The big news in the markets this week was the release of the January inflation data. Inflation came in harder than expected, albeit by a narrow margin, with a 6.4% annualized rate and a 0.5% month-over-month gain. Experts had been predicting a 6.2% annualized reading, and a monthly gain of 0.4%.
The higher-than-expected inflation numbers prompted comments from Federal Reserve officials, reiterating the central bank’s policy: that they will fight inflation, keeping interest rates as high as needed as long as necessary until prices come under control. This has investors assuming the Fed with bump rates up again in March and May, to a peak of 5.25% by July.
In these conflicting currents, it only makes sense to seek some help in charting a course. For the retail investor, that can mean checking in with the expert opinions. And on Wall Street, there aren’t many opinions that hold more weight than Steve Cohen’s.
Cohen is one of the Street’s truly legends, a successful broker and trader who made his own fortune, and in the last few years has built his current firm, Point72 Asset Management, into a $24 billion giant.
Bearing this in mind, our focus shifted to Point72’s most recent 13F filing, which discloses the stocks the fund snapped up in the fourth quarter. Locking in on two tickers in particular, TipRanks’ database revealed that each has earned a “Strong Buy” analyst consensus and boasts significant upside potential.
Marinus Pharmaceuticals, Inc. (MRNS)
We’ll start with Marinus Pharmaceuticals, a small-cap biotech firm specializing in the treatment of seizure disorders. The company has one drug in production, both as an approved treatment for CDD-related seizures and as a drug candidate under investigation as a treatment for other forms of epilepsy. This gives Marinus a chance to reach the brass ring for biotech – to get a steady revenue stream from an approved drug, while researching additional indications and applications.
Marinus’ drug, ganaxolone, is currently approved under the trade name Ztalmy, as an oral suspension for the treatment of seizures caused by CDKL5 deficiency disorder. It received FDA approval in March of last year, and last month the company released preliminary data, from 4Q22, on its continuing commercialization. Specifically, Marinus realized between $2.2 million and $2.3 million in product revenue for Q4, out of $2.8 million to $2.9 million for the full year. As of December 31, 2022, the company had more than 90 completed CDD prescription enrollment forms.
On the clinical trial side, ganaxolone is under investigation for a variety of additional seizure disorders. The most advanced trial is RAISE, a study of the drug as an intravenous solution for the treatment of status epilepticus, or uncontrolled seizures. There are few treatments for this dangerous complication, and fewer still lack serious side effects themselves, and the fact that ganaxolone is already approved for another seizure disorder is an important point in the drug candidate’s favor. The company expects to have topline results ready for release in 2H23. Also in 2H23, the company expects to begin enrollment in the Phase 3 RAISE 2 trial, in Europe.
For his own part, Steve Cohen clearly believes that Marinus is heading up. His firm bought 3,515,000 shares in the company in Q4, a stake that is worth more than $24 million at current prices – and gives Cohen a 7.36% ownership interest in the company.
Cohen is not the only bull here. From RBC Capital, 5-star analyst Brian Abrahams writes: “We believe MRNS’s team has made strong progress revitalizing the prospects for lead drug ganaxolone, with a solid initial launch in CDD that could quickly contribute to cash flows, strong potential for the IV form to expand the status epilepticus treatment paradigm, and achievable optionality in larger seizure disorders like TSC and – with next-gen efforts – LGS.”
“We believe valuation substantially underappreciates ganaxolone’s realistic potential for $600M+ out-year sales, and expect stock upside as upcoming data readouts and commercial progress potentially de-risk this opportunity,” the analyst added.
Quantifying his remarks, Abrahams gives these MRNS shares an Outperform (i.e. Buy) rating, and his price target of $23 implies a robust one-year upside potential of ~230%. (To watch Abrahams’ track record, click here)
That the RBC view is uncontroversial is clear from the analyst consensus on Marinus, which is a Strong Buy supported by 7 unanimously positive analyst reviews. The stock is selling for $6.96 and its $22.14 average price target suggests a gain of 222% on the one-year horizon. (See MRNS stock forecast)
Day One Biopharmaceuticals (DAWN)
Now we’ll turn our attention to Day One, a clinical-stage company working on new therapeutic options for pediatric cancers, particularly brain cancer. While there are a few things sadder than watching children fight cancer, the even sadder truth is that there are so few treatments available for these kids. In fact, only 12 pediatric oncology drugs have been approved over the past 25 year. Day One aims to make it leading drug candidate, DAY101, or tovorafenib, the next to gain approval.
Tovorafenib is currently undergoing several clinical trials, the FIREFLY series, with two active trials ongoing in the treatment of pediatric low-grade glioma. In an update last month, the company announced that the pivotal Phase 2 FIREFLY-1 trial was showing strong positive results. The overall response rate (ORR) was 64%, and the clinical benefit rate (CBR) was an even higher 91%. The data was based on 69 patients, described as heavily-pretreated, RANO-evaluable. The company will be presenting additional trial data during 2Q23, and expects to submit a New Drug Application during the first half of this year.
In addition to its success with FIREFLY-1, the company is also conducting the Phase 3 FIREFLY-2 trial for patients with newly diagnosed pediatric low-grade glioma (pLGG). Enrollment in this study is ongoing, with a goal of 400 patients in the US, Europe, and Asia. Finally, Day One is also enrolling patients in the FIRELIGHT-1 Phase 2 trial, testing tovorafenib against RAF-altered solid tumors.
To fund these trials, Day One had, at the end of Q3 2022, a total of $374.3 million in cash and other liquid assets on hand. These assets were set against expenditures, for R&D and G&A, which totaled $39.7 million, giving a cash runway through the end of 2024.
All in all, this presents a hopeful picture – a drug candidate entering late stage clinical trials, and plenty of cash to fund those trials. Steve Cohen clearly believes that this biopharma is worth the inherent risk of the sector, because his recent filings show that Point72 picked up 461,631 shares when it opened up its new position in DAWN in Q4. This stock holding is currently worth nearly $9 million.
In coverage for Piper Sandler, analyst Joseph Catanzaro points out the high potential of tovorafenib, and writes: “With the significant clinical de-risking offered by the topline FIREFLY-1 data, focus is likely to now shift towards better understanding the pLGG commercial opportunity…. We believe tovorafenib’s efficacy and safety profile warrants that of a best-in-class targeted agent for a pediatric orphan oncology indication. Our model assumes pricing at parity with other orphan precision oncology agents and WAC pricing of ~$33K/month. Overall, we estimate that pLGG represents a $500M+ opportunity by 2027.”
Tracking his estimates forward, Catanzaro rates DAWN as Overweight (i.e. Buy), with a $45 price target to imply a strong 132% upside potential for the next 12 months. (To watch Catanzaro’s track record, click here)
Overall, of the 10 recent analyst reviews on file here, 9 are to Buy against 1 to Hold, for a decisive Strong Buy consensus. The stock has a current trading price of $19.45 and its $44 average price target suggests it will jump ~127% over the course of this year. (See DAWN stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.