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Zacks Industry Outlook Highlights Catalyst Pharmaceuticals, KalVista Pharmaceuticals, Larimar Therapeutics, Nektar Therapeutics and Jounce Therapeutics
After a challenging 2022, the drug and biotech industry is showing signs of recovery in 2023. Innovation is expected to be the key to growth of the drug/biotech sector this year. The drug/biotech sector has been witnessing developments in pipeline areas like rare diseases, gene therapy and editing, and mRNA-based drugs and vaccines. In 2023, the sector is expected to make advances in areas like Alzheimer's, cell and gene therapy and mRNA research.
Overall, we believe that M&A, innovation, a more favorable regulatory environment and the sector's insulation from recession concerns will shape the biotech sector in 2023, keeping stocks like Catalyst Pharmaceuticals, KalVista Pharmaceuticals, Larimar Therapeutics, Nektar Therapeutics and Jounce Therapeutics afloat.
Industry Description
The Zacks Medical-Drugs industry comprises small and some medium-sized drug companies, which make medicines for both human and veterinary use. We have a separate industry outlook discussion on big drugmakers. Small drugmakers have a limited portfolio of marketed drugs or no commercial-stage drugs at all. Some drugmakers are dependent on just one marketed drug or pipeline candidate. For such companies, upfront or milestone payments from collaboration partners — in most cases their larger counterparts — are the main source of revenues. These companies need ample free cash flow to fund their R&D activities.
Factors Shaping the Future of the Medical-Drugs Industry
Pipeline Success: The success or failure of key pipeline candidates in clinical studies can significantly drive the stock price of industry players. Successful innovation and product line extensions in important therapeutic areas and strong clinical study results may act as important catalysts for the stocks.
Strong Collaboration Partners: These companies regularly seek external partners and collaborators for complementary strengths. A partnership deal with a popular drugmaker is a good sign about the potential of small pharma companies, especially when an equity investment is included in the deal. M&A deals are in full swing in the sector, signaling growth.
Investment in Technology for Innovation: For these smaller companies, succeeding in a shifting global market and evolving healthcare landscape requires adopting innovative business models, investing in new technologies and increasing investments in personalized medicines. Over the past few years, scientific and technological advancements have made it possible to develop personalized therapies. Other than that, adoption and information exchange through the meaningful use of health IT, development of therapies that improve overall patient outcomes and investment in developing and emerging markets are some of the new priorities for drug companies.
Pipeline Setbacks: The smaller companies have their share of risk in the form of unstable cash flows. Also, the failure of key pipeline candidates in pivotal studies and regulatory and pipeline delays can be huge setbacks for these smaller companies and significantly hurt their share price in the future.
Zacks Industry Rank Indicates Bright Prospects
The group's Zacks Industry Rank is basically the average of the Zacks Rank of all the member stocks.
The Zacks Medical-Drugs industry currently carries a Zacks Industry Rank #97, which places it in the top 39% of 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present you a few top-ranked stocks to capitalize on the thriving prospects of the small and medium-sized drugmakers' space, let's take a look at the industry's recent stock-market performance and the valuation picture.
Industry Lags S&P 500 and Sector
The Zacks Medical-Drugs industry is a huge 210-stock group within the broader Medical sector. The industry has underperformed the S&P 500 and the Zacks Medical sector in the past year.
Stocks in this industry have collectively declined 17.4% in the past year, while the Zacks S&P 500 composite has declined 7.4%. The Zacks Medical sector has declined 15.9% in the said time frame.
Industry's Current Valuation
On the basis of the trailing twelve months price-to-sales ratio (P/S TTM), which is a commonly used multiple for valuing these small drugmakers, the industry is currently trading at 1.88 compared with the S&P 500's 3.61 and the Zacks Medical sector's 2.33.
Over the last five years, the industry has traded as high as 4.84X, as low as 1.68X, and at the median of 2.61X.
5 Drug Stocks to Keep an Eye On
Catalyst Pharmaceuticals: FL-based Catalyst Pharmaceuticals' lead drug Firdapse, approved for treating Lambert-Eaton Myasthenic Syndrome (LEMS) — an ultra-rare disease — witnessed an encouraging uptake since its launch in 2019. In 2022, Firdapse's sales rose 52.1%. The FDA in 2022 approved the label expansion of Firdapse for treating LEMS in pediatric patients, which should further drive sales growth.
In January 2023, Catalyst acquired the U.S. rights for Fycompa, Eisai's successfully marketed rare epilepsy drug. This acquisition grants Catalyst exclusive commercial rights to the drug in the United States and will provide an incremental stream of revenues. This will reduce the company's dependency on Firdapse.
