Every month I like to evaluate stocks that have plenty to offer for the future, but have lost much of their short-term interest. These stocks often have plenty to offer in the way of pipelines or products and low valuations that can keep a portfolio growing even when the market might turn sideways. The following four stocks have lots of upside, are attractively priced and have plenty of opportunities and prospects for growth.
Emergent BioSolutions (EBS)
Emergent BioSolutions, EBS, is the first stock worth taking a good look at. Following quite a run in the last quarter of 2012, EBS's stock has been driven down to lows that haven't been seen since last October. Currently at $13.41 a share (April 4th), it hasn't exactly crashed, but has experienced a steady fall from $16.90 on January 2nd of this year. All this from a company that made money (P/E = 20.63, EPS = .65) in the last quarter of 2012 with revenues exceeding $280 million for the same quarter and yet a market cap of only $481.75 million. EBS even has two analysts rating it's stock a strong buy and two a buy with no calls for hold or sell. The target price for the stock is even at $22.00 a share and over 29% of the stock is held by insiders. EBS has a balance sheet just as solid with over $141 million in cash (as of January 1, 2013) and debt around only $60 million (as of January 1, 2013) which is not such a bad thing when you consider that property plant and equipment is valued at over $241 million. The fundamentals look solid and the pipeline also has some promise.
EBS currently has the only anthrax vaccine approved by the FDA, BioThrax. The Centers for Disease Control and Prevention have accounted for just about all BioThrax revenue in 2012, while EBS has had trouble marketing BioThrax internationally. There is great difficulty in taking BioThrax revenues to a different level without growth in the international marketplace or trying to expand BioThrax to include post-exposure paralysis (PEP) as a second indication. Along with BioThrax, EBS also has Anthrivig in phase III trials for anthrax and three other drug candidates along the same lines. On the oncology front, TRU-016 is in phase II trials for Chronic Lymphocytic Leukemia (CLL) and Zanolimumab for Cutaneous and Peripheral T-cell Leukemia (CTCL, PTCL) is currently in phase I trials. The best hope for experiencing some upward movement of the stock still lies in getting some international sales for BioThrax.
DepoMed's stock has taken a 22.8% dive since February 1st to where it currently stands at $5.42 a share (April 4th). This has come despite some pretty solid revenue of over $90 million generated last year, three approved drugs in the marketplace and pretty solid fundamentals. DepoMed crashed because of a rejection by the FDA Advisory Panel for its female hot flash drug Sefelsa, but the drop might be more than the news warrants and yet the fall might not be over. All this from a company with over $300 million in revenue over the last three years, cash and short-term investments of over $66 million versus about $21 million in debt and a market cap of only $306 million (all figures as of January 2013). The stock has a 50-day moving average of $6.02 a share and 200-day moving average of $6.07 a share, a beta of 1.18 and a 1-year target estimate at $9.17. DepoMed is about to receive a PDUFA response at the end of May for Sefelsa and a negative response might see the shares drop below $5 a share.
DepoMed does have the three products out on the market with Gralise (gabapentin) for managing postherpetic neuralgia (PHN), Zipsor (diclofenic potassium) liquid filled capsules (NSAID) for treating mild to moderate acute pain in adults and Glumetza (metformin hydrochloride extended release tablets) for treating type 2 diabetes in adults. Glumetza is being commercialized by Santarus, Inc. (SNTS) in the U.S. DepoMed also has its proprietary Acuform drug delivery platform that allows oral medications that reach the delivery point in the upper gastrointestinal tract to have extended release characteristics when taken with food. DepoMed additionally has clinical trials with Serada in phase II for treatment of menopausal hot flashes and DM-1992 that completed a phase II trial for the treatment of Parkinson's disease. If Sefelsa fails, the cupboard is not exactly bare and that is exactly where the value in DepoMed's stock lies.
Threshold Pharmaceuticals (THLD)
Threshold is not exactly a glamorous stock, having lost over $71 million dollars last year, a share price that dropped from $8.94 last year and revenue of just $5.8 million in 2012. The market cap of $258 million seems quite high ($4.57 a share, April 4th), as well as a beta of 3.49 and an EPS of -1.31. To make matters worse, Threshold has negative shareholder equity (as of Jan 1st), but currently has no debt on its books. Despite all this, the stock has a 1-year target estimate of $13.25 a share, nine analyst recommendations for buy or strong buy with no recommendations to hold or sell and over $70 million in cash and short term investments available (as of January 1, 2013). Last quarter (Q4 2012) Threshold did squeeze out a profit of $28.4 million and does have a partnership with Merck KGaA (Serono) to help carry it through the bulk of its costly trials so the future doesn't look too bad. With such mixed signals, what does Threshold have to capture investor interest?
Threshold might just succeed where Ziopharm (ZIOP) has failed with palifosfamide and Merck and Ariad Pharmaceuticals (ARIA) have failed with ridaforolimus. Soft tissue sarcoma has been difficult to treat- with improvements in progression-free survival hard to come by. Threshold has a worthy candidate in TH-302 and has been testing it on different cancers and tumor types to increase its likelihood of earning a nod from the FDA. Threshold is currently testing TH-302 for treating pancreatic cancer and has a phase III trial of TH-302 in combination with doxorubicin in patients with metastic soft tissue sarcoma. Threshold has an uphill battle to face with Celgene (CELG) when it comes to pancreatic cancer, but does have TH-302 in other early stage trials for treating advanced leukemias, multiple myeloma, renal cell carcinoma, gastrointestinal stromal tumors and pancreatic neuroendocrine tumors. Threshold also has a license agreement with Eleison Pharmaceuticals for glufosfamide to treat cancer in humans and animals. Such a lineup is sure to produce at least one hit.
Curis shares were at $3.52 a share just a short while ago (March 12th) and now face the prospect of dropping below $3 a share (currently $3.04, April 4th). Not much has changed with Curis as it still has a collaboration with Genentech for Erivedge (R)(vismodegib), plenty of cash on hand (over $55 million, as of January 1st) and a productive pipeline backing up Erivedge. Last July, shares of Curis hit $5.50 a share and have fallen ever since despite no catastrophic negative event. Curis has a fair market cap of just over $243 million, a 1-year target of $6.50 a share, eight analysts rating it a strong buy or buy against one hold and even some revenue of just under $17 million last year. Curis does have over $31 million in debt but at least has that $55 million in cash to help balance the debt. Curis stock has a 200-day moving average of $3.46 a share and a 52-week low of $2.66 a share with plenty of room to gain momentum. Curis might not be the strongest of the group with fundamentals, but does have a lot to offer with its pipeline.
Erivedge is the first and only FDA-approved drug for the treatment of basal cell carcinoma. This drug is being commercialized and developed by Genentech and Roche and is sure to experience more revenue in the future. Curis has more small molecule drug candidates in CUDC-427, an antagonist of IAP proteins for treating breast cancer and other solid tumors and CUDC-907, a PI3K and HDAC inhibitor for treating advanced lymphoma and multiple myeloma. The pipeline also includes CUDC-101 and Debio 0932 which are more small molecule compounds for treating cancer and tumors. Debiopharm S.A. has a collaboration agreement for Debio 0932 to help advance it through trials. If Curis has one more hit, shares at the current price just over $3 will look like a bargain.
These four biotechs have plenty to offer, but much depends on how the market moves in the week ahead. Emergent BioSolutions has more stability to offer now, while Curis is really more about the future. DepoMed is pretty stable especially if shares drop even lower, while Threshold could be a big winner if TH-302 realizes all its promise. Nothing is a sure bet when dealing with biotechs, but at the right price you can be handsomely rewarded with any of these four.