On October 25th, Medical Gold published a prescient article titled “Beyond the Bear: The Case For A Bright Horizon for Biotech in 2024” in which we laid out the case for a major bottom in the biotech sector. As it turned out, that article would time the sector bottom to within a few days.
Since the end of October, the XBI Biotech ETF is up more than 40% and many individual biotech stocks have risen 50%, 60%, or even 70%. One of the main factors we saw helping to put in place a bottom for the biotech sector was the return of M&A due to large biopharma companies sitting on record piles of cash.
One of the main factors we saw helping to put in place a bottom for the biotech sector was the return of M&A due to large biopharma companies sitting on record piles of cash. Just last week, Bristol Myers announced a $14 billion all-cash acquisition of Karuna Therapeutics, the $43B Pfizer-Seagen deal has finally passed FTC scrutiny, and Abbvie nabs Horizon for $10.1B. If we are correct, we will see a continued wave of M&A deals in 2024. After such a large advance in the sector, some investors may be concerned that they are late to the party. However, the reality is that the biotech bull is still in its early stages and there are many small cap biotech stocks that have barely started to move higher.
In this year end missive, we have identified three small cap biotech companies that have enormous upside potential. Furthermore, each of these companies boast strong cash positions that help to anchor their downside risk. Readers will be very familiar with one of these companies, however, the recent pullback in CYBN shares have offered up a very attractive year end tax loss buying opportunity for investors with dry powder to deploy.
Small cap stocks have a tendency to benefit from the end of tax loss selling (at the end of the calendar year) and the so-called “Santa Rally” which lasts into the first week of January. With today being December 29th, the final trading day of 2023, each of these three stocks stand poised to rally into the new year.
In the last few months, ATAI (NASDAQ:ATAI) Co-founder and CEO Florian Brand has made two open market purchases of ATAI shares totalling 60,000 shares. The purchases total roughly US$80,000 and offer a distinct bullish flavor in a sector in which insider purchases have been fairly sparse in 2023.
ATAI shares are down 42% year-to-date, and the company stands to benefit from the expected FDA approval of MDMA for the treatment of PTSD in the 2nd half of 2024. ATAI's phase 2b study of RL-007 in CIAS patients continues to be on track to report data in 2H 2024 and data from the EMP-01 (MDMA derivative) Phase 1 study is anticipated to be reported imminently. With more than $200 million in cash, ATAI is in a position of strength entering 2024.
Cybin (NYSE:CYBN) shares continue to consolidate near the $.40 level as the market awaits topline clinical readouts of Phase 1 data for CYB004 and SPL028. CYB004 and SPL028 are Cybin's DMT drug candidates. CYBN is expected to initiate Phase 2 proof-of-concept study of CYB004 in participants with generalized anxiety disorder in Q1 2024.
In addition, in Q4 2023 CYBN delivered positive Phase 2 topline safety and efficacy data for CYB003, its proprietary deuterated psilocybin analog, being developed for the treatment of major depressive disorder (MDD). CYBN plans to submit topline data to the FDA and request an end of Phase 2 meeting to be held in Q1 2024. Additional 12-week durability data from the Phase 2 CYB003 study is anticipated in Q1 2024. Recruiting for a CYB003 Phase 3 study is anticipated to begin by the end of Q1 2024.
MedicalGold will be speaking with CYBN CEO Doug Drysdale early in the new year and you can count on us to publish a thorough update interview in January. We view the risk/reward proposition in CYBN shares at $.40 to be attractive and we are holding a long position.
Allakos (NASDAQ:ALLK) is developing monoclonal antibodies, lirentelimab (AK002) and AK006, targeting immune cell receptors to modulate inflammatory and proliferative diseases. Lirentelimab focuses on Siglec-8, found on mast cells and eosinophils, to treat conditions like chronic spontaneous urticaria, atopic dermatitis, and possibly more, by counteracting inappropriate activation of these cells. AK006, aiming at Siglec-6 on mast cells, is expected to begin human studies in early 2023. This drug candidate shows promise in significantly inhibiting mast cell activity and reducing their numbers, offering a broader approach to inflammation reduction than single-pathway targeting treatments.
Allakos has $193.9 million in cash on its balance sheet as of 9/30/2023. Relative to its current market cap of $235 million, Allakos’ hefty cash position helps to anchor its valuation and gives it considerable financial flexibility.
ALLK currently has a 6.02% short interest, which is notable considering this represents 4.3 days-to-cover for short players. Positive phase 2 trial data could set in motion a powerful short squeeze in ALLK shares.
Chart technicals show ALLK forming a bullish falling wedge with important support near $2.60. We would be buyers of ALLK today with a $4 price target, and a 10% downside stop loss.
As always, we advise readers to do their own due diligence on companies and to never risk more than one can afford to lose.
Author owns shares of Cybin Inc. at the time of publishing and may choose to buy or sell at any time without notice.
The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource and biotechnology companies can easily lose 100% of their value so read company profiles on www.SEDARplus.ca for important risk disclosures. It’s your money and your responsibility.