Biotechnology ASX shares have been one of the biggest victims of persistent inflation and rising interest rate fears over the past 6 months.
The S&P/ASX 300 Pharmaceuticals & Biotechnology (ASX: AXPBKD) has lost about 15% over that time, but that understates the damage done to many stocks.
With some of the larger names softening the index, many smaller players have seen their valuations halve or worse.
But Pengana High Conviction portfolio manager James McDonald is keeping the faith in two businesses that he suspects have very blue skies coming up:
'A real revolution' in radiotherapy
The Telix Pharmaceuticals Ltd (ASX: TLX) share price has halved since January.
But its prostate cancer tech rival Lantheus Holdings Inc (NASDAQ: LNTH) has seen its stock rise more than 128% this year.
And McDonald can't see why Telix can't do the same.
"There's a good chance that Telix is going to follow suit over the next 12 months," he told a Pengana webinar.
"They have a very similar product competing in prostate cancer diagnosis, and Latheus got approval seven months ahead of Telix."
The portfolio manager has been following the radiation oncology sector for the best part of two decades, and the technology has come a long way.
"There's a real revolution going on in radiotherapy in recent years."
At first, radiation was crudely pointed at the problematic part of the body, then the second generation saw a more targeted treatment using radioactive beads that were injected into the bloodstream.
This third iteration of radiotherapy is seeing companies like Telix and Lantheus take that targeting to the next level.
"These are actually radioisotopes that are targeted to molecules or antibodies that selectively seek out cancer in the body."
Looking at Lantheus' ramp up, McDonald reckons Telix could rake in $75 million revenue for this calendar year and then $195 million in 2023.
He added that the US market for prostate cancer is about US$1.1 billion, and that Lantheus implies it can take 35% of it this year.
"Still plenty of room for Telix to take an equivalent amount of the market over the next 12 to 18 months."
McDonald also noted that Telix has solutions for kidney and brain cancers in the pipeline.
And with the halving of the price this year, the shares are trading at about 8 to 10 times price-to-earnings ratio on 2023 projections.
"I would highlight that CSL Limited (ASX: CSL) and Resmed CDI (ASX: RMD) trade on 30 times PE. Cochlear Limited (ASX: COH) trades on 50 times PE."
If Telix hits the projections, McDonald thinks it will end up a $10 or $20 billion company, which would make it a 10-bagger from its current market cap of $1.33 billion.
Awaiting a billion-dollar deal
Another cancer tech player that McDonald holds is Immutep Ltd (ASX: IMM).
Its share price has halved since November, giving it a current market capitalisation of around $310 million.
With the company targeting a US$50 billion addressable market in breast, lung, head & neck cancer markets, McDonald is convinced Immutep is undervalued.
"Similar biotech deals, either licensing or takeover, would probably be in the US$2 to US$5 billion range. So very substantial upside."
Immutep has been granted a "prestigious" oral presentation at the American Society of Clinical Oncology conference on 3 June.
"It's the largest healthcare conference in the world," said McDonald.
"We can only assume it's very good news… We're greatly looking forward to that."