The stock of Catalyst Pharmaceuticals has risen 116.7% in the past year. Earnings estimates for 2023 have increased from $1.40 per share to $1.46 per share over the past 60 days. The company has a Zacks Rank #2 (Buy).
Larimar Therapeutics: CA-based Larimar Therapeutics is a clinical-stage company making medicines for rare diseases. Its lead pipeline candidate is CTI-1601, being developed as a potential treatment for Friedreich's ataxia (FA). The CTI-1601 program was placed on clinical hold by the FDA in May 2021 following deaths in the high-dose arms in a pre-clinical toxicology study that was designed to support extended dosing of patients with CTI-1601.
In September 2022, the FDA lifted the full clinical hold placed on the CTI-1601 program and imposed a partial hold. With the lifting of the full clinical hold, Larimar began enrollment in the first cohort (25 mg cohort) of the phase II four-week dose exploration study in FA patients. It has completed enrollment in the 25 mg cohort data with an update that will outline the next steps for study expected in the second quarter.
Prior phase I results on CTI-1601 provided clinical proof-of-concept for the candidate by demonstrating its ability to increase frataxin levels in peripheral tissues. CTI-1601 has been granted Rare Pediatric Disease designation, Fast Track designation and Orphan Drug designations by the FDA
The stock of Larimar Therapeutics has risen 31.5% in the past year. The consensus estimate for 2022 loss has narrowed from $2.07 per share to $1.08 per share over the past 60 days. The company has a Zacks Rank #2.
Nektar Therapeutics: CA-based Nektar Therapeutics, which is focused on the development of treatments utilizing its PEGylation and advanced polymer conjugate technology platforms, has a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for 2022 loss has narrowed from $1.01 per share to 90 cents per share over the past 60 days. The company has a Zacks Rank #2. The stock has declined 85.8% in the past year.
Nektar is currently focusing on the development of rezpegaldesleukin (rezpeg) and NKTR-255. While rezpeg is being developed in collaboration with Eli Lilly for several autoimmune indications, Nektar is developing NKTR-255 on its own as a cell therapy potentiator to boost the anti-tumor immune response of other cancer therapies, especially CAR T therapies. While rezpeg is being evaluated in several mid-stage studies, NKTR-255 is in early-stage as well as mid-stage development. NKTR-255 and rezpeg represent a significant opportunity as they target indications — oncology and autoimmune, respectively — with a large patient population.
Following the discontinuation of bempeg development, Nektar announced cost-restructuring plans to reduce costs and extend the cash runway. It expects its cash resources to be enough to fund its operations into the first half of 2025.
Jounce Therapeutics: This Cambridge, MA-based clinical-stage immunotherapy company has multiple development-stage programs ongoing. Its JTX-8064 program is being evaluated in a phase I/II clinical study as a monotherapy and in combination with its own PD-1 inhibitor, pimivalimab, in patients with solid tumors. The consensus estimate for 2022 loss has narrowed from $2.25 per share to $1.71 per share over the past 60 days. The stock has declined 72% in the past year. The company has a Zacks Rank #2.
Jounce Therapeutics recently entered into an agreement to be acquired by Concentra Biosciences for $1.85 in cash per share plus a non-tradeable contingent value right. The offer price represented a premium of 75% over Jounce's closing price immediately before Mar 14 when the proposed offer by Concerta was made public. In conjunction with the merger agreement, Jounce is implementing a workforce reduction of approximately 84% of its employees.
Following the decision to merge with Concerta, Jounce Therapeutics decided to terminate the previously announced proposed all-share merger transaction with Redx Pharma.
KalVista Pharmaceuticals: Cambridge, MA-based KalVista Pharmaceuticals is developing sebetralstat as an oral on-demand therapy for hereditary angioedema attacks. Enrollment is ongoing in the pivotal phase III KONFIDENT study, with KalVista having already enrolled more than 50% of the targeted number of patients in the study.
Data from the KONFIDENT study are expected to be reported in the second half of 2023, which, if positive, would lead KalVista to file a new drug application in the first half of 2024. In 2021, data from a phase II efficacy study showed that sebetralstat led to statistically and clinically significant responses across all primary and secondary endpoints. KalVista Pharmaceuticals recently completed a $58 million financing that will fund the company into 2025.
The stock of KalVista Pharmaceuticals has declined 42.6% in the past year. The consensus estimate for 2023 loss has narrowed from $3.90 per share to $3.76 per share over the past 60 days. The company has a Zacks Rank #2.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Catalyst Pharmaceuticals, KalVista Pharmaceuticals, Larimar Therapeutics, Nektar Therapeutics and Jounce Therapeutics
For Immediate Release
Chicago, IL – April 11, 2023 – Today, Zacks Equity Research discusses Catalyst Pharmaceuticals (CPRX - Free Report) , KalVista Pharmaceuticals (KALV - Free Report) , Larimar Therapeutics (LRMR - Free Report) , Nektar Therapeutics (NKTR - Free Report) and Jounce Therapeutics .
