Investing in biotech is different than investing in other sectors. Some hedge funds employ PhDs in biochemistry but still get it wrong as much as they get it right. How drugs/compounds actually do in actual trials is next to impossible to predict consistently. Anyone that says differently is selling something.
The sector calls for a different investing strategy. My philosophy is to take much smaller positions in a larger amount of selections than in other sectors. One must realize that there will be many misses within the biotech portion of your portfolio. However, this should be compensated for by the occasional five or ten bagger.
I look for companies with interesting products, some possible catalysts and balance sheets that should allow the firms to get their products to market provided they have good trial results and eventual FDA approval. Here are two speculative but intriguing biotech plays that look interesting here.
Novavax (NASDAQ:NVAX) is a small biopharma firm developing recombinant vaccines for infectious diseases using its virus-like particle platform (VLP) technology. I first purchased and highlighted the stock when it sold for $1.30 a share last November. Novavax has more than doubled since then and is approaching $3 a share. I am still holding the position as the company keeps receiving positive catalysts.
In July the company stated preclinical data published in a peer reviewed journal show the company's A(H7N9) VLP vaccine provided "100% protection against lethal wild-type A(H7N9) influenza versus 0% survival in control (H5N1) vaccine" in mice. Furthermore, Lazard just raised its price target to $11 a share postulating the market does not appreciate the potential for its vaccine for respiratory syncytial virus (RSV). It also stated Analyst day is coming up for Novavax on September 24 and the company may release additional positive news on its RSV vaccine at that time.
Insiders bought over 100,000 shares in June and the company has some $40mm in cash on the books which should provide funding for ~2 years at its current burn rates. Finally, the mean analyst price target on the shares by 6 analysts that follow the stock is north of $5.50 a share.
Omeros Corporation (NASDAQ:OMER) is a clinical-stage biopharmaceutical company focused on developing and commercializing products targeting inflammation, coagulopathies, and disorders of the central nervous system. It has a market capitalization of less than $150mm and a stock price just under $5 a share currently.
The company recently submitted its intraocular lens replacement surgery treatment OMS302 for NDA submission in early August. This comes after the European Medicines Agency approved a positive opinion issued by the European Pediatrics Committee agreeing to the company's Pediatric Investigation Plan for the same compound in July.
Most importantly, Liana Moussatos (a four star ranked analyst according to TipRanks) at Wedbush reiterated her "Outperform" rating and $18 price target on the stock. Ms. Moussatos believes this compound has significant sales potential and a high probability of approval. The company also has compounds targeting Huntington's disease, atypical hemolytic uremic syndrome and schizophrenia in early trials. The median price target of the 6 analysts that follow the stock is $16 a share, triple OMER's current price level.
Disclosure: I am long NVAX, OMER. 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.