Biotech investors are bullish on small caps and warming up to mid-caps, with Merus (NASDAQ:MRUS) and Fusion (NASDAQ:FUSN) viewed as most likely to outperform the broader market this year, according to an investor sentiment survey by TD Cowen. The survey showed that 53% thought small-cap biotech stocks will outperform this year versus only 26% in Q4. That said, only 53% saw the stocks as currently undervalued, compared with 79% in Q4. Investors also had widely varying opinions on how individual stocks would perform this year. Fusion was the top small-cap pick for most likely to outperform, followed by Alpine Immune (ALPN), Syndax (SNDX), SpringWorks (SWTX) and Krystal (KRYS). Revance (RVNC) was viewed as most likely to underperform, followed by Krystal, Apogee (APOG), Agios (AGIO) and SpringWorks, TD Cowen said. Investors were a bit less bullish on mid-cap biotechs, with 44% seeing them as undervalued and 41% as fairly valued. However, 50% saw mid-caps outperforming the broader market, while only 16% thought they would underperform. Merus was seen as most likely to overperform this year, followed by Sarepta (SRPT), Apellis (APLS), Axsome (AXSM) and Biohaven (BHVN). On the flip side, Arrowhead (ARWR) was picked as most likely to underperform, along with Apellis, Ionis (IONS), Sarpeta and Merus, TD Cowen said. As for large caps, 66% of respondents said they saw the group as fairly valued, up from 52% in Q4. While 44% expected large caps to perform in line with the broader market this year, only 19% thought they would outperform while 38% believed they would lag behind. Respondents picked Alnylam as most favored to outperform the broader market, followed by argenx (ARGX), Amgen (AMGN), Vertex (VRTX) and UCB (OTCPK:UCBJF). Gilead (GILD) and Moderna (MRNA) were tied as least likely to perform, followed by Alnylam, Amgen and Vertex. Meanwhile, investors were optimistic that 2024 would see at least as much M&A activity as last year, with 29% expecting the number and size of the deals to increase, 50% expecting them to remain on par with 2023, and 21% seeing a decrease. Respondents said that they saw Xenon as most likely to be acquired in the next six months, followed by MoonLake (MLTX), Alpine, Madrigal (MDGL), argenx, Blueprint Medicines (BPMC), Arcellx (ACLX), BioCryst (BCRX) and VaxCyte (PCVX). The IPO market is also expected to warm up. The survey showed that 37% were more inclined to participate in an IPO this year, while 53% said their interest level was unchanged.
This content was originally published here.