Industry: Drug
Link: https://www.zacks.com/commentary/2076098/5-stocks-to-buy-as-the-drug-industry-rebounds-in-2023
After a challenging 2022, the drug and biotech industry is showing signs of recovery in 2023. Innovation is expected to be the key to growth of the drug/biotech sector this year. The drug/biotech sector has been witnessing developments in pipeline areas like rare diseases, gene therapy and editing, and mRNA-based drugs and vaccines. In 2023, the sector is expected to make advances in areas like Alzheimer's, cell and gene therapy and mRNA research.
Overall, we believe that M&A, innovation, a more favorable regulatory environment and the sector's insulation from recession concerns will shape the biotech sector in 2023, keeping stocks like Catalyst Pharmaceuticals, KalVista Pharmaceuticals, Larimar Therapeutics, Nektar Therapeutics and Jounce Therapeutics afloat.
Industry Description
The Zacks Medical-Drugs industry comprises small and some medium-sized drug companies, which make medicines for both human and veterinary use. We have a separate industry outlook discussion on big drugmakers. Small drugmakers have a limited portfolio of marketed drugs or no commercial-stage drugs at all. Some drugmakers are dependent on just one marketed drug or pipeline candidate. For such companies, upfront or milestone payments from collaboration partners — in most cases their larger counterparts — are the main source of revenues. These companies need ample free cash flow to fund their R&D activities.
Factors Shaping the Future of the Medical-Drugs Industry
Pipeline Success: The success or failure of key pipeline candidates in clinical studies can significantly drive the stock price of industry players. Successful innovation and product line extensions in important therapeutic areas and strong clinical study results may act as important catalysts for the stocks.
Strong Collaboration Partners: These companies regularly seek external partners and collaborators for complementary strengths. A partnership deal with a popular drugmaker is a good sign about the potential of small pharma companies, especially when an equity investment is included in the deal. M&A deals are in full swing in the sector, signaling growth.
Investment in Technology for Innovation: For these smaller companies, succeeding in a shifting global market and evolving healthcare landscape requires adopting innovative business models, investing in new technologies and increasing investments in personalized medicines. Over the past few years, scientific and technological advancements have made it possible to develop personalized therapies. Other than that, adoption and information exchange through the meaningful use of health IT, development of therapies that improve overall patient outcomes and investment in developing and emerging markets are some of the new priorities for drug companies.
Pipeline Setbacks: The smaller companies have their share of risk in the form of unstable cash flows. Also, the failure of key pipeline candidates in pivotal studies and regulatory and pipeline delays can be huge setbacks for these smaller companies and significantly hurt their share price in the future.
Zacks Industry Rank Indicates Bright Prospects
The group's Zacks Industry Rank is basically the average of the Zacks Rank of all the member stocks.
The Zacks Medical-Drugs industry currently carries a Zacks Industry Rank #97, which places it in the top 39% of 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present you a few top-ranked stocks to capitalize on the thriving prospects of the small and medium-sized drugmakers' space, let's take a look at the industry's recent stock-market performance and the valuation picture.
Industry Lags S&P 500 and Sector
The Zacks Medical-Drugs industry is a huge 210-stock group within the broader Medical sector. The industry has underperformed the S&P 500 and the Zacks Medical sector in the past year.
Stocks in this industry have collectively declined 17.4% in the past year, while the Zacks S&P 500 composite has declined 7.4%. The Zacks Medical sector has declined 15.9% in the said time frame.
Industry's Current Valuation
On the basis of the trailing twelve months price-to-sales ratio (P/S TTM), which is a commonly used multiple for valuing these small drugmakers, the industry is currently trading at 1.88 compared with the S&P 500's 3.61 and the Zacks Medical sector's 2.33.
Over the last five years, the industry has traded as high as 4.84X, as low as 1.68X, and at the median of 2.61X.
5 Drug Stocks to Keep an Eye On
Catalyst Pharmaceuticals: FL-based Catalyst Pharmaceuticals' lead drug Firdapse, approved for treating Lambert-Eaton Myasthenic Syndrome (LEMS) — an ultra-rare disease — witnessed an encouraging uptake since its launch in 2019. In 2022, Firdapse's sales rose 52.1%. The FDA in 2022 approved the label expansion of Firdapse for treating LEMS in pediatric patients, which should further drive sales growth.
