Hartaj Singh, Managing Director and Senior Analyst, Biotechnology at Oppenheimer & Co. recommends Astria Therapeutics (NASDAQ:ATXS), Biomea (NASDAQ:BMEA) and Sarepta (NASDAQ:SRPT)
Hartaj Singh is Managing Director and Senior Analyst, Biotechnology at Oppenheimer & Co. Inc.
Earlier, Mr. Singh was Managing Director and Senior Biotechnology Analyst at BTIG Securities.
He began his sellside career at Lehman Brothers and subsequently moved to the buy side covering biotechnology at Visium Asset Management and Tecumseh Partners.
Mr. Singh has a B.A. in biology from Case Western Reserve University and also did graduate work in computational neurobiology. He received an MBA from Duke University’s Fuqua School of Business.
“Just over the last six, 12 months, Astria Therapeutics (NASDAQ:ATXS), a company where we’ve known the management team for six-plus years, had one product in Duchenne muscular dystrophy that did not work.
They turned around and brought in another development candidate in HAE — hereditary angioedema. And they just had really good Phase I/II data in late last year, where their stock really jumped on that data.
And this is a long-acting antibody.
Usually, drugs for HAE are given about once every one to two weeks.
This drug could be given once every three months and maybe even once every six months and really bring down HAE attacks. And the initial data looks very favorable. So this could fundamentally change the way patients are treated in that disease and give them their lives back — to be able to live like normal human beings or close to it.
And even though it’s very early data Phase I/II PKPD data, the stock really reacted well and has held up even after the company raised money from investors — ATXS has been an investment banking client for OPCO.
Another company, Biomea (NASDAQ:BMEA), which recently has had some good data — BMEA has also been an investment banking client for OPCO — this is a company that we started covering because I’ve personally known the management team for over 12 years.
They’re scientists and drug developers from Pharmacyclics, which was bought by AbbVie (NYSE:ABBV). And they are really interested in bringing molecules that make a fundamental difference in patients’ lives to the market.
BMEA has a small molecule approach where originally, a couple of years ago, they were viewed as a cancer company.
Then, all of a sudden, that same molecule has shown promise in diabetes.
The promise of this molecule in diabetes — that is, the theoretical, scientific promise — has been around for a couple of decades. Management has been able to execute on this promise.
They should have initial data on diabetes, essentially, in March. We just had the CEO on our conference call, and he was looking forward to the data, even though the trial is blinded.
And this is a drug that could change the paradigm for some patients with diabetes.
These are two small-cap names with great science, execution-focused management teams and either had a clinical catalyst or are on the verge of a material clinical catalyst.
The stocks definitely seem to be working.”
The third of the Astria Therapeutics (NASDAQ:ATXS), Biomea (NASDAQ:BMEA) and Sarepta (NASDAQ:SRPT) recommendations is a small cap biotech recommendation is actually promoted by a recent accounting rules change.
“About a year and a half year ago, the SEC put a rule into play that anytime there was licensing acquisition, broadly speaking, instead of the company capitalizing it onto their balance sheet as what’s called IPR&D — intellectual property research and development — they have to now run it through their adjusted non-GAAP P&L.
So what that meant is, if a company is buying or licensing a product, they’ve got to run it through a P&L, which means it hits earnings.
So that’s actually put a dampener on M&A, in our view.
For example, if larger-cap companies were thinking about buying a smaller company and we knew it would lead to a decrease in earnings of about 10% to 15% this year and next, would we be happy with that?
Probably not.
And a lot of larger-cap management teams are compensated on earnings growth.
So the M&A targets we’ve seen recently from large-cap companies are mostly two types: One is companies whose revenues outstrip earnings, so that they are not a drag on earnings to the larger company’s earnings.
Number two, you look at a company buying a smaller company that has revenues or is close to being breakeven in earnings.
So for example, when you look at Seattle Genetics (NASDAQ:SGEN). Pfizer (NYSE:PFE) is set to acquire Seattle Genetics, covered by my colleague Jay Olson.
And Pfizer probably said to itself, “We think we can take that product and really increase sales.” And the reason Pfizer likes SGEN is because that company is actually already generating sales and has negative earnings.
But Pfizer could generate enough sales to make SGEN’s products breakeven very, very easily.
So those are the kind of M&A targets we’re looking at. And if you think about it that way, for us, a clear one by that metric is Sarepta (NASDAQ:SRPT).
Roche (OTCMKTS:RHHBY) already has a big investment there.
And if SRPT’s gene therapy gets approved in the next few months, there’s probably a better than 50-50 chance that a company like Roche steps up and buys.”
The Oppenheimer & Co. expert analyst reminds investors that biotech remains an investment opportunity.
“Remember, the NBI Index is a $1 trillion market cap even after the recent downturn, last couple years, roughly.
These are close to 300 companies in the NBI index, and $1 trillion in market cap.
And so, I remind investors that an Apple is more than $1 trillion, a Google is more than $1 trillion, Microsoft is $1 to $2 trillion in market cap, each. And here you have approximately 300 companies that are $1 trillion roughly.
So 10 years from now, what do you think is the greater probability to go from one to $10 trillion?
One company at $1 trillion right now or 300-plus companies at $1 trillion, who are conducting fantastic science — and maybe not curing, but really dampening human diseases and even animal diseases.
Look at what Merck (NYSE:MRK) is doing with their animal division.
And increasing the quality of life and making humans live longer.
That’s a pretty great bet to take.
So I would just advise investors to pay more attention to biotech.
I think biotech is going to be the true generator of alpha this decade.”
Get the complete interview with Hartaj Singh detailing his Astria Therapeutics (NASDAQ:ATXS), Biomea (NASDAQ:BMEA) and Sarepta (NASDAQ:SRPT) recommendations and many others besides, in this most recent Biotech sector report from the Wall Street Transcript.
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