12 Most Undervalued Biotech Stocks To Buy According To Hedge Funds

Published on March 9, 2024 at 1:09 pm by Hamna Asim in Hedge Funds, News

In this article, we discuss 12 most undervalued biotech stocks to buy according to hedge funds. If you want to skip our discussion on the biotech industry, head over to 5 Most Undervalued Biotech Stocks To Buy According To Hedge Funds.

Fitch Ratings maintains a Neutral outlook for the global pharmaceutical and biotech industry in 2024, expecting good growth supported by a moderating inflationary environment, despite high interest rates. The industry’s positive operating fundamentals are supported by factors such as a growing aging population, increased healthcare access, and a rise in chronic and specialist conditions. Many companies are streamlining their business models by exiting businesses with lower innovation content. Fitch foresees a heightened focus on drug pricing and patient value amid tighter post-pandemic healthcare budgets.

In 2023, the pharmaceutical and life sciences sector experienced a strong year for mergers and acquisitions (M&A), reaching levels comparable to pre-pandemic times. Forecasts for 2024 suggest a continuation of this robust activity, with expectations of M&A within the $225 billion to $275 billion range across all subsectors, as per a PwC report. Executives are likely to utilize cash reserves for investments in innovative and clinically differentiated areas to address growth challenges in the latter half of the decade. In 2024, differentiated science and clinical advancements are anticipated to drive dealmaking in areas with significant incremental innovation. Precision medicine in fields like oncology and immunology will remain a focus, with a heightened emphasis on weight loss and cardiovascular, a therapeutic area that experienced a revival in 2023. In 2024, the stakes for M&A in the pharma sector are elevated, with intense competition for high-quality assets and a challenging regulatory landscape. Companies are urged to invest in a technologically enabled and agile inorganic strategy, merging both internal and external innovation approaches. The United States is expected to remain the center for global innovation in the pharmaceutical sector, with foreign buyers actively participating. Understanding the implications of the Inflation Reduction Act (IRA), innovation dollars are expected to shift towards biologics over small molecules.

In 2023, the US Food and Drug Administration (FDA) set a record by approving 71 new medicines. This marked a significant increase from the previous year’s sub-40 approval tally. The approval numbers, including the first CRISPR–Cas9-edited cell therapy and the first disease-modifying Alzheimer’s drug, indicate a more active FDA after the official end of the US COVID-19 public health emergency in May 2023. Several groundbreaking treatments received approval, including the first CRISPR–Cas9-edited cell therapy for sickle cell disease, four new gene therapies, and the first disease-modifying Alzheimer’s drug. The respiratory syncytial virus (RSV) saw the approval of two new vaccines and one preventative therapy. Over a dozen new antibody-based drugs, including cancer-fighting bispecific T cell engagers, were also among the approvals. More than half of the approvals in 2023 were for orphan drugs targeting rare diseases, aligning with industry incentives. Additionally, there were new options for more widespread conditions, indicating renewed interest in larger markets. Oncology continued to dominate, with 15 novel therapies constituting over 20% of the approvals.

The global biotech market, valued at $1.55 trillion in 2023, is expected to experience robust growth, with a projected compound annual growth rate (CAGR) of 13.96% between 2024 and 2030. Grandview Research expects the market to reach $3.08 trillion by 2030. Despite experiencing slower growth in recent years, the biotech market is showing signs of potential expansion in 2024. Anticipation of a US Federal Reserve interest rate cut after an aggressive hiking cycle has led to optimism among biotech experts. A survey by GlobalData reveals that 40% of 115 respondents are optimistic about a rebound in biotech funding, while 60% express optimism regarding the sector’s overall growth in the coming year.

Some of the most top biotech stocks to buy include United Therapeutics Corporation (NASDAQ:UTHR), Moderna, Inc. (NASDAQ:MRNA), and Pfizer Inc. (NYSE:PFE). However, we will discuss the most undervalued stocks in the biotech sector in this article.