In January 2023, Catalyst acquired the U.S. rights for Fycompa, Eisai's successfully marketed rare epilepsy drug. This acquisition grants Catalyst exclusive commercial rights to the drug in the United States and will provide an incremental stream of revenues. This will reduce the company's dependency on Firdapse.
The stock of Catalyst Pharmaceuticals has risen 116.7% in the past year. Earnings estimates for 2023 have increased from $1.40 per share to $1.46 per share over the past 60 days. The company has a Zacks Rank #2 (Buy).
Larimar Therapeutics: CA-based Larimar Therapeutics is a clinical-stage company making medicines for rare diseases. Its lead pipeline candidate is CTI-1601, being developed as a potential treatment for Friedreich's ataxia (FA). The CTI-1601 program was placed on clinical hold by the FDA in May 2021 following deaths in the high-dose arms in a pre-clinical toxicology study that was designed to support extended dosing of patients with CTI-1601.
In September 2022, the FDA lifted the full clinical hold placed on the CTI-1601 program and imposed a partial hold. With the lifting of the full clinical hold, Larimar began enrollment in the first cohort (25 mg cohort) of the phase II four-week dose exploration study in FA patients. It has completed enrollment in the 25 mg cohort data with an update that will outline the next steps for study expected in the second quarter.
Prior phase I results on CTI-1601 provided clinical proof-of-concept for the candidate by demonstrating its ability to increase frataxin levels in peripheral tissues. CTI-1601 has been granted Rare Pediatric Disease designation, Fast Track designation and Orphan Drug designations by the FDA
The stock of Larimar Therapeutics has risen 31.5% in the past year. The consensus estimate for 2022 loss has narrowed from $2.07 per share to $1.08 per share over the past 60 days. The company has a Zacks Rank #2.
Nektar Therapeutics: CA-based Nektar Therapeutics, which is focused on the development of treatments utilizing its PEGylation and advanced polymer conjugate technology platforms, has a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for 2022 loss has narrowed from $1.01 per share to 90 cents per share over the past 60 days. The company has a Zacks Rank #2. The stock has declined 85.8% in the past year.
Nektar is currently focusing on the development of rezpegaldesleukin (rezpeg) and NKTR-255. While rezpeg is being developed in collaboration with Eli Lilly for several autoimmune indications, Nektar is developing NKTR-255 on its own as a cell therapy potentiator to boost the anti-tumor immune response of other cancer therapies, especially CAR T therapies. While rezpeg is being evaluated in several mid-stage studies, NKTR-255 is in early-stage as well as mid-stage development. NKTR-255 and rezpeg represent a significant opportunity as they target indications — oncology and autoimmune, respectively — with a large patient population.
Following the discontinuation of bempeg development, Nektar announced cost-restructuring plans to reduce costs and extend the cash runway. It expects its cash resources to be enough to fund its operations into the first half of 2025.
Jounce Therapeutics: This Cambridge, MA-based clinical-stage immunotherapy company has multiple development-stage programs ongoing. Its JTX-8064 program is being evaluated in a phase I/II clinical study as a monotherapy and in combination with its own PD-1 inhibitor, pimivalimab, in patients with solid tumors. The consensus estimate for 2022 loss has narrowed from $2.25 per share to $1.71 per share over the past 60 days. The stock has declined 72% in the past year. The company has a Zacks Rank #2.
Jounce Therapeutics recently entered into an agreement to be acquired by Concentra Biosciences for $1.85 in cash per share plus a non-tradeable contingent value right. The offer price represented a premium of 75% over Jounce's closing price immediately before Mar 14 when the proposed offer by Concerta was made public. In conjunction with the merger agreement, Jounce is implementing a workforce reduction of approximately 84% of its employees.
Following the decision to merge with Concerta, Jounce Therapeutics decided to terminate the previously announced proposed all-share merger transaction with Redx Pharma.
KalVista Pharmaceuticals: Cambridge, MA-based KalVista Pharmaceuticals is developing sebetralstat as an oral on-demand therapy for hereditary angioedema attacks. Enrollment is ongoing in the pivotal phase III KONFIDENT study, with KalVista having already enrolled more than 50% of the targeted number of patients in the study.
Data from the KONFIDENT study are expected to be reported in the second half of 2023, which, if positive, would lead KalVista to file a new drug application in the first half of 2024. In 2021, data from a phase II efficacy study showed that sebetralstat led to statistically and clinically significant responses across all primary and secondary endpoints. KalVista Pharmaceuticals recently completed a $58 million financing that will fund the company into 2025.
The stock of KalVista Pharmaceuticals has declined 42.6% in the past year. The consensus estimate for 2023 loss has narrowed from $3.90 per share to $3.76 per share over the past 60 days. The company has a Zacks Rank #2.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.