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Regular readers of my columns know I take a "shotgun" approach to biotech investing. This sector has more failures than any other area that I can think of in the market. It is only prudent to spread your bets around by taking smaller positions in more stocks that one would in other sectors.

The upside is that one can have huge winners when one of those plays takes off which makes up for the frequent blow ups over the long term. In the last year or so I have scored 100% gains or better on a variety of biotech plays like Omeros Corporation (NASDAQ:OMER), Novavax (NASDAQ:NVAX) and Geron Corporation (NASDAQ:GERN).

In this vein, here are two smaller cap very speculative biotech plays that could have substantial upside for aggressive growth investors.

Fate Therapeutics (NASDAQ:FATE) is a clinical-stage biopharmaceutical company that discovers and develops pharmacologic modulators of adult stem cells to treat orphan diseases. Its lead product is ProHema, a hematopoietic stem cell therapeutic derived from umbilical cord blood. The company recently came public earlier this month after lowering its expected range to $6-8 a share from $14-16 previously. It is sort of a backdoor "broken" IPO due to this.

Obviously FATE is a very speculative just public concern. However, there are a couple of items that caught my eye on this small biotech. First, insiders & beneficial owners of the company have been huge buyers of the stock since the shares had a disappointing debut. They have bought tens of millions of dollars of new shares over the past few weeks.

Second, Wedbush initiated the shares as an "Outperform" rating and a $14 a share price target on FATE, more than double its current stock price of ~$6.25 a share. Wedbush's analyst cited Fate Therapeutics' modified hematopoietic stem cells (HSCs) as a core reason for the Outperform rating stating "these modified HSCs could improve outcomes in hematological cancers and lysosomal storage diseases (LSDs), where stem cell transplants are the only potentially curative therapy."

The stock has only a ~$120mm market capitalization and I have established a small speculative position while I track the progress of this small biotech.

I also recently took a small position (long dated options) in Cell Therapeutics (NASDAQ:CTIC). Cell Therapeutics focuses on treatments for cancer. It has a few products in the pipeline including PIXUVRI, an aza-anthracenedione derivative, which is in Phase III clinical trials for the treatment of multiply relapsed or refractory aggressive non-Hodgkin lymphoma. It is also developing Opaxio, a chemotherapeutic agent that is in Phase III clinical trials for the treatment of ovarian cancer.

This is a very speculative play on a biotech with just a $200mm market capitalization. The shares sell for less than $2 a share. Only two analysts cover this biotech. One has a price target of $3 a share on CTIC and the other is at $4 a share. The consensus (limited subset that it is) has sales more than quadrupling to ~$30mm in FY2014. The company also has some $20mm of net cash on the books.

Speculative investors should be aware that this company has had "potential" for over two decades and has delivered little. Much of its future will depend on its ability to find a development and marketing partner for pacritinib, an experimental myelofibrosis drug is critical to the future of the company and the stock. It is also why this is a position for only very aggressive speculative investors at this time. I am willing a take a little flyer here due mainly to my huge scores in other biotech plays this year that were deemed very speculative as well at the time.

Source: 2 Speculative Biotechs For The 'Shotgun Investor'