Biotech stocks are always risky investments that can be great values when potential can be realized, hurdles can be overcome or perfect timing can be achieved. A strong pipeline is a must, cash on hand to burn is a strong second and valuation must be at a price that allows for future growth. Some biotechs that are priced over $10 a share are pretty healthy often with profit, plenty of revenue coming in and sometimes even paying out a dividend, while many are under $4 a share struggling to make it to Stage III of at least one drug trial. These next eight stocks fall into these two categories as the stocks on the higher end have more solid fundamentals for consistent growth, while those on the bottom end can easily double if the conditions are right, but that "if" is more often a "when".
For the highest price of the eight, is Akorn Inc. (AKRX), a pharmaceutical company that is a hybrid producing a variety of generics while also specializing in therapeutic and diagnostic ophthalmic products. The company has experienced steady growth with revenue and profit as well as expanding its capabilities to include just under 40 brand and generic drugs ready to market between now and 2015. These drugs enter marketplaces with a combined value of close to $3 billion dollars. As it stands now, Akorn has been profitable three years in a row and even generated over $256 million in revenue last year. Akorn recently beat earnings estimates and is priced at $14.32 a share (March 8th) after bottoming out at just below $12.60 a share a few weeks ago. Although Akorn took on some debt in 2011, growth has been consistent and future revenue growth is almost a given. A solid choice with potential to hit $16 or $17 a share at any time.
Spectrum Pharmaceuticals (SPPI) has a strong P/E ratio of 7.95 and an EPS of 1.46 with steady growth and a solid pipeline. Its lead drug, Fusilev, has experienced a slowdown as of late with pressure from generic drug, leucovorin, and government mandated rebates eating away at its revenue and profit. Spectrum in the meantime is experiencing positive sales results for two of its drugs, Folotyn and Zavalin with licensing rights for Zavalin sales outside the U.S. acquired in April of 2012. Revenues have increased year after year and profit soared to $94.5 million in 2012 with about $245 million in cash and short term investments at hand. If Spectrum is able to stay out in front of earnings estimates, it would appear to be a value at its present valuation of $11.60 a share. If Fusilev sales remain steady, growth in the remaining pipeline candidates will make anything under $12 a share look like a bargain.
Another solid performer that has shares that have climbed from under $7 a share in mid-November to a current value of $11.24 a share today (March 8th) is Neurocrine Biosciences (NBIX). It has reached a new high with nice revenue growth, a solid balance sheet, profit in 2012 and very little debt. Neurocrine has drugs to combat everything from neurological to endocrine related diseases and disorders. The company has entered the profitability stage and is set up nicely for achieving more financial success in the near future. Neurocrine finished the last quarter of 2012 with just under $9.5 million in profit to end the year on a high note. As the stock stands now, it is only a question of how high Neurocrine can rise and if the current valuation of $11.11 a share is fair market value. Any movement south of $10 a share should be watched and yet this stock could also continue to rise even further. The pipeline at Neurocrine appears to offer a good variety and to be full of strong candidates and at the same time Neurocrine has already achieved profit. Sound mechanics, just a question of price.
Acura Pharmaceuticals (ACUR) is a smaller company making some big movements into chain stores and partnering with national and regional drug wholesalers to sell its product, Nexafed. Nexafed is coming into play as methamphetamine abuse has become a problem with the extraction of pseudoephedrine from over the counter formulations. Acura's Nexafed decongestant formulation makes it impossible to extract usable pseudoephedrine from the decongestant. Acura's distribution network and a healthy cash position with no real debt means its stock has plenty of room to move upward. Acura just burned over $9 million in cash last year and yet still has over $27 million in cash and short-term investments ready to cover costs. After some profit taking following a surge above $3.50 a share, Acura has settled nicely at $2.61 a share. This stock might be a value as long as Acura starts to see Nexafed actually benefit financially from the nice distribution network that appears to have been developed.
Immunomedics (IMMU) is a biotech that has a low valuation ($2.50 a hare) for having a rather impressive pipeline of 12 candidates full of potential and a market cap of only $189 million. Immunomedics produces monoclonal antibody-based products for treating cancer, autoimmune and other serious diseases. It has two products producing minor revenue in LeukoScan and ImmuSTRIP which are diagnostic products that are not expected to rival the potential of some of the other pipeline candidates. Immunomedics recently raised about $14 million in capital (February 22nd) and is now well funded to get through 2013 and most of 2014. The quarterly burn rate is currently just under $6 million and cash reserves are now over $35 million. The current stock valuation of $2.50 a share looks like it has room to rise after hitting a low of $2.11 a share when cash was raised.
