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Why did analysts give this biotech penny stock a moderate buy rating?

We recently published a list of The 10 Best Biotech Penny Stocks to Buy NowIn this article, we will look at how Biomea Fusion, Inc. (NASDAQ:BMEA) compares to the other biotech penny stocks.

Biotech Stocks in 2024: Growth Prospects, Key Players and Investment Opportunities

In 2024, the healthcare industry has performed well, encouraging investors to look for new and exciting opportunities. Biotechnology, in particular, is expected to benefit, despite the dangers of continuous mergers and acquisitions. However, traders should exercise caution. With a compound annual growth rate of 11.8%, the global biotechnology market is expected to reach USD 4.25 trillion by 2033. It is growing rapidly. The US market is expected to grow at a compound annual growth rate of 11.90% to reach USD 763.82 billion by 2033 from its valuation of USD 246.18 billion in 2023. In 2023, the US led North America in terms of revenue share.

Fitch Ratings maintains a neutral outlook for the global biotech industry in 2024, primarily due to moderate inflation rates. The industry is supported by factors such as a growing aging population, improved access to healthcare, and a rise in chronic and specialty diseases. Fitch also forecasts an increased focus on drug pricing and patient value.

Biotech stocks like Vincerx Pharma (VINC), Corbus Pharmaceuticals (CRBP), and Viking Therapeutics (VKTX) have seen significant gains in 2024, with returns ranging from 134% to 446%, despite receiving less media attention than industries like technology and cryptocurrencies. Positive results from weight-loss drug trials, for example, allowed Viking Therapeutics to connect its product to a potentially multi-billion dollar market need. Although the success of individual stocks suggests potential gains, larger indices like the NASDAQ Biotechnology PR USD Index show the industry’s volatility; it fell 11% between 2022 and 2023 due to economic difficulties, but gained 3% through February 2024.

Investors keeping an eye on biotech stocks may be wondering which areas are likely to see acquisitions. Laura Chico has identified key areas to watch for potential acquisitions:

“Obesity was a really big topic in 2023 and will probably continue to be for the foreseeable future, but in this space, at least in these recent M&A deals, it’s been really broad-based and I think that’s really a testament to the innovation in this space. We have multiple deals in oncology, immunology, inflammation, neurology and even rare diseases. So it’s not just about specific verticals right now.”

Chico advises biotech investors to keep an eye on FDA approval news, scientific and clinical risks, and the disease categories the companies are targeting, as these could be indicators of company success. On March 6, Healthcare Equity Strategist Jared Holz spoke about this possibility on CNBC’s “The Exchange”:

“(Biotech) has been one of the worst performing areas in the entire equity market since mid-2021. Until recently, we’ve seen little positive activity over an extended period of time… When you consider the risk factors related to drug pricing and other elements of the business… all of those risk factors are much better understood and we can continue to move higher from here.”

Holz emphasizes the potential of well-positioned small-cap stocks and says it’s not too late to invest in large-cap biotech stocks. We’ve compiled a list of oversold biotech stocks that includes both excellent options under $20 and cheap options that have been missed.

Our methodology

To evaluate the best biotech penny stocks to buy now, we first identified large biotech companies trading under $5. We then selected the top 10 and ranked them by the number of hedge fund holders in the first quarter of 2024.

Why do we care about the stocks hedge funds invest in? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (More details can be found here).

A doctor conducts experiments in a laboratory to develop new biopharmaceutical drugs.

Biomea Fusion, Inc. (NASDAQ:BMEA)

Number of hedge fund owners: 15

Biomea Fusion, Inc. (NASDAQ:BMEA) is a clinical-stage biopharmaceutical company focused on developing irreversible small molecules to treat patients with genetically defined cancers and metabolic diseases. Biomea Fusion’s lead candidate, BMF-219, initially showed promising results in treating type 2 and type 1 diabetes. Positive results from Phase I/II clinical trials suggested it could restore insulin production and improve glycemic control. However, due to concerns about liver toxicity caused by the drug, the FDA suspended these trials on June 7, 2024. This resulted in a sharp 63% drop in the value of BMEA shares. CEO Thomas Butler emphasized the company’s commitment to developing BMF-219 despite this setback, reiterating the drug’s overall tolerability and its potential to fill significant gaps in diabetes treatment.

Based on research conducted by nine Wall Street analysts over the past three months, Biomea Fusion is rated a Moderate Buy. With a range of $5.00 to $60.00, the average 12-month price target is $20.56. Compared to the current market price of $4.53, this suggests a potential upside of 353.86%. In the first quarter of 2024, 15 hedge fund holders held the company, compared to 16 in the previous quarter. Cormorant Asset Management had the largest position in the stock with around 3,570,872 shares valued at $53,384,536, representing 2.34% of the company’s portfolio.

Biomea Fusion, Inc. (NASDAQ:BMEA) reported a net loss attributable to common shareholders of $39.1 million in the first quarter of 2024, compared to $29.1 million in the first quarter of 2023. For the first quarter of 2024, net loss per common share, including basic and diluted shares, was $1.09. The Company’s cash, cash equivalents and restricted cash were $145.3 million as of March 31, 2024, compared to $177.2 million at the end of 2023. Due to increasing clinical and preclinical development expenses, the Company’s research and development expenses increased to $33.8 million in the first quarter of 2024 from $24.4 million. General and administrative expenses increased to $7.3 million from $5.6 million in the first quarter of 2024, primarily due to higher personnel costs, such as stock-based compensation, which amounted to $5.0 million.

Total BMEA 8th place on our list of the best biotech penny stocks to buy. You can visit The 10 Best Biotech Penny Stocks to Buy Now to see the other biotech penny stocks that are on hedge funds’ radar. While we recognize BMEA’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than BMEA but trades at less than 5x its earnings, read our report on the cheapest AI stock.

READ MORE: Analyst sees a new $25 billion ‘opportunity’ for NVIDIA and Jim Cramer recommends these 10 stocks in June.

Disclosure: None. This article was originally published on Insider Monkey.

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