Our Methodology

For this article, we scanned Insider Monkey’s database of 933 hedge funds and picked the most popular biotech stocks among these elite funds that have a PE ratio under 25. This means these are the most undervalued stocks in the biotech sector to buy now according to hedge funds. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).

A biotechnologist in a white lab coat manipulating genes in a laboratory.

Most Undervalued Biotech Stocks To Buy According To Hedge Funds

12. MEI Pharma, Inc. (NASDAQ:MEIP)

Number of Hedge Fund Holders: 4

PE Ratio as of February 29: 1.41

MEI Pharma, Inc. (NASDAQ:MEIP) is a clinical-stage pharmaceutical company based in San Diego, California. It specializes in developing and commercializing therapies for cancer treatment. The company’s primary focus includes Zandelisib, an oral inhibitor for the treatment of relapsed/refractory follicular lymphoma, and Voruciclib, an oral inhibitor currently in Phase I clinical trial for acute myeloid leukemia and B-cell malignancies. Additionally, MEI Pharma works on ME-344, a mitochondrial inhibitor that has completed Phase I clinical trial for treating human epidermal growth factor receptor 2 negative breast cancer. As of December 31, 2023, MEI Pharma, Inc. (NASDAQ:MEIP) possessed $59.5 million in cash, cash equivalents, and short-term investments, and there were no outstanding debts.

According to Insider Monkey’s fourth quarter database, 4 hedge funds were bullish on MEI Pharma, Inc. (NASDAQ:MEIP), same as the prior quarter. Anson Investments is the largest stakeholder of the company, with 1.09 million shares worth $6.3 million.

Hedge funds are piling into United Therapeutics Corporation (NASDAQ:UTHR), Moderna, Inc. (NASDAQ:MRNA), and Pfizer Inc. (NYSE:PFE), as well as MEI Pharma, Inc. (NASDAQ:MEIP). It is one of the most undervalued stocks to buy.

GreenWood Investors stated the following regarding MEI Pharma, Inc. (NASDAQ:MEIP) in its fourth quarter 2023 investor letter:

“Good governance is a daily action for those with skin in the game. Working on behalf of the company’s customers, employees, shareholders and other stakeholders is a team effort and a constant effort. We love being a part of it. It’s reinforced by the small moments that speak volumes about the validity of our approach. I’d like to share a few moments from the past year that particularly stuck out to me, and are very telling. We’ll start with our three largest positions, where we sit on the boards, which also coincidentally drove the lion’s share of our returns for the year, with Leonardo contributing 17.7%, CTT contributing 5.5%, and MEI Pharma, Inc. (NASDAQ:MEIP) contributing 3.8%.

MEI Pharma is developing two compelling assets that could help large bio-pharma companies to refill their clinical pipelines. After years of under-investing in these pipelines, large pharmaceutical and biotech companies are getting very assertive in their M&A activity. The fact that shares trade for half of the cash on the balance sheet, gives us even more capital allocation opportunities than those companies with richer valuations. It also focuses the company’s capital spending to only the most value-added efforts. The bar is very high for any capital commitments when our stock is so attractively-priced.”

11. Ocuphire Pharma, Inc. (NASDAQ:OCUP)

Number of Hedge Fund Holders: 7

PE Ratio as of February 29: 1.80

Ocuphire Pharma, Inc. (NASDAQ:OCUP) is a clinical-stage ophthalmic biopharmaceutical company. It specializes in therapies for refractive and retinal eye disorders. Its primary product candidate is Nyxol eye drops, designed for dim light or night vision issues, pharmacologically induced mydriasis, and presbyopia. Ocuphire Pharma, Inc. (NASDAQ:OCUP) is one of the most undervalued stocks. On February 14, Ocuphire Pharma appointed Nirav Jhaveri as Chief Financial Officer and Ash Jayagopal as Chief Scientific and Development Officer.

According to Insider Monkey’s fourth quarter database, 7 hedge funds were long Ocuphire Pharma, Inc. (NASDAQ:OCUP), compared to 3 funds in the last quarter.

