I wanted to find what might be sure biotech winners today, so I tried this quick screen. I selected:
- Industry and Sector
- Zero Debt (mrq)
- Price greater than $5
- Volume greater than 1,000,000 shares per day
- Significantly positive Institutional buying in the prior quarter to this one.
- Low if any Insider selling in the last six months.
My logic was that a biotech company with "great science and great ideas" would have no trouble getting money. Therefore it should have little or no debt. This screen condition rules out virtually all of the more mature biotech stocks; but that is what I intended to do. A price greater than $5 ensures that the stock as a financial entity is at least mildly successful. Volume greater than 1,000,000 shares per day selects stocks that have a lot of investor interest. Significantly positive Institutional buying in the prior quarter to this one shows that institutions have discovered the stock. This effectively tells me that at least some institutions' analysts think highly of the stock. Naturally I verified this by looking at the average analyst recommendation for the stock on Yahoo Finance. Not surprisingly both stocks had average recommendations under 2.0 (1.2 and 1.6 for CLDX and KERX respectively). The low, if any, insider selling just confirms that insiders are also enthralled with the stock's prospects.
Some might ask why I didn't just select highly rated, growth stage biotech companies? The reason is, I wanted to "follow the money." Often Wall Street analysts will hype growth stage biotech stocks. Therefore they will have great recommendation numbers. However, if they have "no debt," they are having no trouble getting the "money people" to fund them. Their science is so exciting that people rush to fund them. This counts a lot more than just hype. Good institutional buying tends to confirm this.
The two stocks I identified this way are:
- Celldex Therapeutics Inc. (CLDX) -- average analysts' recommendation of 1.2 (a strong buy).
- Keryx Biopharmaceuticals Inc. (KERX) -- average analysts' recommendation of 1.6 (a strongish buy).
Neither of the above stocks has a PE. Neither is profitable yet; but this is what I would expect from a growth stage biotech stock. However, both have exciting looking charts (see below).
The two-year chart of CLDX is below:
CLDX is overbought on the slow stochastic sub chart; but it is merely in a strong uptrend on the main chart. I might wait for this to cycle down a bit; but technically it is buyable at its current price. This is an extremely strong chart; and it indicates a semi-mature company. It tells an investor that CLDX's future success is virtually assured.
The two-year chart of KERX is below:
KERX is overbought on the slow stochastic sub chart; but it is only in an uptrend on the main chart. Technically I might wait for KERX to pull back a bit more; but it is buyable in the current situation.
The above charts all tend to confirm that I (as an investor) should be interested in these two stocks.
However, no one wants to buy a biotech stock without having some idea of what it does. The paragraphs below try to give a brief description of each company's science.
Celldex Therapeutics Inc. is a US biopharmaceutical company based in Needham, MA (in the greater Boston Area). This means it has access to the top talent from top biotech universities such as Harvard, MIT, Tufts, etc. The company has a pipeline of drug candidates for treating cancer and other difficult to treat diseases based on its antibody focused precision targeted immunotherapy platform. Its pipeline is comprised of therapeutic antibodies, antibody drug conjugates, immune system modulators, and vaccines that they believe have a high probability of success because the diseases express specific markers and the therapies address unmet needs.
The above means that CLDX may produce a number of lucrative orphan drugs in the near future. For an orphan drug it is easier to gain marketing approval (FDA approval) in the US and the EU. Orphan drugs also get tax incentives, enhanced patent protection, often government clinical research financial subsidization. If approved by the FDA the company also has the right to sell it without competition for seven years. This can make a revenue stream much more sure than might otherwise be the case. CLDX's two furthest along candidates are a brain cancer therapy and a breast cancer therapy. The table below shows a more complete list of candidates with their statuses. I note such tables are often slightly out of date.
Aside from all of the above, CLDX has research collaboration agreements with Medarex Inc. -- now a subsidiary of Bristol-Myers Squibb Company (BMY), Rockefeller University, Duke University Brain Tumor Cancer Center, Ludwig Institute for Cancer Research, Thomas Jefferson University, University of Southampton, Amgen Inc. (AMGN), and Seattle Genetics (SGEN). This is an impressive list. It means CLDX will easily keep abreast of the latest developments in the areas of its research. It will be able to collaborate with some of the finest researchers in its research areas, and it will likely receive all of the funding it needs through its collaboration agreements with the likes of AMGN and SGEN. Further it may get some government monies and some tax benefits. This is a clear position of power, and the company should do well. However, the above is also just a start at an analysis of its research and financial prospects. Serious investors should pursue this analysis further. CLDX has a market cap of $1.88B. CLDX looks to be a stock that is well worth pursuing as a significant investment.
Keryx Biopharmaceuticals Inc. is a US biopharmaceutical company that focuses on the acquisition, development, and commercialization of pharmaceutical products for the treatment of renal disease. It is headquartered in New York, New York. This means it can easily draw top talent from Yale University, Princeton University, Columbia University, NYU, Cornell University, etc. Its two pipeline drugs are both Zerenex (ferric citrate) for two different targets. The table below from the Zerenex website shows their statuses. I note such tables are often slightly out of date.
This table seems far less impressive than that of CLDX. Of course, KERX has a market cap of only $734.7 million versus CLDX's $1.88B. KERX has a strategic alliance with Panion & BF Biotech Inc. It has a Japanese partner, Japan Tobacco Inc. and Torii Pharmaceutical Co., Ltd. Its partner has filed its new Drug Application for marketing approval of ferric citrate in Japan for the treatment of Hyperphosphatemia in patients with chronic kidney disease. KERX announced an NDA submission to the FDA on August 8, 2013. The Marketing Authorization Application filing with the European Medicines Agency is pending submission. KERX could push significantly higher both on the news of the final submission of the MAA for the EMA and on one or both approvals that are forthcoming from the FDA and the EMA. These will likely be six months to one year later if no further tests are requested. One year is a more typical time frame. My inclination is to think the price of the stock may fall backward from here until KERX gets closer to the expected approval dates from the FDA and the EMA. Then investors may see KERX begin to rise again. I would keep KERX on my radar, but I would probably not invest at this time.
NOTE: Some of the above information is from Yahoo Finance.
Good Luck Trading.