When it comes to the biotech sector, many stocks that trade under $10/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 $12/share
- Each company must have a Market Cap under $750 million
- Each company must have announced significant strides in terms of recent clinical trials in the last 72 hours
Sucampo Pharmaceuticals (NASDAQ:SCMP) which is based in Bethesda, Maryland operates is "a pharmaceutical company, focuses on the discovery, development, and commercialization of drugs based on prostones and other novel drug technologies in the Americas, Europe, and Asia. It develops prostones to treat gastrointestinal, ophthalmologic, central nervous system, vascular, and respiratory diseases, as well as for other therapeutic applications". (Yahoo! Finance)
Fundamentally speaking shares of Sucampo currently carry a market cap of $217 million, have traded down 24.20% since July 1st and are currently trading at a 5.37% premium to their 50 DMA and are in-line with their 200 DMA.
SCMP data by YCharts
On Wednesday December 12th it was announced that the company's supplemental new drug application, sNDA, for its Rescula treatment to lower intraocular pressure in patients with open-angle glaucoma or ocular hypertension receives approval from the FDA. Given the fact the drug was approved for patients currently suffering from open-angle glaucoma, and the fact it should shelves during Q1 2013, I see no reason why a position shouldn't be established at current levels. Although the last six months have been a bit rocky in terms of share performance, Rescula's supplemental approval may just be the best medicine. The latest supplemental approval for Rescula may offer a bit of sustainability and as a result I'd look to establish a small to medium sized position at current levels.
Exact Sciences Corp. (NASDAQ:EXAS) which is based in Madison, Wisconsin operates as "a molecular diagnostics company, focuses on developing a molecular diagnostic technology for the early detection and prevention of colorectal pre-cancer and cancer. The company develops the Cologuard, a non-invasive stool-based DNA colorectal cancer screening test that is designed to detect each of the four stages of colorectal cancer, as well as pre-cancerous lesions". (Yahoo! Finance)
Fundamentally speaking shares of Exact Sciences currently carry a market cap of $655 million, have traded down 7.58% since July 1st and are currently trading at a 7.82% premium to their 50 DMA and are in-line with their 200 DMA.
EXAS data by YCharts
On Monday December 10th the company said it had submitted to the FDA the first module of the premarket approval application for its stool-based DNA colorectal cancer screening test, consisting of the required documentation regarding the manufacturing and quality control systems for the product. The modules still pending for submission include analytical and clinical data. Although the FDA has 45 days to review the submission, I strongly believe Exact Sciences has taken a very big step in the process of premarket approval for the screen and potential investors should jump at the opportunity to establish a position.
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 Sucampo and Exact Sciences. On one hand, any negative indication by the FDA with regard to Sucampo's Rescula or Exact Science's colorectal screener 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 Sucampo or Exact Sciences, 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.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.