Recent weeks have given us some hints that change may be in store. The Federal Reserve has indicated that it just may possibly be ready to start moving towards an end of its long-held easy money policy, and the Omicron variant of COVID is promising who-knows-what in the ongoing global health crisis. But the stock markets trending back up, after a late-November pullback.
That turn upward would appear to have some historical backing. The S&P 500, in data going back to 1928, has notched up December monthly gains 74% of the time, and the gains are better when the index expanded 20% or more in the first 11 months of the year. So far this year, the S&P is up 26%.
Wells Fargo analysts agree that stocks – or some, at least – are going to go up, and they’ve been picking out the likely winners. In particular, they’ve found two tickers with over 90% upside potential. We ran the two through TipRanks database to see what other Wall Street’s analysts have to say about them. The results are interesting.
Apellis Pharmaceuticals (APLS)
The first Wells Fargo pick we’re looking at is Apellis, a biopharma company focusing on on the C3 system, or the complement system, part of the body’s immune system. C3 is the complement cascade, which clears away damaged cells and promotes inflammation, as well as attacking pathogens’ cell membranes. This is a broad spectrum of activity, and shows potential for meeting a range of unmet medical needs. In targeting C3, Apellis is aiming at the central component of the complement cascade, to impact an overactive system. This approach has potential applications in several medical fields, including neurology and ophthalmology, as well as several rare diseases.
Apellis has one leading drug candidate in the pipeline, pegcetacoplan. This compound acts directly on C3, giving it multiple applications to disease treatment – but its first approval, announced in May of this year, is for the treatment of paroxysmal nocturnal hemoglobinuria (PNH), a rare blood disease. The new drug, marketed as Empaveli, is indicated for adult patients who are switching from C5 inhibitors.
Since its approval in May, Empaveli has been generating positive sales. The company realized $5.3 million in revenue from Empaveli during 3Q21, a sharp increase from $623,000 in Q2. Empaveli has a decision pending with the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) on approval of Empaveli for treatment of PNH, and expects to have an answer by the end of this year.
On a negative note, the company saw its shares plummet in September of this year, after data from the OAKS and DERBY studies – a pair of identical Phase 3 trials of pegcetacoplan in the treatment of geographic atrophy (GA), a form of age-related macular degeneration – showed divergent results. OAKS showed positive results, while DERBY results were not clinically significant. FDA feedback, however, indicated that the agency is still receptive to Aplellis’s New Drug Application for pegcetacoplan as an intravitreal injection for the treatment of geographic atrophy. The company announced in November that it is on track to submit that NDA in the first half of 2022.
Apellis will need capital to manage marketing of Empaveli and a potential launch of pegcetacoplan in the treatment of GA, and the company recently held an offering of common shares. The offering saw more than $10 million shares go on the market at $40 each, and raised more than $402 million in gross proceeds.
Among the bulls is Wells Fargo analyst Derek Archila, who believes that Apellis is in a sound position.
“We think the 3Q21 sales results for Empaveli were solid, and we view this as an underappreciated part of the story. While the focus is largely on GA, we do think Empaveli utilization in paroxysmal nocturnal hemoglobinuria (PNH) could surprise to the upside. We are more bullish on Empaveli relative to the Street, as we see it becoming SOC therapy in PNH,” Archila noted.
“We think the stock is likely to grind up ahead of a potential advisory committee approval of pegcetacoplan for GA in the middle of 2022 and see the risk/reward for our bull/bear scenarios as +165%/-30%,” the analyst added.
In line with his bullish comments, the analyst gives APLS an Overweight (i.e. Buy) rating, with an $84 price target that indicates potential for 95% upside growth. (To watch Archila’s track record, click here)
Wall Street generally is plenty attentive to this commercial biotech – there are 15 reviews on record for the shares. These break down 12 to 3 in favor of Buy over Hold, for a Strong Buy consensus rating. The average price target of $69.36 implies ~61% upside from the trading price of $43.01. (See APLS stock analysis at TipRanks)
Rhythm Pharmaceuticals (RYTM)
We’ll move over now to Rhythm Pharma, a biopharmaceutical research company that is beginning its switch from clinical stage to commercialization stage. The company has focused its research on rare genetic diseases causing obesity, with a particular focus on the melanocortin-4 receptor (MC4R) pathway. This is the brain pathway responsible for regulating both weight and hunger, and it has been implicated as a root cause in several genetically-based obesity conditions.
The company has one drug, setmelanotide (trade name Imcivree), approved and on the market. Setmelanotide was approved by the FDA in November of last year, as a treatment for three obesity-causing, rare genetic condition. These include pro-opiomelanocortin (POMC) deficiency, proprotein subtilisin/kexin type 1 (PCSK1) deficiency, and leptin receptor (LEPR) deficiency. The approval specifies that setmelanotide is for patients aged 6 years and older, and is for chronic weight management, that is, losing weight and keeping it off for at least one year.
Sales of Imcivree reached $1 million in the third quarter of this year, a strong result that indicates rapid sales growth. Revenues were $274K in the second quarter, and only $35K in Q1.
Having an approved drug, and consequent revenues, hasn’t let to Rhythm sitting on its laurels. The company is actively pursuing label expansion of Imcivree and in November announced that the FDA had accepted its filing of a Supplemental New Drug Application for Imcivree in the treatment of Bardet-Biedl syndrome (BBS) or Alström syndrome. The FDA has assigned a priority review for this application, with a PDUFA date of March 16, 2022.
And, in a further expansion, the company announced this month that it had made an exclusive licensing agreement with RareStone, for the commercialization of Imcivree in China. The agreement includes an up-front payment to Rhythm of $12 million in cash and equity, and future payments up to $63.5 million based on milestones and sales royalties.
All of this paints a pleasing picture going forward, and in his note for Wells Fargo, Derek Archila is cognizant of it.
“We believe IMCIVREE, which is currently approved as a treatment for POMC/PCSK1and LEPR deficiency obesities, is meaningfully de-risked from a clinical standpoint for additional MC4 pathway obesities. We have a high degree of confidence (POS: 90%) that IMCIVREE will gain approval for Bardet-Biedl syndrome (BBS) in 2022, and are bullish on the launch amid the Street’s low expectations,” Archila opined.
“We believe the current valuation offers an attractive entry point for long-term investors,” the analyst summed up.
Archila gives RYTM shares an Overweight (Buy) rating, along with a $30 price target that suggests room for 192% upside in the coming year.
Overall, the analyst consensus rating on RYTM shares is a Moderate Buy, based on a mix of 2 Buys and 3 Holds. The shares are selling for $10.35 and their $26.33 average price target implies ~154% one-year upside. (See RYTM stock analysis on TipRanks)
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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.
