When it comes to the biotech sector, many stocks that trade around $5/share are considered to be very speculative. As a result, I wanted to focus on companies that could benefit from developments within their specific markets. In this article I've chosen three companies that have met the follow criteria:
- Each company must trade below $10/share
- Each company must have a Market Cap under $450 million
- Each company must have announced significant developments in the last 24 hours
Idera Pharmaceuticals (IDRA) which is based in Cambridge, Massachusetts operates as "a clinical stage biotechnology company that engages in the discovery and development of novel synthetic DNA- and RNA- based drug candidates. It is developing drug candidates designed to modulate immune responses mediated through Toll-like Receptors (TLRs); and evaluating gene silencing oligonucleotides (GSOs), which inhibit the production of disease-associated proteins by targeting RNA". (Yahoo! Finance)
From a fundamental perspective, shares of IDRA currently carry a market cap of $27 million, have traded down 17.17% since July 1st and are currently trading at an 18.98% premium to their 50 DMA and in-line with their 200 DMA.
IDRA data by YCharts
On Wednesday December 19th it was announced that its lead drug candidate IMO-3100, a treatment for moderate-to-severe plaque psoriasis, was more effective than a placebo in a Phase IIa clinical trial of two dose levels. The company thinks the trial data for the injectable treatment provides clinical proof-of-concept for the mechanism that suppresses certain factors that underlie the skin disorder. If Idera can continue to demonstrate such significant developments and meet certain endpoint requirements there's no reason why shares shouldn't be trading at much higher levels.
Zogenix Pharmaceuticals (ZGNX) which is based in San Diego, California operates as "a pharmaceutical company, engages in the development and commercialization of products for the treatment of central nervous system disorders and pain. Its commercial product includes Sumavel DosePro (sumatriptan injection), a delivery system that offers needle-free subcutaneous administration of sumatriptan for the acute treatment of migraine and cluster headache". (Yahoo! Finance)
From a fundamental perspective, shares of ZGNX currently carry a market cap of $135 million, have traded down 47.06% since July 1st and are currently trading at a 40.35% discount to their 50 DMA and at a 43.04% discount to their 200 DMA.
ZGNX data by YCharts
On Tuesday December 18th it was announced that the FDA has scheduled two days of hearings February 7-8 after receiving "comments, petitions, and informal inquiries concerning the extent to which opioid drugs should be used in the treatment of pain." Hydrocodone is a semi-synthetic opioid derived from either codeine or thebaine. Such a forum will allow Zogenix to thoroughly explain how and why such drugs are needed especially in the concentration of central nervous system disorders. Although a non-FDA panel shot down ZGNX's Zohydro, which is a hydrocodone pill for chronic pain, this may give them a better chance to explain the positive catalysts associated with the drug.
Orexigen Therapeutics (OREX) which is based in La Jolla, California operates as "a biopharmaceutical company, focuses on the development of pharmaceutical product candidates for the treatment of obesity. Its lead combination product candidates include Contrave, which has completed Phase III clinical trials; and Empatic that has completed phase II clinical trials for the treatment of obesity". (Yahoo! Finance)
Shares of OREX currently carry a market cap of $435 million, have traded up just 0.85% since July 1st and are currently trading at a 10.45% premium to their 50 DMA and at a 5.79% premium to their 200 DMA.
OREX data by YCharts
On December 18th it was announced that the company has completed the screening of new patients for its Light Study trial to evaluate its obesity drug Contrave. There are about 9,000 patients who will be randomized in the study within the course of the next few weeks. OREX also anticipates that it will be resubmitting the New Drug Application for its obesity drug Contrave as well as conducting the interim analysis during the first half of 2013, with the drug's potential approval coming as early as fourth quarter 2013. If such approval by the FDA occurs share could trade much higher than their current price of $5.36/share.
Are there any negative catalysts potential investors should consider before establishing a position in either of the three companies? 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 Idera Pharmaceuticals, Zogenix Pharmaceuticals and Orexigen Therapeutics. On one hand, any negative indication by the FDA with regard to Idera's IMO-3100, Zogenix's Zohydro or Orixigen'ss Contrave 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 12-18 months could also send shares of these companies down an unfavorable path.
For potential investors looking to establish a position in Idera, Zogenix or Orexigen, 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 once future developments are announced.