Last year’s bull market, dominated by mega-cap tech stocks, has shifted to smaller, lesser-known companies this year. This shift in momentum is driven by a range of economic factors that support positive sentiment.
The most prominent of these factors is slowing inflation. While prices remain high compared to four years ago, the slowing rate of increase bodes well – and supports the conventional wisdom that the Federal Reserve will initiate further rate cuts and provide additional support before the summer is over.
David Kostin, Chief US Equity Strategist at Goldman Sachs, summarizes the shift, writing: “Against a backdrop of extreme concentration in equity markets, four factors explain the turnaround: (1) declining inflation and increased confidence that the Fed will to lower; (2) steady economic growth data; (3) a jump in the prediction market probability of a Republican sweep; and (4) forecast compression of the EPS growth premium of large-cap stocks relative to peers.”
“Small-cap and equal-weight benchmarks will continue to outperform unless the 2Q reports from the big tech stocks prompt analysts to increase their sales estimates for 2H 2024 and 2025,” Kostin added.
Goldman’s stock analysts back Kostin’s prospects, predicting up to 165% upside for two small-cap stocks. According to the TipRanks databasethese stocks have also received a ‘Strong Buy’ rating from the broader analyst consensus. Let’s take a closer look and find out why they’re poised for a win.
RegenXBio (RGNX)
The first Goldman pick we’ll look at is RegenXBio, a gene therapy company that specializes in single-dose treatments for serious diseases with few or no existing therapies. The company is a leader in AAV therapies, using adeno-associated viruses to deliver modified genes directly into patients’ affected cells. This innovative approach has the potential to revolutionize medical treatments for millions of people.
RegenXBio currently has three drug candidates in its pipeline. Two of these are being developed independently, while the third is in collaboration with AbbVie. The most advanced candidate, RGX-121, is advancing in clinical trials and regulatory processes. The company plans to file a Biologics License Application (BLA) for RGX-121 later this year, following a pre-BLA meeting with the FDA in June. RGX-121 is intended to treat Hunter syndrome, also known as MPS II, by delivering the human iduronate-2-sulfatase (IDS) gene directly to the central nervous system.
Another promising candidate is RGX-202, which is solely owned by RegenXBio. This drug is being investigated as a treatment for Duchenne muscular dystrophy and uses a ‘novel microdystrophin construct’ as the active agent. In June, RegenXBio began enrolling pediatric patients ages 1 to 3 years in the Phase I/II AFFINITY DUCHENNE study. The company has also scheduled an End-of-Phase II meeting with the FDA and expects to initiate a pivotal trial in late Q3 or early Q4 of this year.
Finally, RegenXBio is working with AbbVie to develop ABBV-RGX-314, a novel, one-time subretinal treatment designed as a therapy for chronic retinal diseases such as wet AMD and diabetic retinopathy. The next clinical data from the Phase II AAVIATE trial is expected in the third quarter of this year, while regulatory submissions are planned for the first half of 2026.
For Goldman analyst Paul Choi, a key point here is the diversity and quality of RegenXBio’s pipeline. This is a major asset for the company and a key attractive feature for investors.
“We see the potential for RGNX’s gene therapy platform to address unmet needs in multiple attractive markets… We view the limited RGX-202 DMD data to date as intriguing and look for additional dosing data and longer-term follow-up, but we see the potential opening up additional (i.e. older) patients not treated by current therapies (e.g. SRPT’s Elevidys). Finally, the upcoming filing and expected approval of RGX-121 for MPS II (Hunter syndrome) provide near-term regulatory catalysts and a commercial product with a small but well-identified opportunity,” Choi opined.
“We see a tangible catalyst path (additional DMD data, Hunter registration and suprachoriodal wAMD/DR data in the second half of 2024; subretinal wAMD data and filing in 2025) driving RGNX’s stock performance in the near to medium term ”, the analyst summarized.
To that end, Choi rates RGNX a Buy, along with a $38 price target. This figure indicates room for 165% upside one year from now. (To view Choi’s track record, click here)
Overall, the Street agrees with the bullish view. RGNX stock has a unanimous Strong Buy consensus rating, based on 9 positive analyst ratings. These are complemented by an average price target of $39.44, suggesting a 175% upside over the next twelve months. (To see RGNX Stock Prediction)
Viridian Therapies (VRDN)
The second stock on today’s list is Viridian Therapeutics, a biotech company whose work focuses on developing new treatments for autoimmune diseases. The company’s main focus is on thyroid eye disease, or TED, a serious condition that can lead to blurred vision or blind spots.
Viridian is advancing two drug candidates for TED in clinical trials, including VRDN-001, which is currently being evaluated in two Phase 3 trials, THRIVE and THRIVE-2. VRDN-001 is administered by intravenous infusion, with a regimen of five treatments spaced three weeks apart. It is considered a potential best-in-class therapy. This drug candidate, an IV monoclonal antibody directed against IGF-1R, has demonstrated strong clinical activity and a favorable safety profile in previous studies. The studies examine the drug’s effectiveness in both active and chronic TED, with topline results from THRIVE expected in September and THRIVE-2 results expected by the end of the year.
The second drug candidate, VRDN-003, is particularly noteworthy. It is an anti-IGF-1R drug designed for subcutaneous injection, offering patients a more convenient, self-administered treatment option. VRDN-003 is similar to VRDN-001, but has a longer half-life, which aims to improve patient comfort and compliance. Importantly, neither VRDN-001 nor VRDN-003 is administered directly into the eye, addressing a common concern regarding discomfort associated with existing treatments for eye diseases.
This company’s strong treatment development program for thyroid eye diseases caught the attention of Goldman Sachs analyst Richard Law, who sees it as a potential new standard of care in the long term.
“Our Buy rating is based on the fact that VRDN-003 may have the best-in-class SC profile in TED… Although Tepezza is now an established SOC, we believe that the re-entry of the TED market and the strong enthusiasm from physicians willing to prescribe SC instead of IV products provide VRDN-003 with the opportunity to compete well. Although it is still early and many new assets have not reported much data, the ‘003 half-life extension, small injection volume and combination of auto-injectors could position it well compared to SC assets that lack these features, ‘ said Law.
“We believe the shorter treatment course of VRDN-001 has more limited competitive advantages over Tepezza, but could help establish a payer/prescriber network for the launch of ‘003’. We model both assets to reach peak sales of ~$1.8 billion (non-risk adjusted) or ~$798 million (risk adjusted) in 2040,” the analyst added.
Along with that buy rating, Law gives Viridian shares a $23 price target, which suggests an upside of 38% over a one-year horizon. (To view Law’s track record, click here)
The Goldman view may prove to be the more conservative view for VRDN. The stock’s Strong Buy consensus rating is backed by an average price target of $33.08, which suggests an upside of 98% from the current share price. (To see VRDN stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.