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2 Biotech Stocks Wells Fargo Says Are Ready to Bounce
The biotech sector has started the year with a bang. The industry benchmark, iShares NASDAQ Biotechnology ETF (IBB), is up ~11% so far in January — far better than the S&P 500’s 3% return. Covering the sector for Wells Fargo, 5-star analyst Jim Birchenough is upbeat about what he sees. “Overall, we see roughly 20% to 30% additional upside for the sector by historical metrics and would argue that accelerating pace of innovation and greater pipeline de-risking should ultimately support higher returns on investment,” Birchenough noted. An environment like that will be manna from heaven for any investor interested in pharmaceutical stocks; an improved political climate will just add some icing to this cake. “While a split House and Senate supporting continued legislative inertia would have been best received, in terms of maintaining a positive status quo for biotechnology growth, we believe that value proposition for emerging biotechnology therapeutics should win-out under any administration and House/Senate mix,” Birchenough added. With this in mind, we wanted to check out some of Wells Fargo’s recent picks in the biotech space to see if the investment firm could steer us towards any game-changers. After running the tickers through TipRanks’ database, we found out that two recently scored Buy ratings from the rest of the Street, enough to earn a “Strong Buy” consensus rating. Karuna Therapeutics (KRTX) We will start with Karuna Therapeutics, a specialty pharma company whose focus is mental health. Specifically, Karuna works on the development of new drugs for the treatment of schizophrenia and dementia-related psychoses (DRP). With a potential patient base exceeding 2.7 million people, this is a large market. And the state of current treatment options is widely considered less than satisfactory. Medication side effects are severe, while therapeutic effects are less than desired. This leaves an opening for a company that can put a new, more effective, treatment on the market. Karuna is currently enrolling the pivotal Phase 3 EMERGENT-2 Study of its leading drug candidate, KarXT, for the treatment of acute psychosis in adults with schizophrenia. KarXT has showed a differentiated safety profile and efficacy in Phase 2 data. Furthermore, Phase 1b data in healthy elderly volunteers for DRP remain on track for 2Q21. This solid pipeline, with a new drug in multiple studies to treat several aspects of a serious disorder, has piqued Wells Fargo’s interest. Covering KRTX for the firm, analyst Jacob Hughes writes, “Karuna Therapeutics is our top idea in 2021. While KRTX shares have had an impressive run… we see a very attractive setup for the stock over the next couple years and several important catalysts in 2021 to drive the shares higher… We think the pipeline has been…
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