quarter.
Point72 Asset Management first bought Abivax's shares in the fourth quarter of 2023. Since then, the stock has soared on clinical progress with its leading candidate, obefazimod. Cohen's fund has taken some profits in the meantime. Point72 Asset Management decreased its stake in Abivax by 17.65% in the fourth quarter. This is a model for investing in risky, small-cap biotechs (Abivax was a small-cap stock when Point72 Asset Management first bought some shares).
Find those developing promising, potentially best-in-class medicines, like Abivax is doing (more on that below), buy a small number of shares -- in relationship with the rest of your portfolio -- before they make significant clinical progress, and take some profits once the progress comes in and their stock prices soars, while staying invested in case they get acquired or their leading pipeline candidates earns approval and makes substantial commercial progress.
NASDAQ: ABVX
Key Data Points
Is it too late to invest in Abivax?
Abivax's leading candidate, obefazimod, could shake up an area dominated by leading pharmaceutical companies. It is being developed as a potential treatment for ulcerative colitis (UC). Its claim to fame is that, unlike immunosuppressants, it can be highly effective in treating UC without weakening patients' immune systems and increasing their risk of contracting other diseases. Obefazimod aced a phase 3 clinical trial in patients with moderate-to-severe UC, 47% of whom had had inadequate responses to prior therapy.
The company is now awaiting results from a maintenance trial. Positive results here could, once again, jolt the stock. Now, Abivax's market cap of 7.13 billion euros ($8.3 billion) -- which is rather rare for a clinical-stage biotech -- suggests some of obefazimod's clinical and regulatory success is already baked into the stock price. So, the upside might be limited from here on out, while the downside will be massive if it encounters some setbacks. So, the stock is fairly risky right now, but investors who can stomach heightened volatility may still consider initiating a small position in the company.
