Biotechs came under pressure recently due to the sudden failure of Silicon Valley Bank and the release of President Biden’s drug pricing proposals. But overall biotech fundamentals remain intact – and sound mid-stage stocks like Celldex Therapeutics (CLDX) are worth targeting here, explains John McCamant, editor of The Medical Technology Stock Letter.

In our view, while all biotech stocks were sold indiscriminately, we believe the economic fallout will eventually lead to the Federal Reserve slowing down its interest rate hikes. Moreover, we strongly believe that neither the SVB failure nor Biden’s drug-related budget proposals will lead to any material negatives for the sector.

Although the financing environment will remain rather difficult, the majority of the companies I’ve focused on have attractive compounds and data. They’re not only doing well fundamentally, but the vast majority are well capitalized, too.

Because SVB’s main clients are tech and private biotech companies, its collapse caused a selloff in the biotech sector. Private biotechs that rely on VC money will have to find alternatives to SVB. But their fate does not affect the public biotechs. There are also numerous banks ready to step in and provide similar fundraising and lending.

As for Biden’s budget proposal, it came with some pretty harsh recommendations for drug price reform that go far in excess of the IRA of 2022. But the industry will fight this tooth and nail and the proposal has little-to-no chance of passing. It most likely represents a “political bone” thrown to progressives in the party.

Bottom line: We strongly recommend taking advantage of the dislocation in our best fundamental and financially sound mid-stage stocks, in particular, CLDX and Madrigal Pharmaceuticals (MDGL).

These two have best-in-class compounds in multiple blockbuster markets, strong cash positions and catalysts in 2023. We also believe they are two ripe takeover candidates as the Big Pharma/Bios are shopping to bolster pipelines. Hence, we believe there is a good chance that – like most best-in-class compounds with de-risked clinical data – historically they will one day be bought at significant premiums.

Recommended Actions: Buy CLDX and MDGL.

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