2 Beaten-Down Stocks With Massive Upside Potential

There are many promising corporations that investors can buy on a dip due to recent market volatility or company-specific issues that predate this year. Take, for instance, CRISPR Therapeutics (NASDAQ: CRSP) and Viking Therapeutics (NASDAQ: VKTX), two mid-cap biotech companies that have lagged broader equities over the trailing-12-month period.

Even with these poor performances, however, there are solid reasons to consider investing in these stocks, especially at current levels. Read on to find out more.

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1. CRISPR Therapeutics

CRISPR Therapeutics made a breakthrough when it created Casgevy, the first gene-editing medicine that used the Nobel Prize-winning CRISPR technique to earn approval. The stock performed well from its 2016 initial public offering (IPO) until about 2021 but has been on a downward trajectory ever since for three reasons.

First, clinical progress is one of the most significant drivers of the performance of smaller biotech stocks. Once they start hitting major milestones, investors tend to take some profits.

Second, Casgevy is a gene-editing therapy that's complex to administer. Despite earning approval in late 2023, the therapy hasn't yet contributed much to CRISPR Therapeutics' results.

Third, the company is unprofitable. That's a big no-no in the current precarious market environment.

That said, CRISPR Therapeutics' next breakthrough could help the stock bounce back. The company is developing several promising medicines and expects data readouts for ongoing clinical trials as early as this year.

CRISPR Therapeutics is targeting challenging areas. The biotech is looking to develop medicines for type 1 diabetes, some hard-to-treat cancers, and other areas. Progress on these fronts could send the stock soaring.

Furthermore, Casgevy will ultimately have a significant impact on CRISPR Therapeutics' financial results. The company will share the profits from this medicine with giant drugmaker Vertex Pharmaceuticals, its collaborator in the development of this medicine, but CRISPR Therapeutics' partnership with Vertex was a net positive for the smaller biotech.

For one, CRISPR Therapeutics probably would not have earned approval for the treatment as quickly as it did in some places, including some countries in the Middle East, where the medicine boasts a more substantial commercial opportunity for Casgevy than the U.S. Securing approval and commercialization in the Middle East alone would have been far too expensive for a smaller drugmaker. Second, partly due to its long-standing partnership with Vertex, CRISPR Therapeutics has a substantial amount of liquidity, ending the first quarter with $1.86 billion in cash and equivalents.

Lastly, Casgevy has blockbuster potential. It costs $2.2 million per treatment course in the U.S., while the two partners estimate about 60,000 patients in their target geographies. Between Casgevy's long-term potential and the company's innovative pipeline, CRISPR Therapeutics could eventually recover and deliver exceptional returns to investors who stay the course.

2. Viking Therapeutics

Viking Therapeutics was a relatively unknown biotech until last year, when it produced strong phase 2 results for VK2735, an investigational weight management therapy. Although the stock soared following this data readout, it hasn't performed well since.

Nothing has gone wrong with Viking Therapeutics' leading candidate -- it's just another case of investors taking some profits. However, Viking Therapeutics looks attractive for several reasons.

The market for anti-obesity therapies is rapidly growing. There are scores of investigational therapies in this field, but most haven't delivered the kind of mid-stage data VK2735 has. The biotech company also has an oral formulation of VK2735 that's currently in Phase 2 studies.

Furthermore, Viking Therapeutics has several other candidates in development. The company's VK2809 is a potential treatment for metabolic dysfunction-associated steatohepatitis, which is also entering phase 3 studies after completing mid-stage trials.

Lastly, Viking's VK0214 is being developed for X-linked adrenoleukodystrophy, a rare genetic disorder affecting the nervous system. VK0214 has earned the orphan drug designation from the U.S. Food and Drug Administration, an honor reserved for medicines that have shown promising clinical data for the treatment of an orphan (or rare) disease with unmet needs.

Viking Therapeutics' pipeline is impressive for a biotech company worth just $3 billion. If it achieves clinical and regulatory successes in the coming years, its share price will likely skyrocket.

There is some risk involved here, as is always the case with clinical-stage biotechs. The stock could drop if it encounters setbacks, particularly with its leading candidate, VK2735. It's important to keep that in mind. But investors comfortable with the volatility should strongly consider initiating a small position in Viking Therapeutics.

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Prosper Junior Bakiny has positions in Vertex Pharmaceuticals and Viking Therapeutics. The Motley Fool has positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. The Motley Fool recommends Viking Therapeutics. The Motley Fool has a disclosure policy.