10. Voyager Therapeutics, Inc. (NASDAQ:VYGR)

Number of Hedge Fund Holders: 13

PE Ratio as of February 29: 7.73

Voyager Therapeutics, Inc. (NASDAQ:VYGR), a biotechnology company headquartered in Cambridge, Massachusetts, specializes in gene therapy for neurology diseases. The company’s lead clinical candidate is VY-TAU01, an antibody program targeting Alzheimer’s disease. Voyager Therapeutics also develops treatments for Friedreich’s ataxia, amyotrophic lateral sclerosis, Parkinson’s disease, and Huntington’s disease. It is one of the most undervalued stocks to watch in the biotech sector.

On February 28, Voyager Therapeutics, Inc. (NASDAQ:VYGR) reported a Q4 GAAP EPS of $1.25 and a revenue of $90.06 million, outperforming Wall Street estimates by $1.54 and $69.42 million, respectively.

According to Insider Monkey’s fourth quarter database, 13 hedge funds were bullish on Voyager Therapeutics, Inc. (NASDAQ:VYGR), compared to 18 funds in the last quarter. Steven Boyd’s Armistice Capital is the leading stakeholder of the company, with 4.2 million shares worth $35.75 million.

9. BioNTech SE (NASDAQ:BNTX)

Number of Hedge Fund Holders: 14

PE Ratio as of February 29: 7.48

BioNTech SE (NASDAQ:BNTX) ranks 9th on our list of the most undervalued biotech stocks. It is a biotechnology company based in Mainz, Germany, specializing in the development and commercialization of immunotherapies for cancer and infectious diseases. It is one of the most undervalued stocks to invest in.

On February 8, BioNTech SE (NASDAQ:BNTX) disclosed that it is set to invest $200 million in Autolus Therapeutics plc (NASDAQ:AUTL) as part of a collaborative effort to co-develop and commercialize CAR-T cell therapies. This agreement grants BioNTech the right to appoint a member to Autolus’ board. The collaboration aims to advance both companies’ autologous CAR-T therapy programs toward commercialization. A license and option agreement involves BioNTech paying $50 million to Autolus, with potential mid-single-digit royalties for BioNTech on net sales of Autolus’ lead cell therapy candidate, obe-cel.

According to Insider Monkey’s fourth quarter database, 14 hedge funds were bullish on BioNTech SE (NASDAQ:BNTX), compared to 19 funds in the prior quarter. Israel Englander’s Millennium Management is a prominent stakeholder of the company, with 165,953 shares worth $17.5 million.

Artisan Mid Cap Fund made the following comment about BioNTech SE (NASDAQ:BNTX) in its Q3 2023 investor letter:

“Notable trims in the quarter included Zscaler, BioNTech SE (NASDAQ:BNTX) and Ingersoll Rand. BioNTech is a biotech company focused on developing immunotherapies to treat cancer and other serious diseases. Management has been using its COVID-19 vaccine cash flows to reinvest in building a substantial early stage pipeline. The company’s intellectual property in mRNA and COVID-funded manufacturing capacity leave it well positioned to develop new mRNA vaccines and cancer therapies. In addition, the company has non-mRNA technology (e.g., cell therapy assets) and blue-chip partnerships offering additional optionality. While we are optimistic that this pipeline will eventually yield promising medications within oncology and infectious diseases, patience will be required. In the meantime, demand for COVID-19 vaccine boosters continues to wane. Therefore, we decided to trim the position in favor of more compelling near-term opportunities.”

