We recently published a list of 10 Oversold Biotech Stocks to Buy Now. In this article, we are going to take a look at where Arcellx, Inc. (NASDAQ:ACLX) stands against the other oversold biotech stocks to buy now.

Biotech Sector Performance and Challenges in 2024:

Biotechnology stocks are among the most volatile in the market, primarily due to the high risks associated with their performance. The success or failure of FDA clinical trials and the real-world effectiveness of therapies often lead to significant price fluctuations. The biotech sector gained widespread attention in 2020, with the rapid development of COVID-19 vaccinations catapulting the industry into the spotlight. As major pharmaceutical companies began pursuing acquisitions, investor interest surged in late 2023 and early 2024.

However, the momentum soon faded, leading to a stagnation in biotech stocks. For months, the market saw little movement, with few mergers and acquisitions (M&A) or initial public offerings (IPOs) breaking the silence. The second quarter of 2024 experienced a sharp decline in biopharma deal activity, following a robust first quarter where pharmaceutical giants utilized their large cash reserves for acquisitions.

Despite the challenges biotech companies faced in 2024, JPMorgan maintains an optimistic outlook, forecasting significant growth for some firms in the coming months. Johan Hueffer, senior partner and principal of investments at Novo Holdings, addressed this shift on CNBC on November 28. While acknowledging the difficulties biotechs have had in raising funds over the past few years, Hueffer noted that recent quarters have seen a positive change, with investment conditions improving. The impact of these fluctuations has also extended to companies that support the pharmaceutical industry, including contract research organizations (CROs), contract manufacturing organizations (CMOs), and providers of tools for research and development.

Similarly, firms that manufacture production tools for the pharmaceutical and biotech sectors have faced similar challenges. Although these industries have experienced their share of ups and downs over the past two years, trends are beginning to stabilize. Hueffer believes that the sector is now on the verge of considerable opportunity, with conditions starting to normalize and potential for growth emerging once again.

Growth Potential and Investment Opportunities:

Goldman Sachs clarified biotech as a frequently disregarded area of the investment world. John Flood, Head of Americas Equities Sales Trading at Goldman, wrote in a letter to clients that biotech equities offered an unnoticed opportunity for investors hoping to profit from the Fed’s recent rate decreases. Because biotech equities are sensitive to interest rate changes and frequently depend on anticipated future revenues, they are particularly impacted. The cost of capital has a significant effect on these equities as well. These equities have substantial upside potential and, should clinical studies be successful, offer an “option-like structure,” even though they are now quite unprofitable. Because of this, they are particularly sensitive to shifts in interest rates.

The Fed has lowered the funds rate by one full point since September. The present market pricing indicates that there will only be one or two additional declines in 2025, according to CNBC. The Federal Open Market Committee (FOMC) members voted to lower the central bank’s benchmark borrowing rate to the 4.25%–4.5% target range, according to a January 8 CNBC report. But they also trimmed their projections for anticipated rate cuts in 2025, assuming quarter-point increases, from four to two. Biotech stocks are anticipated to be impacted by these changes.

Precedence Research projects that the worldwide biotech market will reach a valuation of $4.61 trillion by 2034, growing at a compound annual growth rate of 11.5%. This growth is expected to be fueled by favorable government laws, more investment, the need for synthetic biology, and an increase in chronic diseases such as high blood pressure, heart disease, and cancer. Government initiatives to modernize laws and enhance reimbursement practices are driving market growth.

IQVIA projects that global pharma spending will reach $2.30 trillion by 2028, growing at a compound annual growth rate (CAGR) of 5% to 8%. While immunology spending may decrease as biosimilars become accessible, obesity and cancer treatments are expected to be the primary drivers of this expansion. It is anticipated that biotech will reach $892 billion by 2028, or 39% of total spending, with the highest growth occurring in cell and gene therapies.

The biotechnology sector in the United States, in particular, was estimated to be worth $246.18 billion in 2023 and is projected to rise at a compound annual growth rate (CAGR) of 11.6% between 2024 and 2034, reaching over $830.31 billion. Asia Pacific had a revenue proportion of 23.99%, whereas North America had a revenue share of 37.79%. While the bioindustry application category generated 24.33% of total revenue in 2023, the biopharmacy segment held a 41.73% revenue share by application.

Our Methodology

For our methodology, we selected stocks with a market cap over 2 billion and Relative Strength Index (RSI) of 40, and strong hedge fund sentiment and then ranked these stocks based on their RSI values.

At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

Arcellx, Inc. (NASDAQ:ACLX)

Relative Strength Index (RSI): 39.21

Arcellx, Inc. (NASDAQ:ACLX) is a clinical-stage biotech company focused on developing innovative cell therapies for cancer and incurable diseases. It aims to create safer, more effective, and accessible immunotherapies, with a primary focus on multiple myeloma and expanding into leukemia and solid tumors. The company’s leading candidate, anitocabtagene autoleucel (anito-cel), is in clinical trials for relapsed or refractory multiple myeloma. Since Arcellx, Inc. (NASDAQ:ACLX) has no approved products yet, it relies on partnerships, such as with Kite (a Gilead Company), and investor funding for financial support.

In its recent trials, Arcellx, Inc. (NASDAQ:ACLX)’s lead therapy, anito-cel, showed promising results for multiple myeloma. The iMMagine-1 study reported a 95% response rate, with no cases of serious neurotoxic side effects across more than 140 patients. Additionally, the iMMagine-3 trial, conducted in partnership with Kite, has begun dosing patients, further advancing its clinical pipeline.

Financially, Arcellx, Inc. (NASDAQ:ACLX) is in a strong position, with $676.7 million in cash as of Q3 2024—enough to sustain operations into 2027. The company’s collaboration revenue grew to $26 million, driven by its expanded partnership with Kite. Meanwhile, research and development expenses decreased, and net losses improved from $39.3 million to $25.9 million.

Overall, ACLX ranks 4th on our list of the oversold biotech stocks to buy now. While we acknowledge the potential of ACLX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ACLX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap

Disclosure: None. This article is originally published at Insider Monkey.