When it comes to the biotech sector, many stocks that trade under $5/share are considered to be very speculative, and as a result I wanted to focus on two that could benefit from developments within their specific markets. In this article I've chosen two companies that have met the follow criteria:
- Each company must trade below $5/share
- Each company must have a Market Cap under $750 million
- Each company must have fallen at least 30% Since July 1st
- Each company must be able to benefit from a sector-related development announced in the last 24 hours
Dendreon (DNDN) which is based in Seattle, Washington is "a biotechnology company engages in the discovery, development, and commercialization of novel therapeutics to enhance cancer treatment options for patients. The company offers PROVENGE (sipuleucel-T), an autologous cellular immunotherapy for the treatment of asymptomatic or minimally symptomatic, metastatic, castrate-resistant (hormone-refractory), and prostate cancer." (Yahoo! Finance)
Fundamentally speaking, shares of Dendreon carry a market cap of $730 million, have traded down 35% since July 1st and currently trade at an 11.05% premium to their 50 DMA and at a 9.27% discount to their 200 DMA.
DNDN data by YCharts
On Monday, December 10th, the FDA announced it had expanded the label for Johnson & Johnson's (JNJ) Zytiga (abiraterone acetate) for late-stage prostate cancer into the pre-chemo stages. As many investors know this is the area in which Dendreon's lead-drug Provenge thrives. So what happens now that the FDA has expended Zytiga's reach? The expansion of use by the FDA for Zytiga shouldn't have an impact on Dendreon shares, and as a matter of fact Dendreon should get a boost from the study since Zytiga hasn't really shown much in terms outperforming Provenge.
According to my fellow Seeking Alpha contributor Dr. Theodore Cohen, "Zytiga may be a good drug and it has much to recommend it in the pre-chemo space, especially where a man's disease load is increasing rapidly. But trial data does NOT support a median 9-month overall survival benefit. In fact, the benefit, at a median 5.2 months, is only 1.1 months greater than that of Provenge". If the survival rate being demonstrated was at least 40% higher, then I would be concerned, however it's not and therefore I think establishing a small to medium position at current levels wouldn't be such a bad idea.
BG Medicine (BGMD) which is based in Waltham, Massachusetts is "a life sciences company that engages in the discovery, development, and commercialization of novel cardiovascular diagnostics to address unmet medical needs. The company markets the BGM Galectin-3, a diagnostic test for measuring galectin-3 levels in blood plasma or serum for use in patients with heart failure through regional and national laboratory testing facilities." (Yahoo! Finance)
Fundamentally speaking, shares of BG Medicine carry a market cap of $60 million, have traded down 55% since July 1st and currently trade at a 100% premium to their 50 DMA and at a 22.34% discount to their 200 DMA.
BGMD data by YCharts
On Tuesday, December 11th, shares of BGMD have doubled in value after the company says its CardioSCORE test has been awarded a CE Mark which will enable the test for commercial sale in the EU and other countries that recognize the CE Mark. The CardioSCORE is a patented diagnostic blood test designed to improve risk predictions of major cardiovascular events in patients who may be asymptomatic.
According to BG Medicine's President and CEO Eric Bouiver, "the majority of cardiovascular events occur among patients who are asymptomatic, and current risk factor assessment methods simply miss too many patients with hidden subclinical risk, delaying appropriate therapy and effective monitoring of response to such therapy. The CardioSCORE test will identify individuals at elevated risk for heart attack and stroke, enabling preventive intervention". By obtaining the CE Mark in the EU, there may be a very good chance the FDA could follow suit and grant 510(k) clearance to the test here in the US. If such an approval were to occur, shares of BGMD could see similar pop to one they are currently experiencing today.
Are there any negative catalysts potential investors should consider before establishing a position in either company? As is the case with any biotech company, potential investors need to keep in mind some of the negative catalysts that go hand-in-hand with both Dendreon and BG Medicine. On one hand, any negative indication by the FDA with regard to Dendreon's future applications of Provenge or BG Medicine's CarioSCORE could result in the sell-off of either stock. On the other hand, weaker than expected earnings at any point over the course of the next 12 months, could also send shares down an unfavorable path.
For potential investors looking to establish a position in either Dendreon or BG Medicine, I'd take a closer look at each company and keep in mind the primary positive and negative catalysts moving forward. Given the fact that both companies are making considerable strides I'd look to establish a small to medium position at current levels and add to that position as future developments are announced.