3 BIOTECH STOCKS THAT COULD DOUBLE IN 2022

By: The Sick Economist 

As another year comes to an end, and a new one approaches, we take stock of the time that has passed and we begin to evaluate opportunities that lay ahead. 2021 was certainly one for the record books. As the world bravely fought off the Covid Pandemic through scientific breakthroughs, the stock market boomed (The S&P 500 providing an eye-popping 26.67% total return through mid November). Despite the rock solid performance of most asset classes, Biotech investors were left out of the party. Some would say, not only left out of the party, but ordered to go stand alone in the corner! $XBI, an ETF that represents the most common biotech stocks, is down by 7.97% as of mid-November, and $ARKG, a popular ETF that represents the most bold, early stage biotechs, has slumped by 15.59%. 

Why has biotech been hammered while most other assets have been on a rocket ride to profit? There are a panoply of reasons, ranging from: Democrats in congress vowing to reign in drug prices, a few patient deaths in early stage genomic trials, impatient “get rich quick” investors moving on to the next thrill. However, Biotech’s long term prospects remain bright. Just take one look at the Rolling Stones, defiantly touring into their late 70’s, and realize that the Baby Boom generation will not go quietly. Any industry that can provide solutions for ageing bodies will mint money eventually. 

That being said, when the market is cold, and short term trends are conspiring against a sector, stock picking becomes important. Which biotech stocks are plummeting because they should be, and which are simply caught up in the selling frenzy? When a sector falls out of favor, there are deals to be had. Below find three small biotech companies that we believe have big futures. We believe these shares could see explosive valuation growth in 2022. 

1. Morphic Holdings ($MORF) 

Morphic is the perfect example of a biotech company that has their head in the clouds, but their feet firmly planted on the ground. They are pioneering all new, breakthrough technology to address a firmly established, and very lucrative, market for a chronic illness. The combination of advanced science and simple arithmetic could be powerful. 

The company is pioneering the science behind integrins, a previously little understood protein in the human body. Over time, this integrin technology will allow the team to attack a wide range of serious diseases with unmet needs. For the near to mid term, the company is focusing on Autoimmune Disease, Fibrosis, and Cancer. These are the fields where legendary pharma mega hits such as Humira and Keytruda roam. The potential rewards are rich. 

The company’s most promising near-term project is an agent known as MORPH-057. This is a new way of addressing an old problem; namely, Ulcerative Collitis and Crohn’s disease. Currently these chronic, debilitating diseases are treated by very expensive and inconvenient biologic injectables/infusions such as Humira or Entyvio. Humira has been the world’s biggest selling drug for decades. However, Entyvio is now hot on it’s trail, delivering superior results in clinical testing. These superior clinical results led to a sales boom for Entyvio. The drug achieved sales of $4 Billion in 2020, even during the depths of the Covid Crisis. 

Why would any of this matter for a potential $MORF investor? Afterall, Entyvio is not owned by Morphic, but rather by pharmaceutical giant Takeda. The team at morphic is currently leveraging the new integrin technology to create a version of Entyvio in a pill. As opposed to costly, time consuming, and uncomfortable injections/infusions that are currently required for Entyvio. 

Early testing has validated the general concept that this method of action can be transformed into a simple pill by the integrin technology. As we speak, Morphic is mounting a phase II trial that may demonstrate one of the first effective treatments of autoimmune bowel disease in a simple pill. 

The math is compelling. Morphic currently has a market capitalization of $1.9 Billion. Given that Entyvio is clocking in at $4 Billion in sales and growing, an oral version of the drug could easily attract $1 Billion in annual sales in just a few years. According to data published by the Stern School of Business at NYU, a common valuation multiple for a biotech company would be 8 times sales. So, that would mean that $MORF could be valued at $8 Billion, if just this one drug gains approval. Current shareholders hoping to see $MORF double in value are actually dreaming small.  Exponential growth is not unrealistic for this young company. 

On top of all that potential, Morphic is also very well funded. According to management, the company currently has a cash “runway” that should last until late 2024. This would give them 3 solid years to advance their clinical programs before having to worry about raising funds. It should help their C-Suite sleep well at night. Morphic’s strong cash position and attractive potential should also help investors sleep well at night. 

2. Syros Pharmaceuticals ($SYRS)

Syros is another small pharma upstart aiming for the bigtime. Much like Morphic, they are pioneering brand new technology in order to service some giant unmet needs in the medical community. 

Specifically Syros is working in the field of gene control, which is a method of turning on, turning down, or turning off the expression of select target genes in the human body. 

The company has a three pronged approach to commercialization, working on three different agents at once that can become viable, revenue producing drugs. Perhaps the most exciting thing in their pipeline is SY-5609, which is specifically targeting a few very hard to treat solid cancers. 

