The potential for four or more interest rate hikes by the Federal Reserve over the course of 2022 has been weighing heavily on growth stocks of late. Yesterday, clinical and early commercial stage biopharmaceutical stocks took a particularly big hit in response to this risk factor. Investors are clearly pivoting toward safe havens like value and dividend stocks ahead of this perceived eventuality. The net result is that quite a few promising biopharma stocks are now trading at deep discounts relative to their long-term potential.
Which biopharma stocks are simply too cheap right now? Shares of the cancer specialists Adaptimmune Therapeutics (NASDAQ:ADAP) and Clovis Oncology (NASDAQ:CLVS) are both trading at absurdly low valuations following their steep downturns over the past several weeks. Here’s why bargain hunters might want to take advantage of this weakness in these two small-cap biopharmas.
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Adaptimmune: This bear market is punishing success
On Nov. 11, 2021, the British cell therapy company reported that its lead asset known as afamitresgene autoleucel will hit the primary endpoint in a registrational trial for patients with advanced synovial sarcoma or myxoid/round cell liposarcoma. A regulatory filing with the Food and Drug Administration (FDA) is on tap later this year. How did the market react? Adaptimmune’s shares have lost 34% of their value since it provided this positive clinical update, and are now trading at a little under two times cash and cash equivalents. For a biotech with a well-differentiated anti-cancer platform and one on the verge of producing a commercial-stage product, that’s a mind-boggling valuation.
The market’s dire take to Adaptimmune’s progress in the clinic is not a normal response, to put it mildly. While afamitresgene autoleucel’s lead indication certainly isn’t a blockbuster commercial opportunity, these positive trial results are proof that the company’s solid tumor cell therapy platform is a valid approach. In the years ahead, Adaptimmune has designs on targeting several additional difficult-to-treat solid tumors with its potent cell therapies — some of which are blockbuster opportunities. Before the biotech’s pipeline matures much further, however, there is a strong chance that one of its various big pharma partners will make a tender offer, especially if the market continues to value it this way. GlaxoSmithKline, for instance, is in need of new oncology assets and the company might get a major financial windfall soon through the sale of its consumer healthcare business.
In short, Adaptimmune’s bargain bin valuation won’t last forever.
Clovis Oncology: The short thesis might be overdone
Over the prior 36 months, Clovis’ stock price has dropped by approximately 90%. The biotech’s inability to turn its Poly ADP-ribose Polymerase (PARP) inhibitor Rubraca into a viable growth product is the core reason behind this downward…
Read More: 2 Cancer Stocks With Absurdly Low Valuations