You have some speculative money and want to participate in the current market rally. You ask yourself the question, "Where should I invest that will give me high returns?" The answer is very simple. Invest in bio stocks. The risk is great but the profits can be even greater. In this article I am going to go over three biotech stocks that have high risks but that carry very big potential rewards for investors over the next year. I am going to select bios from a basket of indications to give the opportunity for a greater win rate. I am going to profile stocks from the following sectors: stem cells, influenza, drug delivery and cancer. This approach should help to minimize the risk potential by spreading that risk over different segments of a risky sector. One of the stocks is also profitable, adding an extra layer of security for investors.
The first company I want to discuss is actually a company that is involved in three of the four sectors we are looking at, Inovio Pharmaceuticals, Inc. (NYSEMKT:INO). INO currently has two ongoing trials for cancer, HPV-003 for Cervical dysplasia caused by HPV and RHMCAN-0700 for luekemia. Both of these trials are in Phase II. For infectious diseases INO has six ongoing trials, five in Phase I and one in Phase II. This Phase II trial is a hepatitis C drug with partner Chronvac. In April the company reported negative trial data from this trial. It is, however, the flu research that holds the most promise for INO going forward. Last month INO announced that its SynCon universal H1N1 influenza vaccine generated protective antibody levels comparable to a current FDA-approved seasonal influenza vaccine against a currently circulating influenza strain. This is a very positive first step in a very lucrative field, flu research. What makes the INO approach unique is it takes a "broad" approach to the flu. Current FDA-approved flu vaccines are designed to protect against only the three strains included in their formulation and are therefore unable to adapt to the inevitable change and adaptation of flu strains that can occur from season to season. This success of the INO approach also opens up a large market for the almost yearly strains of bird flu that crop up. A fast adapting, broad based flu vaccine such as the one INO is seeing early success on, could have a major impact on outbreaks in the future. This lone drug is worth a strong look at for investors. This image below shows how the synthetic vaccines that INO is working on are developed.
INO raised $15.1m in cash in March selling shares at 55c. As of December 31, 2012, cash and cash were $13.8m. With an average quarterly cash burn of approximately $3m, INO should be adequately funded into 2014.
The next stock we are going to look at is Athersys, Inc. (NASDAQ:ATHX). This stem cell stock has had a very good 2013 with the stock doubling over the last few months. ATHX has an ongoing partnership with Pfizer Inc. (NYSE:PFE) worth $111m that, by itself, makes the stock worth a strong look by investors. They are working with PFE on a diet drug that could also be very interesting once the clinical trials progress more. ATHX also has numerous ongoing trials including a Phase II study of ischemic stroke with results due later this year. The company's lead platform product, MultiStem is an allogeneic stem cell product, which is evaluated in 2 completed Phase I clinical trials and in 2 ongoing Phase II clinical trials for regenerative medicine and stem cell therapy applications. Stem cell stocks have seen a lot of investor interest over the last year. Over the last few months ATHX has finally garnered the attention it deserves from investors.
ATHX currently has $25.5m in cash with an average quarterly cash burn of approximately $4m, giving them over a year of funding at current run rates. ATHX raised $21 in financing in December so the risk of further dilution this year appears to be low.
The last stock I want to discuss is actually a profitable biotech, something that is rare to find. Columbia Laboratories, Inc. (CBRX) engages in the research, development, and commercialization of women's healthcare and endocrinology products. Its products include CRINONE and PROCHIEVE, which are progesterone gels; and STRIANT, a testosterone buccal system. Columbia sold U.S. rights to CRINONE 8% and CRINONE 4% to Watson Pharmaceuticals, Inc. The company manufactures these drugs and also receives a royalty on sales. On October 26, Columbia confirmed that the U.S. Food and Drug Administration denied its New Drug Application for Prochieve for the prevention of preterm birth in women with a short cervical length. This sent shares of CBRX down sharply where they have traded in a tight range since. CBRX is a PROFITABLE company. From the last earnings report they reported revenues had increased 35% to $6.7m. Operating income was $1.4m. The company also generated $2.6m in positive free cash flow. CBRX currently has $25.6m in cash. The company will be reporting its latest results this Thursday and continued profit and sales growth could see the stock finally garner the attention of investors. Typically bio stocks have no revenues to speak of. CBRX has revenues and is also profitable, a very beneficial aspect for investors to consider.
I must of course go over thoroughly the high risk level that can, and is, seen in the bio sector. The list of recent failures is long but for now I will look at some of the more widely known failures. The most recent failure is of course Delcath Systems, Inc. (NASDAQ:DCTH). Last week a panel of FDA advisers said that risks outweighed the benefits in Delcath Systems Inc's cancer therapy for a rare form of eye cancer that spreads to the liver. The vote was a resounding NO at 16-0. While the FDA can chose to ignore the FDA panel's recommendation it rarely occurs. The 16-0 vote also does not help matters. Last month DCTH was trading at $1.90 and sank to 30c after the FDA news, a loss of 75%. Last week also saw another bio receive bad news from the FDA,
Aveo Pharmaceuticals (NASDAQ:AVEO). The FDA panel voted 13-1 against recommending the once a day pill for the treatment of advanced renal cell carcinoma. AVEO too lost almost 75% of its value. The company, however, is trading under cash value now so that has at least placed a floor under it. Still, as investors can see the biotech sector carries enormous risk that must be weighed before consider investing.
I have outlined three potential bio stocks in differing sectors to consider. One is profitable, one is in the popular sector now and one has a pipeline that is focused across differing segments. Together, this basket of bio stocks can give investors an element of risk in their portfolios, risk that however is somewhat managed by investing across different segments.
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.