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Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.

My objective is to uncover under-the-radar stocks that appear to be overlooked and/or grossly undervalued by the marketplace. Today my focus is on Opexa Therapeutics (OPXA), a small-cap biotech principally focused on conquering Secondary Progressive Multiple Sclerosis (SPMS). This debilitating disease is estimated to be a $7 billion market in the United States alone. Shares of Opexa have recently been on a wild ride, surging as much as 200% to $3.7 on feverish speculation regarding its lead MS drug Tcelna , only to come crashing back to earth following an opportunistic capital raise by the company. This article highlights 9 reasons that the dramatic pullback in Opexa shares represents a compelling buy opportunity that should prove quite lucrative for investors in the coming weeks and months.

(1) Shares Just Above Cash Value

Opexa just completed an $18 million capital raise, bolstering the company's balance sheet with a solid cash buffer that should be welcomed by investors. Combined with the existing cash on its balance sheet, Opexa is currently trading just barely above its net cash. Investors are effectively paying nothing for the business at current levels; a virtually free option on a potentially game-changing MS drug as well as other possible indications.

(2) Elimination of Capital Raise Overhang

A dilutive capital raise at a significant discount to market is a continual concern for investors in speculative small-cap biotech stocks. The only reason Opexa's capital raise appears to have been priced at a large discount is that its shares staged a massive run immediately prior to the funding. In actuality, shares were effectively priced at the market. Notably, Opexa did not issue warrants as part of this offering, thus minimizing the dilutive consequences to exiting shareholders. This is in stark contrast to many small-cap biotech financings, in which investors demand dilutive warrants in addition to discounted shares as an incentive to participate. Finally, as Merck Serono (MRK.DE) is wholly responsible for funding clinical development and regulatory and commercialization activities for the MS program (see below), Opexa has eliminated the overhang of a capital raise for existing shareholders for the foreseeable future. In fact, on this week's conference call, CFO Karthik Radhakrishnan announced that the company, with a monthly burn rate of $1.2 million/month,now has sufficient capital to take it to through the second half of 2014, well beyond what most comparable biotechs can claim.

(3) Collaboration with Merck Serono

Most speculative biotech companies are in a continual desperate search for a big-name partner to help support and finance their drug pipeline. Opexa has already secured such a relationship with the industry giant Merck Serono for its flagship drug Tcelna . Additional details of this significant collaboration can be found here. As noted above, Merck is responsible for funding the entirety of clinical and regulatory expenses, and Opexa is eligible for payments of up to $220 million. It is critical to note, as CEO Neil Warma emphasized in the quarterly conference call, Opexa has retained full rights to all other indications for Tcelna outside of MS.

(4) Insider Purchase

The CFO of Opexa, Karthik Radhakrishnan, just disclosed the purchase of 50,000 shares at $1.5, where the company's stock offering was priced. An executive's participation in the company's financing is looked upon favorably by the investment community as a sign of confidence in its future prospects. An outside investor can currently purchase shares on the open market at a discount to the CFO's shares, representing an even greater bargain. Additionally, it is worth noting that no insider sales have occurred at the company in almost 4 years.

(5) Historically Favorable Risk-Reward

Warren Buffet famously quipped, "Be Fearful When Others Are Greedy and Greedy When Others Are Fearful." Opexa shares are trading near all time lows, and are 75% off 52 week highs, despite a number of material developments that have markedly improved the prospects of the company. These include a strengthening of the company's cash position arising from royalty payments and capital raises, in addition to the Merck collaboration discussed above. Virtually all other equally (or even more) speculative biotech stocks trade with a market capitalization five to ten times higher than Opexa's, including those of Peregrine Pharamaceuticals (PPHM), Cell Therapeutics (CTIC), Geron Corporation (GERN), AVEO Pharma (AVEO), and XOMA Corporation (XOMA).

Opexa shares present a compelling buy opportunity for the speculative investor at current levels. Currently, the market is assigning a near-zero probability of Tcelna's efficacy in the treatment of multiple sclerosis (MS). Given that MS is such a notoriously challenging disease to conquer, the first indication that Tcelna provides relief to MS patients will literally drive the shares 10x overnight.

(6) Catalyst Driven Momentum Stock

From a longer-term investment perspective, the success of Opexa's drug pipeline will ultimately determine how high the stock is valued. In the interim, a variety of other factors play a large part in where shares of Opexa trade. Opexa is the ultimate biotech story stock, attracting a wide array of speculative and momentum investors. What this means is that any whiff of positive news, or even vague rumors, will and have moved this stock dramatically. One look at the multi-year chart will verify this phenomenon. As a head trader at briefing.com, who recently took a stake in Opexa, describes it:

"I've taken a Swing Long position in the name with plans to stash away in my spec portfolio. I view it as a biotech hype name that will be hyped again at some point b/c it has a story that can be sold. (1.37 -0.04) I'm looking at it as a situation where I'm willing to risk 50% to potentially make 200%. It's a total spec play, not an investment based on fundamentals. I may be in this for months/quarters, but it is a relatively small position for me."

In all likelihood, shares of Opexa will enjoy a multitude substantial rallies well before Phase 3 clinical results are available, providing less patient investors with an opportunity to profit .

(7) Management Commentary

Opexa just held its quarterly conference call to discuss financial results and provide a corporate update. The conference call and accompanying slides revealed a few gems that may be under the radar of the investment community. CEO Warma divulged that the safety profile of the enrolled patient population remains "superb." As noted above, the CFO specified that the company has enough cash to take it in until late 2014. Management also emphasized the possibilities that its drug platform potentially holds in treating diseases outside of the realm of MS.

(8) Upcoming Analyst Coverage

Similar to (6), this investment rationale focuses less on the science of Opexa than the underpinnings of Wall Street and how to profit from it as an investor. Aegis Capital led the underwriting of Opexa's recent secondary offering. Aegis is well-known on the Street for raising funds for a wide array of small-cap biotechs. Quite frequently, the research department of Aegis will subsequently initiate coverage of these biotechs. If history is any indication, I expect to see a very ambitious price target slapped on shares of Opexa in the near future.

(9) Takeover Speculation

Shares of Opexa recently staged a furious rally, surging from $1.26 to $3.7 in less than a day. As Seeking Alpha's Market Currents noted:

The rumor mill is abuzz: Comments from Merck KGaA (OTC:MKGAF) regarding a 2-3% market share loss for the MS treatment Rebif at the hands of Biogen's Tecfidera are fueling speculation that the German drug and materials company may heighten its focus on Tcelna, a treatment for Secondary Progressive MS being developed in conjunction with Opexa Therapeutics.

Trading desks further speculated that Merck may be interested in buying Opexa outright, adding fuel to the fire and rocketing shares still higher. I wouldn't be surprised to see this chatter resurface, as it often does in the biotech world.

In addition, Merck was apparently not the only big pharma interested in Opexa as their collaboration was being negotiated. CEO Neil Warma revealed that the company received interest "from a number of other pharmaceutical companies because there are few treatment options for patients with multiple sclerosis." The company ultimately decided to partner with Merck for its widely acknowledged leadership role in the fight against MS.

Of course, any investment in a small-cap biotech is inherently speculative, and those involved need to be aware of the substantial risks involved with venturing into this realm of the stock market. However, I believe Opexa currently represents one of the most favorable risk-reward profiles in the speculative biotech sector for all of the reasons outlined above. Opexa shares have a history of breathtaking rallies that can be highly lucrative for investors who make timely purchases of shares at the right price. Now is that time.

Source: 9 Compelling Reasons To Buy Opexa Therapeutics Right Now