Barclays initiates coverage on U.S. small & mid-cap biotech stocks

Investing.com -- Momentum in small and mid-cap (SMID) biotechnology has accelerated recently, with investors rewarding companies bringing new mechanisms and dosing advantages to market.

Over the past six months, the Nasdaq Biotechnology Index has returned 34% and the S&P Biotech Select Industry Index 49%, outpacing the S&P 500’s 26% gain.

According to Barclays analysts, recent M&A announcements have added to the momentum as large-cap pharma seeks to secure pipeline assets.

“Opportunities are knocking as we look to next waves of innovation in biotech,” analysts led by Etzer Darout noted, arguing that its new coverage list offers exposure to this backdrop.

Analysts point out that scientific advancements are opening “new paradigms in the treatment of a range of disease where patients have an inadequate or suboptimal response to current treatments.”

They expect that SMID-cap names with de-risked mechanisms and supportive clinical data offer skewed upside, even acknowledging the binary nature of outcomes in this space.

“We believe our coverage includes stories that allow investors to participate in potential biotech upside,” analysts wrote, as innovation cycles develop in inflammation, immunology, rare disease and oncology.

Barclays initiated coverage on eight names, including Abivax, AnaptysBio, Celldex, Corvus Pharmaceuticals, Monopar Therapeutics, Oruka Therapeutics, RAPT Therapeutics, and Tvardi Therapeutics.

ABVX, ANAB, CRVS, MNPR, ORKA, RAPT and TVRD are all initiated at Overweight, while CLDX is the sole Underweight due to a more cautious view on the risk-benefit profile for barzolvolimab in dermatologic indications.

Analysts flag ABVX, MNPR, ORKA and ANAB as ideas supported by prior clinical data or mechanisms it views as de-risked.

They point to near-term catalysts for TVRD and CRVS, with potential first-in-class opportunities in idiopathic pulmonary fibrosis and atopic dermatitis, respectively.

CLDX is seen as less attractive given concerns over commercial differentiation despite clinical signals in chronic urticaria.

The analysts stress that large indications such as atopic dermatitis, inflammatory bowel disease and psoriasis will require significant capital and eventually partnership support.

However, they believe successful clinical readouts could quickly attract strategic interest from bigger pharma groups looking to replenish pipelines.

Barclays places its industry view at Positive, arguing that investing in clusters of SMID cap immunology and oncology names with “demonstrated clinical validation and differentiation is a sound strategy to benefit from the advancements in biotechnology.”