As biopharma investors follow the latest developments in clinical research, they may be underestimating opportunities in neurology, psychiatry and genetic medicine, according to a report by Oppenheimer. Specifically, analyst Jay Olson named companies such as Biogen, Karuna Therapeutics and Crispr Therapeutics. “Our analysis shows that Genetic Medicine and Metabolic (including products for type 2 diabetes and obesity) outperformed on average >20% over the period of approximately 5.5 years, and these two categories are also in 2023.” year-to-date leader in outperformance,” Olson wrote. “Valuation multiples across disease areas show that CNS (or central nervous system) and genetic medicine are at relatively low levels.” And rightly so, Olson said, explaining that there is a great need for better treatments and that science is advancing. However, the dynamic is changing now, he said. Growth rates in oncology and immunology are slowing and provisions of the Inflation Reduction Act threaten to put pressure on prices, Olson said. Meanwhile, a lot of attention has shifted to metabolic research due to news surrounding the treatment of obesity, including Novo Nordisk’s Wegovy and Eli Lilly’s Mounjaro. Forecasts are predicting huge jumps in company sales as a result of these products, but investors have already flocked to these names. Shares of Novo Nordisk are up 25% and shares of Lilly are up almost 19% for the year to the close on Monday. “We believe historical performance and prevailing aggregate market caps are reflective of revenue growth expectations, with, for example, Metabolic being the largest category and revenue expected to grow from $65.5 billion in 2023E to approximately $118 billion in 2028E which corresponds to an average growth rate of 14%,” he said. However, Olson believes there will be further sales acceleration in both CNS and genetic medicine. Among the examples he gave was Biogen. The stock is up more than 12% year to date, but has upside potential of up to 15%, according to Olson. There are two key catalysts for the stock. In July, the Food and Drug Administration could grant Leqembi, its drug for treating Alzheimer’s disease, full approval. That could then prompt the Centers for Medicare and Medicaid Services to reimburse patients for treatment, which could cost Medicare up to $5 billion a year, according to a recent study published in JAMA Internal Medicine. Sometime in the second half of this year, Vertex Pharmaceuticals and Crispr could win FDA approval for a gene therapy, Exagamglogene Autotemcel (or Exa-Cel), for sickle cell disease and transfusion-dependent beta-thalassemia. As a very new area of medicine, gene therapy has the greatest potential to accelerate sales growth as treatments come to market. Based on consensus estimates, sales could grow 97% from 2023 to 2028, Olson said. As for Karuna, the company reported in March that its drug for treating adult schizophrenia, KarXT, met all of its primary endpoints in a Phase III trial. It expects the company to submit its new drug application for the treatment by the middle of this year. Analysts say KarXT could become a multibillion-dollar drug as it could become the “go-to” product for patients with schizophrenia who have failed existing treatments. The drug also has potential to treat other conditions. A lot of attention is also being paid in the psychiatric field to Zuranolone, a drug developed by Biogen and Sage Therapeutics for the treatment of major depression and postpartum depression. The FDA granted priority review of the drug application in February. Olson also analyzed the multiples of various disease areas by looking at aggregated valuation multiples by market cap versus five-year sales forecasts from 2018 to 2023 year-to-date. “We found that oncology multiples have been declining from historically high levels while Metabolic has been steadily increasing over the past several years,” he wrote. He described the immunology multiples as “generally stable” and the genetics-medicine multiples as extremely volatile. “We believe that lower CNS multiples in recent years, despite higher forecast sales, represent a potentially attractive disease area for investment,” he said.
