We recently published a list of the 12 Biotech Stocks with the Biggest Upside Potential. In this article, we are going to take a look at where Ultragenyx Pharmaceutical, Inc. (NASDAQ:RARE) stands against other biotech stocks with the biggest upside potential.
Improving Trends for Biotech Stocks
While 2024 was a “challenging” year for biotech stocks, JPMorgan is of the view that some names in the industry may be poised for considerable upside in the coming months. On November 28, Johan Hueffer, senior partner and principal of investments at Novo Holdings, appeared on CNBC to discuss his macro perspective on investments in life sciences. He said that biotechs faced difficulty raising capital in the last couple of years. However, that trend has started to improve in the last quarter or two.
Still, there have been impacts on companies that particularly service the pharmaceutical industry, such as contract research organizations (CROs), contract manufacturing organizations (CMOs), and companies that provide tools for research and development. Similar trends have been observed for companies that manufacture tools for production in the pharmaceutical and biotech industries. While these sectors have had ups and downs in the past two years, the trends are starting to normalize now. Hueffer was of the view that the industry is now showing considerable opportunity.
The Fed’s Rate Cuts and Biotech Stocks: Could There Be a Connection?
Similarly, Goldman Sachs shed light on biotech as an often overlooked sector in the investing space. In a note to clients, John Flood, Goldman’s Head of Americas Equities Sales Trading, said that biotech stocks posed an under-the-radar opportunity for investors looking to capitalize on the Fed’s recent rate cuts. Changes in interest rates uniquely affect biotech stocks as they are sensitive to them and often rely on projected future profits. These stocks are also heavily impacted by the cost of capital. Although there is little to no current profitability, these stocks have significant upside potential and pose an “option-like structure” if clinical trials succeed. This makes them especially responsive to changes and movements in interest rates.
Since September, the Fed cut a full point off the funds rate. According to CNBC, the current market pricing is showing just one or two more moves lower in 2025. On January 8, CNBC reported that the Federal Open Market Committee (FOMC) members voted to reduce the central bank’s benchmark borrowing rate to the 4.25%-4.5% target range. However, they also slashed their outlook for expected rate cuts for 2025, bringing it down to two from four and assuming quarter-point increments. These changes are expected to affect biotech stocks.
Flood’s note also highlighted that the biotech industry has recently shown improved fundamentals, attributed to a more favorable regulatory environment and positive clinical outcomes. Despite these tailwinds, Goldman’s data reflects that biotechnology remains under-owned by hedge funds. The sector ranked in the 13th percentile in hedge fund long/short positioning over the past year. Furthermore, it ranked in the 4th percentile over the past five years.
Our Methodology
We used the Finviz stock screener to compile a list of 40 biotech stocks. We then selected the top 12 stocks with the highest analyst upside potential as of January 15, 2025. We have also included the market capitalization of the stocks as of the same date. The list is sorted in ascending order of analysts’ average upside potential. These stocks are also popular among elite hedge funds, as of fiscal Q3 2024.
Why do we care about what hedge funds do? 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A research team in a laboratory peering through microscopes at a biologic product.
Ultragenyx Pharmaceutical, Inc. (NASDAQ:RARE)
Analyst Upside: 97.57%
Number of Hedge Fund Holders: 41
Ultragenyx Pharmaceutical, Inc. (NASDAQ:RARE) develops, acquires, and commercializes novel products to treat genetic diseases. Its product portfolio includes Crysvita, Mepsevii, Dojolvi, and Evkeeza. In 2024, the company expanded its business through four products in five indications worldwide, exceeding analyst expectations in terms of revenue. It estimates its total revenue for fiscal 2024 to be $555 million to $560 million, surpassing its guidance range and reflecting a 29% growth compared to 2023.
The company has plans to expand its commercial business base in 2025 and prepare for the potential launch of its first gene therapy for Sanfilippo syndrome. It is also planning to file a Biologics License Application (BLA) for its second gene therapy, in Glycogen Storage Disease Type Ia.
Ultragenyx Pharmaceutical, Inc., (NASDAQ:RARE) is executing a valuable late-stage pipeline in rare diseases. It anticipates pivotal Phase 3 results in osteogenesis imperfecta and is also completing the enrollment in its Phase 3 trial for Angelman syndrome. Progress across these avenues gives the company a competitive advantage and positions it to launch three to four new therapies over the next few years. This would translate to the company accumulating 8-9 approved products over a 10-year period, reflecting its solid operations.
Baron Health Care Fund stated the following regarding Ultragenyx Pharmaceutical Inc. (NASDAQ:RARE) in its Q3 2024 investor letter:
“We purchased Ultragenyx Pharmaceutical Inc. (NASDAQ:RARE), a biopharmaceutical company focused on developing treatments for rare genetic diseases. Impressively, the company has gotten 4 drugs approved across 5 indications in 10 years, and it has a large clinical pipeline with several potential blockbuster opportunities in late stage development. While the company’s approved products continue to grow 20%-plus, we are most excited about the company’s new product pipeline. Setrusumab is in Phase 3 studies for Osteogenesis Imperfecta, a rare genetic disorder that causes bones to break easily. The drug helps patients increase bone mineral density and reduces the number of fractures patients experience. We think this could be transformative for patients and could be a $1 billion-plus peak sales drug. We are also excited about Ultragenyx’s GTX-102, an antisense oligonucleotide that treats Angelman Syndrome, a rare genetic disorder that affects the nervous system and causes severe development delay and intellectual disability. Early data showed dramatic improvement for patients across several behavioral and cognitive endpoints, and Ultragenyx just started a registrational study. The company is also working on a drug for Wilson disease, a rare genetic disorder that causes copper to build up in the body, where we will get proof-of-concept data soon. We think each of these programs has potential for significant value creation, transforming the company to one with significantly higher revenue and profits.”
Overall, RARE ranks 7th on our list of the 12 biotech stocks with the biggest upside potential. While we acknowledge the potential of biotech stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than RARE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stock To Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
