Generally, a “Strong Buy” rating on Wall Street indicates that analysts believe the stock will appreciate and outperform the broader market and its industry peers. It also expresses analysts’ belief in the company’s fundamentals, industry or growth prospects, industry trends, competitive advantages, or macroeconomic conditions.
Here are two biotech stocks that Wall Street is very bullish on. Let’s find out why.
‘Strong Buy’ Stock #1: Phathom Pharmaceuticals
With a market capitalization of $393.8 million, Phathom Pharmaceuticals (PHAT) is a small-cap biotech company focusing on developing and commercializing new treatments for gastrointestinal (GI) diseases. In July 2024, the U.S. Food and Drug Administration (FDA) approved its 10-mg VOQUEZNA tablets to treat heartburn in adults with non-erosive GERD.
Phathom stock has dipped 31%, compared to the S&P 500 Index’s ($SPX) gain of 3% so far this year.
Beyond GERD, the FDA has already approved VOQUEZNA for the treatment of erosive esophagitis and, when combined with antibiotics, the eradication of H. pylori infection. These approvals position VOQUEZNA as a versatile therapy capable of treating a wide range of acid-related GI disorders while also expanding the company’s market opportunities.
Phathom reported significant financial growth in the third quarter of 2024. Net revenue was $16.4 million, representing over 120% sequential quarterly growth. A successful launch and market penetration of VOQUEZNA products, with over 143,000 prescriptions filled since launch through October 2024, led to this revenue jump. However, the company is still not profitable, which is typical for a growing biotech company. Its net loss stood at $85.6 million in the quarter. Phathom is also awaiting FDA feedback on the Phase 2 trial of VOQUEZNA as a possible treatment for eosinophilic esophagitis (EoE).
Last year the company raised $130 million from an offering of common stock and pre-funded warrants. This funding is expected to help with its commercialization efforts and ongoing clinical development. The company reported $334.7 million in cash and cash equivalents at the end of the quarter. Management believes that its current cash position will support its operations until it becomes cash flow positive. For the full year, analysts expect revenue of $51.2 million, followed by an increase of 223.9% to $166 million.
Overall, Wall Street rates Phathom stock a “Strong Buy.” Out of the eight analysts covering the stock, six rate it a “Strong Buy,” one says it is a “Moderate Buy,” and one rates it a “Hold.” The average target price of $23.88 suggests the stock can rally as much as 331% over current levels. Plus, the high target price of $28 suggests upside potential of 405.4% over the next 12 months.
VOQUEZNA’s approvals and market prospects for various treatments are certainly promising. However, Phathom faces risks such as regulatory hurdles, clinical trial outcomes, and market dynamics, all of which can significantly impact its stock performance. Investors should conduct thorough due diligence before considering this small-cap biotech stock.
‘Strong Buy’ Stock #2: Stoke Therapeutics
With a market cap of $492.6 million, Stoke Therapeutics (STOK) is focused on developing RNA-based medicines to treat severe genetic diseases. The company’s strategy is to use its proprietary targeted augmentation of nuclear gene output (TANGO) platform to create treatments that go beyond symptom management and address the underlying causes of these genetic conditions. Stoke’s stock has dipped 22.3% year-to-date, compared to the broader market gain this year
Stoke is developing its lead candidate, zorevunersen (STK-001), for Dravet syndrome, a severe and progressive type of genetic epilepsy. It causes frequent, prolonged seizures in infancy, as well as developmental delays and cognitive impairments. Current treatments for this condition are primarily concerned with reducing seizure frequency and do not address the underlying genetic cause.
Recently, Stoke announced a collaboration agreement with Biogen (BIIB) to develop and commercialize zorevunersen for Dravet syndrome. The agreement states that Biogen will have exclusive rights to commercialize zorevunersen outside of the U.S., Canada, and Mexico, while Stoke will retain rights within those territories. Under the agreement, Stoke will receive a $165 million upfront payment and up to $385 million in development and commercial milestone payments. The companies will split clinical development costs, with Biogen paying 30% and Stoke paying the remaining 70%. Stoke will also receive tiered royalties on potential net sales in Biogen’s territories.
Furthermore, Stoke is expanding its pipeline to address additional genetic conditions. Stoke has yet to generate any product revenue. However, in the third quarter, it generated $4.9 million in revenue from upfront license fees and services provided under an agreement with Acadia Pharmaceuticals (ACAD). The net loss for the quarter totaled $26.4 million. It ended the quarter with $269.2 million in cash, cash equivalents, and marketable securities.
Overall, Wall Street rates Stoke stock a “Strong Buy.” Out of the 10 analysts covering the stock, eight rate it a “Strong Buy,” one says it is a “Moderate Buy,” and one rates it a “Hold.” The average target price of $22.75 suggests the stock can rally as much as 160.3% over current levels. Plus, the high target price of $35 suggests upside potential of 300.4% over the next 12 months.
Companies that develop therapies for rare genetic disorders will remain in demand. However, Stoke is still in the clinical stage, it is a long shot. It could be years before an approved and successful product hits the market. Investors with a high risk tolerance and a long investment horizon may find this biotech stock attractive right now.
