Markets have been turning mostly up since the election, as investors have taken the measure of the macro environment and appear pleased. There is some expectation that political matters may settle down, allowing government, public health officials, and the business world to focus on beating the next wave of the coronavirus pandemic.
The big news on that front, of course, came from Pharma giants Pfizer and Moderna, which have both announced success in trial phases of COVID vaccines, and are currently on the cusp of gaining emergency use authorization (EUA). The prospect of an early vaccine is bullish for the markets, and has investors looking forward.
Oppenheimer’s Chief Investment Strategist John Stoltzfus, looking at the market’s big picture, wrote recently, “In the week ahead investors will have plenty to ponder. We’d expect they are likely to continue to seek out segments of the equity market poised to benefit from a post-Covid environment…”
Post-COVID thinking will have some immediate impact on investment decisions, notably the willingness to shoulder higher risk. Stoltzfus points out that willingness, too, along with its effect on the market, describing, “evidence of the appeal of riskier assets [that] carried the S&P 500 and the Russell 2000 to new record highs…”
Taking Stoltzfus’ outlook into consideration, we wanted to take a closer look at two stocks earning a round of applause from Oppenheimer, with the firm’s analysts forecasting over 100% upside potential for each.
Recro Pharma (REPH)
Recro Pharma inhabits a specialty niche in the pharmaceutical world, as a contract development and manufacturing organization (CDMO). The company offers top-of-the-line manufacturing facilities to larger pharmaceutical researchers, allowing those firms to concentrate on finding and testing new drugs – while Recro handles serial manufacturing for approved medications. Recro focuses on controlled substances and modified release formulations, and boasts a manufacturing facility covering more than 120,000 square.
Recro’s growth and market position based on a combination of new contracts and key partnerships with major pharma distributors. In this connection, the company’s manufacturing and distribution agreement with Teva, which is well known in the generic drug market, is vital. It gives Recro a solid position as the manufacturer of Verapamil SR, an effective agent against migraines and cluster headaches, which has over 4 million prescriptions.
In addition to the agreement with Teva, Recro also manufactures Verapamil – and its synonymous cognate, Verelan – for Lannett, another major name in generic pharmaceuticals. The company scored an important coup last month when it renewed its Lannett agreement into 2023.
With shares changing hands for $2.13 apiece, Oppenheimer analyst Leland Gershell sees Recro in a sound position for future growth.
“[Recro’s] business development update signaled a resumption of prior momentum across all service divisions. REPH continues to expand into new CDMO initiatives, three-year extension recently signed w/Lannett, and debt favorably restructured. We expect REPH’s return to a consistent growth trajectory to solidify in coming quarters,” Gershell noted.
In light of his upbeat view, Gershell rates REPH an Outperform (i.e. Buy), along with a $10 price target. Should his thesis play out, a potential gain of 369% could be in the cards. (To watch Gershell’s track record, click here)
Overall, REPH holds a Moderate Buy rating from the analyst consensus, based on 2 recent Buy ratings. With a return potential of ~217%, the stock’s consensus target price stands at $6.75. (See REPH stock analysis on TipRanks)
Homology Medicines (FIXX)
Homology Medicines works on the research and creation of new genetic medicines. The company uses gene editing and gene therapy as the basis for treating disease caused by genetic mutations. Homology’s technology, using human hematopoietic stem cell derived adeno-associated virus vectors, aims to treat these diseases through gene correction and insertion.
Along with its recent third quarter earnings, Homology also announced a $60 million investment from Pfizer. This was a strategic investment on Pfizer’s part, and includes the larger company purchasing 5 million shares of FIXX. The announcement helped to stabilize Homology’s stock value after the Q3 net loss of 62 cents per share. Under the agreement, Pfizer purchased 5 million common shares of FIXX at a set price of $12 each.
Coinciding with the Pfizer agreement, Homology also announced that it will be progressing with the pheNIX gene therapy clinical trial for PKU treatment in adults. The new phase will include dose expansion, and comes after early trials showed that the drug candidate, HMI-102, was well tolerated by patients and positively affected the Phe/Tyr ratio at two doses. Moving to the next step, Homology will be conducting randomized concurrently controlled trials.
Oppenheimer analyst Matthew Biegler noted Pfizer’s cash investment into Homology, and its importance as a vote of confidence. The analyst wrote, “Proceeds from the investment will be used in further development of Homology’s phenylketonuria (PKU) gene therapy franchise, which includes HMI-102 and as well as its preclinical in vivo gene editing program, HMI-103. We believe Pfizer’s decision was spurred by updated clinical data from the PheNIX trial of HMI-102 presented last week, which showed encouraging signs of phenylalanine (Phe) reduction in two PKU patients. Homology plans to advance the trial into dose expansion cohorts in early 2021.”
Biegler is optimistic on Homology, as is clear from his $27 price target. At the current share price of $10.17, that target suggests an upside of 165% and fully supports his Outperform (i.e. Buy) rating.
Other analysts are on the same page. With 3 Buys received in the last three months, the word on the Street is that FIXX is a Strong Buy. On top of this, the $29.50 average price target brings the potential twelve-month gain to 190%.