For most issues in the biotech sector, it was a rough 2021, especially when compared to the gains in the S&P 500 index, Wedbush's Laura Chico said Wednesday on "PreMarket Prep Plus."
Chico, the senior vice president of biotech equity research at the analyst firm, said she attributes the underperformance to a few factors.
2021 Heavy On IPOs, Light On FDA Letters: The first dynamic is the excess number of IPOs — 92 — during the year, many of which were companies in the early Phase 1 development stage, the analyst said.
Since 2013, the number of biotech companies has doubled, making the long-term winners harder to find, she said.
The second dynamic, Chico said, is a limited amount of response letters coming out of the FDA on new drugs in the pipeline.
Of course, the onslaught of new vaccines and treatments for COVID-19 and its variants played a role in creating the backlog.
Bright Spots In Biotech: Two issues in Chico’s area of coverage fared better than others and she remains optimistic for 2022.
The first one is Chinook Therapeutics
. After ending 2020 at $13.98, it reached $19.85 in June and has been consolidating at the $16 area. Based on three tenets of her research — cash, catalysts and value-creating opportunities — Chico said she believes this company fits all of those criteria.
The company has some exciting prospects in the nephrology (kidney) space. The company has announced some “positive readouts” of two drugs in their pipeline, the analyst said.
She is looking for that to continue and act as a catalyst to move the issue higher in 2022.
As with several biotech companies, cash on hand is a primary concern. With respect to Chinook, it has a “cash runway through 2024, which provides a backstop” for additional research and marketing when needed, Chico said.
One of her best performers, Xenon Pharma Inc.
, may have more room on the upside. After ending 2020 at $15.38, it peaked in November at $36.42. Following a decline to $23.26 earlier this month, it has rebounded back to the $30 area.
The company’s main focus is on its epilepsy drug, primarily for patients that are using other drugs and are still having frequent seizures. The company released some “exciting data for 1101 back in October,” the analyst said. That news instigated a doubling of the stock on Oct. 4 ($15.60 to $31.50) and propelled the issue to its all-time in November.
At this time, the company is working with the FDA “to gain more clarity” on what is needed for full-scale approval, Chico said.
What About Biogen? Chico has a Neutral rating on the issue and may not be changing that anytime soon.
The reason is the “unorthodox approval” of its Alzheimer's drug earlier in the year, which instigated a major rally in the issue that has subsequently been given back.
Her primary concerns for the drug are its “adverse effects and difficulty to manage” for patients and its prohibitive costs.
She noted a potential catalyst on the cost end of the equation when the Center For National Coverage releases guidelines for the drug to be used by Medicare and Medicaid patients on Jan. 12.
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