Capital One says buy these six biotech stocks for 2024

Ahead of full year 2024 corporate updates for its covered stocks in the biotechnology space, Capital One analysts revealed the firm’s top picks for the year. Based on disclosed catalysts for 2024 and expectations around downside versus upside risks, the firm named Arvinas (ARVN), Kodiak Sciences (KOD), Protagonist Therapeutics (PTGX), Repare Therapeutics (RPTX), Day One Biopharmaceuticals (DAWN) and Immunocore (IMCR) as top picks.

ARVINAS: In line with peers, Overweight-rated Arvinas has had a nice run up since October, which has brought some confidence to investors, even with many worrying if the stock can return to its former glory, the firm notes. Capital One “certainly believes so,” given the plethora of catalysts expected, particularly data for Vepdegestrant in combo with Ribo|Abema and Carrick’s CDK7, as well as PFS data for ARV-766. In addition, the firm expects a major boost from the entry of its Alzheimer’s program into the clinic. With a pipeline currently focused on Oncology, this Neuroscience program should bring in some new investor interest.

KODIAK SCIENCES: At the end of Q3, Overweight-rated Kodiak reported cash and cash equivalents of $346M and continues to trade significantly below cash with a current market cap of $189M, says Capital One. With such a strong cash balance, the firm believes Kodiak is well positioned to move its two clinical programs beyond key inflection points. Kodiak’s lead program, Tarcocimab, is expected to enter an additional Phase 3 study during the first half of 2024, which Capital One assumes could potentially allow for BLA filing in nonproliferative diabetic retinopathy, retinal vein occlusion, and wet age-related macular degeneration by the first half of 2026.

While the timing of the BLA filing is further out, the Phase 3 study initiation could lead to a stock boost. The firm could also see an earlier boost in the stock following a planned readout of data in February from its second program in diabetic macular edema and perhaps another 2024 update on a novel formulation of KSI-501 for retinal inflammatory diseases, both of which could enter pivotal studies during 2024.

PROTAGONIST THERAPEUTICS: Capital One sees potential for upside surprises with JNJ-2113 — an oral IL-23R peptide — for the treatment of psoriasis. With Johnson & Johnson (JNJ) as a partner, multiple Phase 3 studies are being initiated for JNJ-2113 with top line results expected in 2025. In addition, the firm believes Protagonist’s rusfertide has yet to get any significant value, even with positive Phase 2b clinical results and Phase 3 enrollment nearly completed, but that could change. By the second half of 2024, Capital One also expects to get more visibility on the company’s earlier stage pipeline candidates, including a next generation oral peptide targeting the IL-17 receptor.

REPARE THERAPEUTICS: With Overweight-rated Repare shares trading close to pro-forma cash balance, the firm believes the company’s precision oncology pipeline could deliver upside long-term. While the focus remains on more clinical updates from lunresertib and camonsertib, Capital One thinks Repare’s two new pipeline candidates — RP-1664 and RP-3467 — could generate more visibility once Phase 1 studies are initiated later this year. Repare finished 2023 with $223M of cash on the balance sheet, which provides a funding runway into 2026. In Q1 2024, the firm believes Repare could receive additional milestone payments tied to patients being dosed camonsertib in the TAPISTRY trial from its partner, Roche (RHHBY).

DAY ONE BIOPHARMACEUTICALS: Capital One expects 2024 to be a transformational year for Overweight-rated Day One. With a key regulatory decision on track for lead drug candidate, tovorafenib in relapsed or refractory pediatric low-grade glioma with BRAF alterations, supported by a strong clinical data package from the FIREFLY-1 study, and no Adcom panel expected, the firm remains positive on FDA approval of tovorafenib. Further, Capital One does not see any potential commercial launch hurdles and believes uptake could be relatively fast given the limited treatment options and unmet need of this patient population. For tovorafenib, it currently forecasts risk-adjusted peak sales of over $1B in pLGG in 2040. Day One has $405.5M in cash and cash equivalents, which can fund operations into 2026. Altogether, the firm continues to view the risk/reward of Day One as very attractive.

IMMUNOCORE: Capital One views Overweight-rated Immunocore as a de-risked, commercial stage story, with one of the most successful launches seen in biotech history from its product, Kimmtrak, which was supported by impressive survival data. While metastatic uveal melanoma is a small indication, the firm believes the commercial momentum will continue in 2024.In addition, Kimmtrak has the potential for expansion into the adjuvant setting as well in first line cutaneous melanoma.

Overall, Capital One has high confidence in the oncology-directed bispecific TCR platform and believes its follow-on ImmTAC agent, PRAME candidate, could lead to a multi-billion-dollar opportunity, if effective. The firm expects data from the PRAME program to trickle through from Q2–Q4 2024 in three indications — cutaneous melanoma, serous ovarian, and non-small cell lung cancer — over the course of the year, which could materially move the stock. Capital One also sees additional upside for Immunocore provided by pipeline optionality from the ImmTAV and ImmTAAI platforms.