Stifel sees possible rebound year for biotech; top picks for 2022

In its biotech outlook, Stifel said that “on heels of weakness and negativity, 2022 may turn out to be a rebound year wherein biotech stocks – particularly decliners despite positive results and/or commercial products – can present interesting entry points for investors.”

Analyst Dae Gon Ha, Ph.D., writes that from his vantage point focused on rare diseases and novel technologies, such as gene therapy and editing, “we have four questions to which we seek some answers/resolution in the new year.”

He cited evolution of rare disease in company valuation; sentiment inflection on adeno-associated virus gene therapy; regulatory clarity on gene editing programs, particularly systemic in vivo applications; and M&A appetite towards novel technologies.

Dr, Ha also named Fulcrum Therapeutics (NASDAQ:FULC), with a one-year price target of $45, and Rocket Pharmaceuticals (NASDAQ:RCKT), with a one-year price target of $63, as his top picks for 2022. Fulcrum was quoted at $17.05 and Rocket at $22.56 in afternoon trading on Jan. 5.

Regarding Fulcrum, he said “positive healthy volunteer data evaluating FTX-6058 in sickle cell disease (SCD) builds an important foundation as we approach Phase 1b patient data in the second quarter of 2022.”

While there are important questions heading into the data, “we think genome-wide association data in SCD, Fulcrum’s preclinical data as well as other epigenetic drug experience corroborate FTX-6058 and its potential in SCD.” 

In addition, he suggests that investors view the first quarter regulatory update on losmapimod as an overhang as the sentiment remains low and the program itself is considered high risk following ReDUX4 data. 

“That said, given the significant downside move from ReDUX4, we think any further downside post-first quarter update could be limited; upside (filing under accelerated approval) could be significant,” he added. 

According to Dr. Ha, should Fulcrum come under pressure, “we think it presents an attractive entry point for subsequent FTX-6058 catalysts.” 

Dr. Ha said Rocket is likely an out-of-consensus call, given investors’ overarching bearishness on lentivirus gene therapy while RP-A501 for Danon disease is also viewed incrementally more cautiously. 

Starting with Danon, “we think the next update in 2022 (at a medical meeting) could strengthen the product profile and assuage investor concerns on AAV9-related safety observations, while reinforcing efficacy across multiple metrics,” he added. “Concurrent with the data, we would also look toward regulatory updates regarding next steps, including approvable endpoint(s).” 

However low the probability, “we would also be interested in a bull case where an accelerated approval pathway using surrogate markers like brain natriuretic peptide, which has already shown robust effects, may be possible,” Dr. Ha said. “As the main needle-mover for the stock, such a prospect could push the stock meaningfully higher (vs. today).”