Listed drug development sector has several promising stories to tell this year

There’s a grab bag of Australian-listed drug developers that should be on investors’ radars this year, analysts say, with a hefty upside potentially on the cards.

Clarity Pharmaceuticals executive chairman Alan Taylor – the company is favoured by sector analysts.

It’s shaping up as a big year for late-stage Australian-listed drug developers, with analysts tipping potentially hefty share price rises for companies including Telix Pharmaceuticals, Clarity Pharmaceuticals and earlier-stage PYC Therapeutics.

At the more established end of the market, US policy moves are muddying the waters, with potential cuts to Medicaid and Affordable Care Act subsidies raising risks, as does the potential for US tariffs.

Wilsons Advisory analyst Shane Storey has five favourites in the drug development sector, with some aggressive price targets should things pan out as hoped.

Telix Pharmaceuticals, also well regarded by analysts at UBS, has three factors in its favour, Dr Storey said.

“This year is going to be such an important time,” he said. “First of all the business is adding another three products this year in precision medicine.

“That’s going to be really important. It’s more than just a play of having more products, it’s really just a very clever way of ensuring market share – it’s got an eye to profitability – enhancing that too. It’s just so new to see such a new company thinking so hard so early about boring things like gross margin. From a discipline point of view it’s next level.’’

Telix Pharmaceuticals managing director Dr Christian Behrenbruch.

Dr Storey said the company would also progress towards pivotal clinical trials across all of its three major domains – prostate cancer, kidney and brain.

“And finally the element that’s been coming together around vertical integration, having complete control over their manufacturing and regulatory future, there’s immense value to that crystallising this year,’’ he said.

Dr Storey has a price target of $25 for Telix, against a close of $27.53 on Friday, but says he leans towards his unrisked price target of $50. UBS has a price target of $32 on Telix and its analysts say the company “remains in busy-mode for catalysts in 2025 which is part of the reason we view the stock as attractive’’.

Dr Storey is also keen on fellow radiopharmaceuticals developer Clarity Pharmaceuticals, which he believes has been sold off because of a mistaken fear of incumbents including Telix owning the market.

He said Clarity’s Cu-SAR-bisPSMA imaging and therapeutic compound potentially offered a significant clinical benefit against other products and with Phase III trials in the recruitment phase results could be a catalyst.

Dr Storey has a price target of $8.40 on the stock against $4.10 currently and $19.65 on an unrisked basis.

“I think another really interesting stock is PYC Therapeutics,’’ Dr Storey said. “It’s underrated … I think a certain amount of snobbery on the east coast meant it was ignored for some time.

“But now they have galvanised under a brilliant new CEO (and are focused on) three really interesting, high-value indications, and all on this idea of being able to fix a single gene defect.

“It’s early-stage clinically but it’s one of those areas where you can jump very quickly from early clinical development and suddenly find yourself in a pivotal trial looking for accelerated approval. I think PYC has a lot to do this year.’’

PYC is looking at therapies across retinitis pigmentosa, polycystic kidney disease, genetic condition Phelan McDermid syndrome, and autosomal dominant optic atrophy, with other undisclosed research ongoing.

Dr Storey said he also favoured Neuren Pharmaceuticals, with the share price having come under pressure recently, but he said it had “a terrific asset’’ which will come into its own over the next 12-18 months.

Staff at a CSL facility in Melbourne. Analysts are split on the company’s outlook for the year.

Neuren’s flagship asset is Daybue, a treatment for Rett syndrome which has been licensed to Acadia Pharmaceuticals, and it has a second drug candidate in Phase II development, aiming to treat multiple neurodevelopmental disorders.

Barrenjoey analyst Michelle Benson is also bullish on Neuren, with a $29.30 price target against Friday’s $14.73.

Dr Benson’s research note on the stock says the company’s second-generation asset, NNZ-2591, could present an opportunity four times the scale of Daybue.

Rounding out Dr Storey's top five picks is EBR Systems, which is nearing a decision on FDA approval for its heart failure device.

At the more established end of the market, Goldman Sachs analysts have buy ratings on ResMed, CSL and Fisher & Paykel Healthcare. “For ResMed and CSL, we believe the fundamentals for both businesses are intact to deliver double-digit earnings growth,’’ Goldman Sachs says.

“Whilst ResMed and CSL are navigating changes to their competitive landscape from new entrants, we believe the valuation multiple de-rate (both stocks at 10-year lows relative to the ASX200 index) is unwarranted considering the investments made to grow in their new operating environments.

“For Fisher & Paykel, we believe the market is under-appreciating the growth opportunity from the step-up in new product launches and expansion in its total addressable market.’’

ResMed makes CPAP devices which help users experience healthy sleep.

Goldman analysts say that while there is renewed pressure on US healthcare funding following President Donald Trump’s inauguration, ResMed and CSL are already undervalued on a share price basis, while Fisher & Paykel, which has a manufacturing base in Mexico “has the necessary levers to mitigate a material drag to earnings from potential tariffs’’.

ResMed will benefit, Goldman Sachs analysts say, from growing awareness of sleep apnoea due to smartwatch makers Apple and Samsung launching new products and software into the sleep space.

Goldman has a price target of $48.90 on ResMed against $39.44 on Friday; $325.40 on CSL, against $272; and $42.70 on Fisher & Paykel, against $34.75.

Dr Storey said he thought CSL faced another flat year, with nothing too exciting on the new product front ‘’and a slowly rebuilding gross margin story which I think people are just bored with now’’.

Originally published as Listed drug development sector has several promising stories to tell this year