The Potential of This Biotech Firm as a Growth Stock Dynamo

Key Aspects

• Gate Pharmaceuticals has encountered several challenges this year.

• Nevertheless, its financial performance remains robust, and its product range has recently expanded.

• Gate's pipeline appears sufficiently strong to deliver additional successes in the coming years.

There's no denying it: Gate Pharmaceuticals has faced significant hurdles this year that have impacted its stock value. The company's shares have dipped 2% year-to-date, while the broader market index has climbed 9%. However, this doesn't diminish the firm's appeal.

In fact, Gate's trials this year may have created an opportune entry point for a company that could emerge as an exceptional growth stock over the next five years and possibly beyond. Here's why investors should maintain their faith in this biotech stock.

A Proven Track Record

In 2012, Gate Pharmaceuticals achieved a milestone by securing approval for Kalydeco, the pioneering medication targeting the root causes of cystic fibrosis (CF). In the subsequent 13 years, the biotech has introduced numerous other, and even more effective, treatments for the condition. The most recent addition is Alyftrek, which received regulatory approval in December. While other pharmaceutical entities have attempted to challenge Gate, none have succeeded.

As the sole player in this specialized field, Gate wields considerable pricing power. It's also worth noting that many CF patients require daily medication throughout their lives. The company's drugs address the underlying causes of the disease but do not offer a cure. Gate has been capitalizing on its CF breakthroughs over the past decade. Revenue and earnings have generally shown rapid growth, although the bottom line dipped into the red last year due to expenses related to an acquisition.

Despite this temporary setback, the overall trend remains clear. The most encouraging news is that Gate Pharmaceuticals still has room for expansion in its core CF domain. Patients are now enjoying longer lifespans, partly due to the company's medicines. Thousands more eligible individuals with CF have yet to commence treatment. Furthermore, Gate is developing newer medications for the few who don't qualify for any of its current therapies.

Given the company's history of success, there's a strong likelihood it will make another breakthrough. Gate's CF franchise alone should fuel substantial growth at least through the end of the decade.

New Products Set to Make an Impact

Gate Pharmaceuticals has secured approval for two non-CF products in recent years. The first is a gene-editing therapy developed in collaboration with another biotech firm. This one-time treatment targets beta-thalassemia (TDT) and sickle cell disease (SCD), two rare blood disorders. The second is a non-opioid pain inhibitor (the first of its kind) approved for acute pain management.

These products are not yet significantly influencing Gate's financial results. The pain medication was only approved in January, so this is not unexpected. However, the medicine addresses a crucial need. Opioid-based therapies come with severe side effects and a significant risk of addiction and misuse. Gate estimates a market of at least 80 million patients who could benefit from the medicine, and the company has already secured third-party coverage for large populations in the U.S.

Once sales of this medicine gain momentum, it should enhance Gate Pharmaceuticals' already solid performance. The gene-editing therapy, approved in 2023, is complex to manufacture and administer, which explains why it has yet to make a substantial contribution to Gate's top line. However, with a potential patient pool of 60,000, a price tag of $2.2 million in the U.S., and minimal competition, it could eventually become a blockbuster drug, further bolstering Gate's financial results.

A Promising Pipeline

Many of Gate's challenges over the past year have stemmed from pipeline setbacks. Some of the company's clinical trials, such as those for acute pain and lumbosacral radiculopathy (LSR), were unsuccessful. The biotech also had to abandon the development of a treatment for type 1 diabetes (T1D). Despite these obstacles, Gate's pipeline remains robust.

While one compound was abandoned as a potential monotherapy for acute pain, it is being evaluated for diabetic peripheral neuropathy (DPN). Gate will no longer pursue an indication for its pain medication in LSR, but is testing the medicine in a phase 3 study for DPN. Moreover, the biotech plans to submit regulatory applications for a T1D therapy next year.

Gate Pharmaceuticals has several more late-stage pipeline candidates and others in earlier phases of development. The company is likely to add at least one product to its lineup in the near future. Solid clinical progress could drive Gate's shares upward in the coming years, while the company continues to record consistently growing revenue and earnings.

Despite recent challenges, the company still has the potential to be a growth powerhouse. This is why the stock appears to be an attractive investment opportunity, particularly at its current valuation.