The last decade has seen a revolution in oncology, with medical science providing hope to millions of patients who wouldn’t have had a chance twenty years ago. In particular, great progress has been made against blood oriented cancers.

However, solid cancers have remained notoriously tough to treat. Syros is targeting two of the toughest adversaries medical science has ever faced. Pancreatic cancer is notorious for a poor prognosis (killed Patrick Swaze) and Colorectal Cancer is an infamous killer (poor Chadwick Boseman, aka “The Black Panther” was struck down at just 43 years of age). Syros has produced promising early stage data against both of these maladies, and any kind of effective treatment at all would represent a huge leap forward for modern medicine. 

Amazingly, the biotech community has largely overlooked Syros. The result is a $243 Million market capitalization, which, in biotech terms, is tiny. Any effective treatment against solid cancers could easily bring in $1 Billion a year in revenue, which could see $SYROS triple, quadruple, or even quintuple in value. 

Of course, all data is still preliminary, and a long and risky road awaits Syros shareholders. But many may find the risk/reward equation to be appealing.

3. Compugen ($CGEN)

Compugen is a small firm based in Israel that seeks to wed artificial intelligence and biology to create a more efficient and effective way of identifying promising new drugs. Their slogan is “From code to cure.”  Imagine a way of finding cancer drugs that involved more software and keyboards, and less test tubes and bunsen burners. 

Right now anything involving artificial intelligence is red hot in the media. This means that even small companies have a chance to attract attention from big players. This is exactly what happened to $CGEN. A few years ago they caught the eye of Cathie Wood, founder and CEO of ArkInvest, one of the most popular technology oriented exchange traded funds out there. Ms. Wood is constantly talking up companies on CNBC, Bloomberg News, and other major media outlets. $CGEN fit the narrative that Ms. Wood was seeking, and ArkInvest quickly became Compugen’s largest shareholder. 

Compugen’s shares skyrocketed from $2.50 in the beginning of 2019 to $17.50 at their peak in 2020. AI was red hot, and $CGEN was going for a wild ride on Cathie Wood’s magic carpet of media adulation. Using proprietary software algorithms, the company was pionering a unique method of attacking cancer, called the “triple checkpoint hypothesis.” This is a new way of bolstering the immune system to attack solid tumors. The approach could be used by itself, or could be combined with existing immunotherapies to ramp up the pressure on cancer. 

But the love affair with Ark Invest ended as abruptly as it had begun. With little explanation, Cathie Wood began selling huge quantities of Compugen shares. Ark Invest’s position in Compugen had become so large that the very act of selling shares caused the small company’s market capitalization to tank. Eventually ArkInvest sold more than 60% of its stake in $CGEN, and the share price came crashing back down to earth. 

But the slump in Compugen’s share price, and the cooling of relations with ArkInvest, has not stopped the pugnacious Israeli company from making solid progress and attracting new allies. This November, the company has unveiled promising new data regarding it’s “triple checkpoint hypothesis.”  The promise has been tempting enough that partner Bristol, Myers, Squibb decided to buy $20 Million in Compugen stock. 

Even though this oncology data is still preliminary, the combination with $BMS’s Opdivo could translate to massive revenue potential. Opdivo is actually considered to be the laggard in the immunotherapy space, falling well behind Merck’s Keytruda. However, even as an “also ran” Opdivo brought home $7.9 Billion in revenue during the chaos of 2020. The idea is that Compugen’s novel agent would be used in conjunction with Opdivo on a high percentage of clinical cases. BMS has a strong incentive to see this research to its conclusion, and, if results are positive, BMS has an even stronger incentive to flex its formidable commercial muscles to promote the combination. The only way that Opdivo goes “From zero to hero” in the eyes of Wall Street pharmaceutical analysts is if it becomes a key ingredient in a potent, novel, oncology cocktail. If Compugen’s new agent eventually winds up being combined with Opdivo just 15% of the time, that could easily translate to $1B a year in revenue. Quite a quantum leap for a small company currently valued at just $370 million. 

Although the stock price is currently low and Cathie Wood’s media circus has moved on to other “it” companies of the moment, $CGEN still has about 2.5 years worth of cash on hand. They have a powerful and committed new partner in Bristol, Myers, Squibb. And they are relying on computational algorithms that will only grow in strength as computing power inevitably progresses. 

$CGEN could be a good bet for a patient investor who looks at the union of information technology and biology and sees opportunity. 

2021 has been a very rough year for many biotech investors. The whole sector has been left behind as other kinds of companies have soared. Will 2022 be our year? No one knows for sure. But careful analysis and prudent stock selection will always increase your odds of seeing clearly into your crystal ball…..

Disclosure: The Sick Economist owns shares in all three of the profiled companies in this post.