2 Speculative Small Cap Drug Stocks Pending Key FDA Approvals

Includes: DCTH, NAVB
by: Bret Jensen

It has been awhile since I wrote anything on the biotech sector. My own philosophy on biotech and small pharma concerns is to take a "shotgun" approach in which I buy small positions in a myriad of promising companies realizing most of my investments will come to naught. However, the strategy will be profitable overall as I should hit enough five to ten baggers over time to make up for the inevitable losers. In that spirit, here are two small cap stocks in the space for consideration by speculative investors. They both have key compounds that are scheduled to be reviewed by the FDA over the next few months, have had insider buying within the last year and are selling significantly below their median price target held by analysts that cover their stocks.

Navidea Biopharmaceuticals (NYSEMKT:NAVB) is a biopharmaceutical company, and focuses on the development and commercialization of precision diagnostics and radiopharmaceutical agents.

Key product: Lymphoseek is an injected, mannose receptor binding radiopharmaceutical agent used in lymphatic mapping procedures. The drug is the first new lymph-node mapping agent approved in more than 30 years. Phase III endpoints have been reached for trials using agents for use on breast cancer. Compounds could provide very useful for oncology surgeons. The date of the next FDA announcement should be in late April/Early May.

4 reasons NAVB is a good speculative play at under $3 a share:

  1. The seven analysts that cover the stock have a $5.75 median price target on the shares. This is more than twice the current stock price.
  2. Five insiders recently made small stock purchases. It was the first insider buying since October.
  3. Analysts expect revenue to go from basically zero in FY2012 to over $9mm this fiscal year. Revenue is expected to quadruple to $37mm in FY2014.
  4. Given the company's small market capitalization (under $300mm) and niche in radiopharmaceutical agent platforms (several are in pipeline); Navidea could make a logical takeout target.

Delcath Systems (NASDAQ:DCTH) is a specialty pharmaceutical and medical device company focusing on the field of oncology.

Key product: Chemosat - a product that eases cancer treatment in the liver by targeting delivery of a chemotherapeutic agent. The next FDA announcement should be around mid-June. It is already approved in Europe and the company is working to be able to distribute it in China.

4 reasons DCTH is a solid speculative play at under $2 a share:

  1. The four analysts that cover the stock have a $3.50 median price target on the shares. This is more than twice the current stock price.
  2. Several insiders made purchases around these price levels in 2Q2012. No insider selling has taken place in over a year.
  3. Analysts expect revenue to go from under $400k in FY2012 to almost $4mm this fiscal year. Huge boost to over $20mm is expected in FY2014.
  4. Another small cap (under $200mm in market capitalization) that could find itself acquired especially if it gets positive news from the FDA.

Disclosure: I am long NAVB. 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.