As Biotechs Seem to Have Bottomed, Here Are 3 to Consider

June looks like it will end up on a down note for investors Thursday's markets were lower. June will go in the books as another brutal month for investors which already have gotten shellacked during the past few dismal months. We will start trading in the second half of 2022 Friday with the S&P 500, Nasdaq and Russell 2000 all in bear market territory for the year. The market did have a nice rebound over two weeks of this month, but that has dissipated in recent trading sessions. Hopefully, equities will find a real bottom in the months ahead. One sector of the market that apparently found a floor is biotech after an approximate 60% decline from the beginning of 2021. I expect M&A activity to pick up in the back half of 2022 given how far valuations have fallen and how cash rich Big Pharma is at the moment. Here are three quick names for consideration. I have small holdings in all three via covered call positions. Let's start with Axsome Therapeutics . The company recently announced that it has received a favorable labeling proposal from the FDA regarding its marketing application for its depression candidate AXS-05. The company also disclosed encouraging late-stage trial data around this compound earlier this month. This has triggered a rash of buy reiterations from analyst firms over the past week and it feels like the worse is over for these shares. Up next is a microcap named Eyenovia . This ocular concern looks set to resubmit its marketing application for MydCombi in the third quarter. This is a first-in-class proprietary micro-dose formulation of tropicamide and phenylephrine for in-office pupil dilation had been reclassified as a drug-device combination. It should be approved in early 2023 and two other products should submit marketing applications soon thereafter. Insiders have been small but frequent buyers of the shares in the second quarter. I also see the company as an attractive 'bolt on' acquisition for a larger player at these valuations. Finally, I have a new position for in Arrowhead Pharmaceuticals . The shares of this RNA interference concern are down over 60% since making an all-time high in June 2021 as data from its most advanced asset isn't due until 2024. The company's approach has been validated by its four licensing deals, rival Alnylam's commercial success, and Novo Nordisk's buyout of RNAi concern Dicerna in 2021 for a significant buyout premium. The company has an approximate $3.5 billion market capitalization. It also has $4.25 billion of potential milestones, and two mid-to-late stage wholly owned clinical assets with high chances of success. Arrowhead merits a small position for now. The company is likely to raise some additional capital in coming quarters and I will probably add to this holding at that time. And those are some ideas in a sector that seems to have bottomed while we all hope for better performance from equities in the second half of this year. (Please note that due to factors including low market capitalization and/or insufficient public float, we consider EYEN to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)

As Biotechs Seem to Have Bottomed, Here Are 3 to Consider

I expect biotech M&A activity to pick up in the back half of 2022.

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