8. Zymeworks Inc. (NASDAQ:ZYME)

Number of Hedge Fund Holders: 18

PE Ratio as of February 29: 3.73

Next on our list of the most undervalued stocks is Zymeworks Inc. (NASDAQ:ZYME). It is a clinical-stage biopharmaceutical company focused on discovering, developing, and commercializing biotherapeutics for cancer treatment. On January 4, 2024, Zymeworks Inc. (NASDAQ:ZYME) said that it anticipates cash resources of approximately $455 million as of December 31, 2023. The completion of a $50 million private placement with EcoR1 Capital is expected to extend the company’s cash runway into the second half of 2027. Moreover, an amended agreement with Jazz has brought in $375 million in proceeds, with potential additional payments of up to $525 million upon regulatory milestones and up to $862.5 million in commercial milestone payments, along with tiered royalties of 10% to 20% on future sales of zanidatamab, pending regulatory approval.

According to Insider Monkey’s fourth quarter database, 18 hedge funds were bullish on Zymeworks Inc. (NASDAQ:ZYME), compared to 20 funds in the last quarter.

7. MacroGenics, Inc. (NASDAQ:MGNX)

Number of Hedge Fund Holders: 19

PE Ratio as of February 29: 21.22

MacroGenics, Inc. (NASDAQ:MGNX) is one of the most undervalued biotech stocks. MacroGenics, Inc. (NASDAQ:MGNX) is a biopharmaceutical company based in Rockville, Maryland, specializing in developing and commercializing antibody-based therapeutics for cancer treatment in the United States. On December 20, MacroGenics, Inc. (NASDAQ:MGNX) stock was upgraded to Buy by Citi. The upgrade is based on the anticipation of Phase 2 data for the company’s drug, vobramitamab duocarmazine, designed for the treatment of prostate cancer. Citi views the upcoming Phase 2 data from the TAMARACK study, expected in the first half of 2024, as a crucial potential value inflection point for MacroGenics’ stock. It is one of the most undervalued stocks to monitor.

According to Insider Monkey’s fourth quarter database, 19 hedge funds were bullish on MacroGenics, Inc. (NASDAQ:MGNX), compared to 17 funds in the earlier quarter. Steven Boyd’s Armistice Capital is the largest stakeholder of the company, with 4.5 million shares worth $44 million.

Here is what Wasatch Global Investors has to say about MacroGenics, Inc. (NASDAQ:MGNX) in its Q2 2021 investor letter:

“Another weak stock in the Fund was MacroGenics, Inc. (MGNX). A biopharmaceutical company, MacroGenics develops antibody-based therapeutics for the treatment of cancer. Wall Street reacted negatively to preliminary results from the company’s Phase 1 clinical trial of its antibody-drug conjugate (ADC) for the treatment of solid tumors. In particular, side effects experienced by patients during the dose-escalation part of the trial appear to have spooked some investors. We think they are overreacting. In our view, the drug demonstrated anti-tumor activity with a clinically manageable side-effect profile comparable to those of other ADCs.”

6. Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT)

Number of Hedge Fund Holders: 22

PE Ratio as of February 29: 10.69

Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) is a late-stage clinical company specializing in messenger RNA (mRNA) medicines and vaccines. The company focuses on developing infectious disease vaccines and products for liver and respiratory rare diseases. On February 22, Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) received an orphan medicinal product designation from the European Commission for its drug candidate, ARCT-032, designed for treating cystic fibrosis. This follows the previous orphan drug designation granted by the FDA in November 2023. Arcturus is progressing towards releasing interim Phase 1b data for ARCT-032 in the first half of 2024.

According to Insider Monkey’s fourth quarter database, 22 hedge funds were bullish on Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT), compared to 17 funds in the last quarter. Cathie Wood’s ARK Investment Management is the biggest stakeholder of the company, with 2 million shares worth $64.5 million.

In addition to United Therapeutics Corporation (NASDAQ:UTHR), Moderna, Inc. (NASDAQ:MRNA), and Pfizer Inc. (NYSE:PFE), Arcturus Therapeutics Holdings Inc. (NASDAQ:ARCT) is one of the most popular biotech plays among hedge funds. Arcturus ranks 6th on our list of the most undervalued stocks in the biotech sector.

Click to continue reading and see 5 Most Undervalued Biotech Stocks To Buy According To Hedge Funds.

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Published on November 16, 2024 at by Insider Monkey Staff

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