Nanosphere (NSPH) is a company with a molecular diagnostics platform, the Verigene System, with nanoparticle technology that allows multiple tests (protein and genomic) to be run on the same patient sample. Infectious disease assays, human and pharmacogenetic assays and protein assays can all be accomplished with the Verigene system. Nanoshpere has been generating some revenue lately and has no debt making it better than average in respect to typical biotech fundamentals. Nanosphere revenue in 2012 ($5.08 million) was twice that of 2011 and there is a healthy $33 million of cash on hand (as of Jan. 1st) to offset a burn rate of about $8 million per quarter. The stock price has been climbing lately, but is still a good value as long as any signs of weak guidance don't act to depress the stock value further. At $2.20 a share Nanosphere still has room to move, but seeing if it can fall under $2 might remove more risk.
A more conservative play on PharmAthene Inc. (PIP) offers the stability of serving government agencies like the NIH, Dept of Defense and others. PharmAthene at $1.62 a share currently offers revenue generation and is close to turning a profit with a market cap of only $78 million. PharmAthene is tackling anthrax with a post-exposure prophylaxis anthrax trial of SparVax and prevention and treatment of the anthrax infection with Valortim. Other studies target the prevention and treatment of the effects associated with exposure from chemical nerve gas agents (Recombinant BChE). On top of this impressive pipeline, PharmAthene has a lucrative deal with SIGA Technologies (SIGA) for Arestvyr that should bring in 50% of net profits during the next ten years depending on ongoing litigation. Valortim is a collaboration with Bristol Myers Squibb (BMY), adding a another level of support to the positives. The current share price is trending upward at $1.62 (March 8th) experiencing almost 11% of growth on March 8th. Revenue growth, decent cash position and a low market cap make PharmAthene a compelling story to follow.
The value play of Inovio Pharmaceuticals (INO) is budget priced at $.54 a share and offers a very challenging pipeline of DNA-based vaccines to combat cancer, infectious disease, unmatched strains of influenza or other strains of pathogens. In addition to its SynCon vaccine to protect against influenza, Inovio has studies for cervical dysplasia, leukemia, hepatitis C and HIV. This rich pipeline is further enhanced by Inovio's proprietary electroporation delivery that has been proven to generate a best-in-class immune response and a favorable safety profile. Inovio just announced a stock offering of $.55 a share that will bring in about $14 million in cash to give it a healthy reserve. Based on data from the Phase I clinical trials of VGX-3100 (HPV virus - cervical cancer), Inovio might have something but Phase II results will tell more and concerns about safety will be more closely scrutinized. A market cap of $75 million, a stock at $.54 a share and a sound cash position make Inovio intriguing at the very least.
|Share Price||Market Cap (M)||EPS||Cash Reserves*||Current Trend|
+14% last two weeks
|Spectrum||11.79||695.5||1.46||142.9||+4% last week alone|
|Neurocrine||11.24||747.6||.08||173.0||+49% since Jan 1st|
|Acura||2.61||121.0||-.20||27.0||+27% since March 1st|
|Immunomedics||2.50||189.3||-.37||35.0||+12% since March 1st|
|Nanosphere||2.20||122.8||-.67||33.0||-17% since early Feb.|
|PharmAthene||1.62||78.4||-.06||14.6||+26% last week alone|
|Inovio||.54||75.3||-.18||35.0||-23% last two days|
* - as of JAN 1st, 2013 or includes capital raised in 2013 for some companies (estimates)
A case can be made for any of these contenders, but it still comes down to the pipelines of each and the leadership that gets them to where they want to be. PharmAthene is currently making a move while Spectrum, Neurocrine and Akorn have already proven their worth. Inovio and Nanosphere on the other hand have attractive share prices, while Acura and Immunomedics have just experienced some good momentum and look primed for growth. I plan to keep a good eye on Spectrum, PharmAthene and Acura with a position in Acura initiated a good time ago.