Small biotech companies sometimes see their shares skyrocket because of clinical or regulatory progress. That happened this year to Viking Therapeutics and Summit Therapeutics, which gained significant momentum following positive data readouts. Of course, it’s hard to predict whose turn it will be in 2025, but there are clues we can follow to make educated guesses.
In that spirit, let’s consider two biotech companies that could potentially deliver incredible returns next year: Recursion Pharmaceuticals (RXRX -6.56%) and BioAge Labs (BIOA -4.88%). Are these drugmakers worth investing in?
1. Recursion Pharmaceuticals
Recursion Pharmaceuticals is entering a crucial stretch in its history. The company’s claim to fame is its artificial intelligence (AI)-powered operating system that tests clinical compounds against a library of human genes to identify the best candidates to send to clinical trials. Although Recursion Pharmaceuticals claims its approach could help significantly decrease the time and cost associated with developing novel medicines, it currently has no products on the market and no candidate in phase 3 studies. However, it expects several data readouts in the coming 14 months.
Recursion Pharmaceuticals could release results from the first part of a phase 2/3 study for REC-2282, a potential therapy for neurofibromatosis type 2, in the fourth quarter. Neurofibromatosis is a rare disease that causes tumors to grow in several places, including in the nervous system. Recursion is also planning to read top-line data for REC-4881, an investigational phase 2 medicine for familial adenomatous polyposis (a genetic condition that can lead to colon cancer) in the first half of 2025.
There will be other readouts and clinical trial initiations next year. Positive results could jolt the stock price and provide evidence that Recursion Pharmaceuticals’ potentially paradigm-shifting approach to drug development works. However, some or all of Recursion Pharmaceuticals’ clinical trials could flop. Even if they are successful, it will still be a while before Recursion Pharmaceuticals is a commercial-stage biotech. Recursion Pharmaceuticals’ AI-centered project does look promising, and the company has partnered with several notable enterprises.
It is developing EXS4318, which targets several inflammatory diseases, in collaboration with Bristol Myers Squibb. It also has a partnership in place with Roche and Bayer, as well as with AI giant Nvidia, with which it built the largest supercomputer in the pharmaceutical industry. In short, Recursion Pharmaceuticals’ efforts could pay off, but it’s too early to be sure that they will — and if they don’t, its shares might not be worth much in five years. That’s why only those with a heightened appetite for risk should consider this investment.
2. BioAge Labs
BioAge Labs is a new kid on the block. The company completed its initial public offering (IPO) on Oct. 1. The biotech’s leading candidate is called azelaprag. It is being developed as a weight loss treatment, but with a catch. Azelaprag is currently being tested in phase 2 studies in combination with tirzepatide, the active ingredient in the obesity treatment drug Zepbound. One issue many weight loss therapies have is that they cause muscle as well as fat loss.
Shedding too much muscle can be a problem, but azelaprag tricks the body by simulating exercise-like signals in the body, hopefully leading to muscle retention or even growth, even as patients shed body fat. In a phase 1b study on healthy volunteers, azelaprag increased muscle metabolism and decreased muscle atrophy, among other things. Of note, it is also planning a phase 2 study in combination with semaglutide, the active ingredient in Wegovy.
The anti-obesity market is one of the hottest areas in the industry right now. According to some estimates, it could be worth $150 billion by the early 2030s, up from just $24 billion last year. If azelaprag goes on to earn approval as an important complement to medicines like Wegovy and Zepbound to help patients retain muscle mass even as they lose weight, BioAge Labs’ shares will take off. The company plans to release some phase 2 data next year, and, depending on the results, its stock could rise substantially.
However, much like Recursion Pharmaceuticals, BioAge Labs remains an unproven entity whose trajectory could go either way, no matter how promising its leading program looks right now. So, I’d also advise caution with this stock, even more so than with Recursion. For now, watching BioAge Labs from the sidelines is probably best. If it makes progress next year, its shares might be worth investing in then.
Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb, Nvidia, and Summit Therapeutics. The Motley Fool recommends Roche Holding AG. The Motley Fool has a disclosure policy.
