Buying low-priced growth stocks ($10 or below) can be risky. Companies with bargain-basement share prices tend to have weak balance sheets, highly uncertain outlooks, and limited financing opportunities.
However, this group has also produced an outsize proportion of the market's best-performing stocks over the past 10 years. As such, investors probably shouldn't totally ignore low-priced growth equities, either.
The healthcare sector, for example, has been home to a number of low-priced stocks that eventually went on a major growth spurt. Not that long ago, Axsome Therapeutics and Viking Therapeutics were both sub-$10 stocks. Following key milestone achievements, these biotechs ultimately transformed into two of the best-performing equities in recent memory.
Which low-priced healthcare stocks might be the next big movers? Wall Street analysts think Agenus(NASDAQ: AGEN) and Aclaris Therapeutics(NASDAQ: ACRS) could deliver market-crushing returns within the next 12 months. To find out more, read on.
Agenus: A waiting game
Agenus is a small-cap immunotherapy company. Its primary value driver is the novel CTLA-4 antibody botensilimab, which has the potential to become an important backbone therapy in the solid tumor setting.
The antibody is in phase 2 trials for melanoma, pancreatic cancer, and microsatellite stable colorectal cancer. Agenus plans to advance botensilimab into late-stage testing for microsatellite stable colorectal cancer later this year. Its first U.S. regulatory filing is expected to occur in 2024.
And the company has ongoing licensing and collaborations deals with Bristol-Myers Squibb, Gilead Sciences, Merck, and Incyte, among others. To date, these various deals have brought in more than $825 million in cash. The company could earn another $2.5 billion upon the achievement of certain milestones. Consequently, Agenus might not have to continually rely on stock sales to fund its pipeline.
Wall Street analysts think this developmental biotech stock could appreciate by a staggering 342% over the next 12 months. The primary catalyst that they seem to be banking on is the continued progress of its various collaborations. These deals are forecast to bring in approximately $103 million in revenue next year. If this line holds, Agenus should be able to significantly extend its cash runway with only minimal shareholder dilution in the near term.
What's the bottom line? Agenus is barreling toward several important clinical milestones that could spark a bull run and perhaps a deepening of its relationship with one of its partners through a buyout.
That being said, clinical trials are inherently risky. Hence, investors might want to keep any position in this small-cap pharma stock on the small side for the time being.
Aclaris Therapeutics: A surfeit of clinical catalysts
Aclaris Therapeutics is a small-cap immunology and immuno-oncology company. Its lead product candidate is the oral small molecule MK2 inhibitor zunsemetinib, which is presently in a phase 2b study for rheumatoid arthritis, and a phase 2a trial for psoriatic arthritis.
Data from its rheumatoid arthritis trial is due out in the fourth quarter of 2023. The drug's mid-stage psoriatic arthritis trial results are slated for early 2024. Zunsemetinib is being developed as a more convenient alternative to injected anti-TNF biologics and as a potentially safer option than JAK inhibitors.
Behind zunsemetinib, Aclaris is trialing the topical "soft" JAK 1/3 inhibitor ATI-1777 for atopic dermatitis. Top-line data from this mid-stage asset is slated for late 2023. The biotech is also evaluating an early-stage ulcerative colitis candidate known as ATI-2138. The therapy's first human trial data ought to be available later this year.
What's the big deal? Wall Street analysts think this clinical-stage drugmaker could appreciate by 184% over the next 12 months. The optimism stems from the enormous commercial opportunities represented by rheumatoid and psoriatic arthritis, as well as ulcerative colitis and atopic dermatitis. Long story short, each of these indications represents a separate multibillion-dollar-a-year opportunity.
What's the core investing thesis? With a market cap of $724 million, Aclaris might be incredibly undervalued right now. Its lead product candidates are targeting some of the largest commercial opportunities in pharma, and immunology is a booming area for business development. The company might draw the attention of potential buyers if it can demonstrate a clear success for any of these lucrative indications.
All told, Aclaris' near-term outlook hinges on the outcome of these ongoing trials, which are inherently unpredictable. Hence, despite the company's impressive potential, investors might want to be prudent and begin with a small position before these results are revealed.
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George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Axsome Therapeutics, Bristol-Myers Squibb, Gilead Sciences, Incyte, and Merck. The Motley Fool has a disclosure policy.