Top ASX biotechs catching the eye of analysts and fund managers in 2024

Bell Potter says biotech very much a non-cyclical performer driven by catalysts including clinical trial data
Radiopharmaceutical-focused Clarity Pharmaceuticals has risen 76% YTD after promising trial results
Merchant Funds is bullish on Neurotech International, with its lead asset showing promise across a range of conditions

From laboratories and hospitals to company boardrooms, there is much to keep an eye on in the ASX biotech sector for the remainder of 2024 according to fund managers and analysts.

Bell Potter healthcare analyst John Hester says biotech stocks tend to be driven by stock specific news rather than more general economic conditions.

“Biotech is very much a non-cyclical performer driven by catalysts including data from clinical trials and regulatory announcements from the likes of the FDA,” Hester says.

“You get a positive clinical readout and that can lead to a significant appreciation in the share price and conversely if the data is poor the share price can collapse.”

Hester says the volatility associated with biotech is why some a lot of fund managers tend to avoid the sector because they don’t like the binomial outcomes.

“That said 17 of 25 stocks that we cover appreciated in value in the six months to April 2024 including some that are volatile and subject to speculative risk,” he says.

Hester says typically many of the biotech stocks particularly in the small and mid-cap sector have no revenue, so the focus is on balance sheet strength.

“All the boards of these biotechs are focused on these cash runways which is why the flow of data is really important to them,” he says.

So, what are some of the ASX biotech stocks standing out to analysts and fund managers in 2024?

Clarity Pharmaceuticals (ASX:CU6)

The clinical stage radiopharmaceutical company has risen 76% YTD after promising trial results and now has a market cap of more than $1bn.

CU6 is developing next-generation products to address the growing need for better diagnostics and treatments in oncology.

The company headquartered in Sydney has several novel products currently in clinical trials.

“Their most advanced drug is for the imaging of metastatic prostate cancer (64Cu-SAR-bisPSMA) and it is currently enrolling patients in a Phase 3 trial. Data from earlier studies was very encouraging,” Hester says.

“We expect that will be the first product to market in late calendar year 2026.”

CU6 recently announced that the first patient to be dosed with two cycles of its therapeutic drug 67Cu-SAR-bisPSMA at 8GBq to treat metastatic castration-resistant prostate cancer (mCRPC) achieved a complete response.

The patient had previously received multiple lines of hormone therapy and chemotherapy prior to enrolment in the clinical trial. He remains cancer free more than six months after treatment.

Hester says Bell Potter was recently lead manager on a ~$120 million capital raise, providing sufficient funding to support its commercialisation efforts.

“The company raised new capital in late March at $2.55/share. Since then it had the announcement regarding the complete responder in the Secure trial and this has been very well received by investors. The stock is trading well above the issue price,” he says.

Bell Potter has a Buy Speculative rating on CU6 and valuation of $4.

“It’s seen a tremendous return in the period of about two weeks following recent data announcement so that is the type of good volatility you can see,” Hester says.

“The company has $150 million of cash post the raise providing at least two years cash runway being ample time for the next key data points to emerge. ”

The other major radiopharmaceutical company on the Aussie bourse is Telix Pharmaceuticals (ASX:TLX) which is at commercial stage and recently reported an 18% rise in revenue for Q1 FY24 to $175m.

“They’ve both been very well held by institutions,” Hester says.

Neurotech (ASX:NTI)

Merchant Funds fund manager Reece O’Connnell is bullish on clinical-stage biopharmaceutical development company NTI which is focused predominately on paediatric neurological disorders, where there is persistent neuroinflammation.

The company’s lead broad-spectrum cannabinoid drug therapy NTI164 has shown success across a range of neurological conditions affecting children including PANDAS/PANS, Autism spectrum disorder (ASD) and Rett Syndrome.

NTI this week reported further primary and secondary endpoint analysis of its Phase 1/2 trial NTIRTT1 showing significant additional benefits in Rett Syndrome girls after 12 weeks of daily oral treatment with its broad-spectrum cannabinoid drug therapy NTI164.

“Rett Syndrome is a rare genetic neurological and developmental disorder that affects the way the brain develops in females,” O’Connell says.

“Rett Syndrome symptoms are horrible and permanently life altering for both the patient and caregivers.”

Data from NTI’s Phase 2/3 ASD trial shows 54 children suffering medium to severe autism now living with only mild to medium autism after eight weeks of treatment, having improved on the autism scale/spectrum by a 1.65 point average. The extension of this Phase2/3 trial is underway with all 54 children.

“These are real kids, real families and carers, real hardship and suffering, real improvement and real results,” O’Connell says.

He says NTI is currently expanding its PANS/PANDAS study into Phase 2/3 off the back of excellent Phase 1/2 results.

“It’s another rare paediatric disorder offering yet another opportunity to improve lives with significant potential and large commercial upside,” he says.

“NTI is now well funded for what will come next – we’re hoping engagement with the TGA is the starting point for a step change in the company’s trajectory on the charts.”

He says the company is in discussion with regulatory authorities including the Therapeutic Goods Administration (TGA) in Australia and the US Food and Drug Administration (FDA).

“Neurotech has a well-defined and focused regulatory and pharmaco-economic strategy for APAC and USA,” O’Connell says.

“The first regulator that NTI will be talking to is the TGA which will provide NTI with guidance across all of its treatments areas.”

Arovella Therapeutics (ASX:ALA)

O’Connnell says ALA is one of a handful of companies globally that is working with CAR-iNKT cells for cancer treatment.

He says the company has licensed its intellectual property from Imperial College London, Sparx Group – a US/Chinese based biotech company – and the University of North Carolina Linerberger Comprehensive Cancer Center.

“Arovella is developing its novel invariant Natural Killer T (iNKT) cell platform for the treatment of blood cancers and solid tumours,” he says.

“It has a pipeline of programs to use its CAR-iNKT cell platform to tackle solid tumours such as gastric cancer and pancreatic cancer.”

O’Connell says ALA’s tech is allogeneic which means that immunity cells from healthy donors can be used and is classified as ‘off-the-shelf’ as the technology, if proven in humans, means that donor cells can be engineered and frozen, ready to inject into a patient when ready.

He says the last INK-T therapy asset (APPIA-BIO) was transacted by GILEAD in 2021 for US$875m, and at a current market cap of $120m (~US$80m), potential upside is substantial.

“It is one of only 4-5 INK-T therapy assets available globally, and the only one listed in Australia,” he says.

“We know that T-cell therapy works, it has been around for some 12 years, and saves lives leading to the cautious use of ‘cure’ and ‘cancer’ in the same sentence.”

However, he says T-cell therapy remains very expensive (~$500k per patient) and has challenges associated with being autologous (meaning they must use the immunity cells from the sick patient).

“This makes it slower, expensive and less effective as the patient’s immunity cells are already compromised by the cancer and therapy such as radio and/or chemotherapy,” he says.

“Assets and opportunities like these don’t come along often and it remains one of our strongest recommendations this year with rare and revolutionary technology that can change the way we treatment and manage cancer.

“Our exit strategy is a likely trade buy-out following IND approval and commencement of human trials.”