2 Small Cap Biotech Stocks to Watch

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Includes: CRIS, DCTH
by: Wealth Daily

By Adam Sharp

Once again, biotechnology stocks are all the rage. A huge expansion of the NIH's budget — along with widespread medical advances — has put biotech back in the forefront.

It's easy to get broad exposure to this booming sector through ETFs or large-cap names like Genzyme (GENZ). But personally, I prefer the homerun potential that only small-cap biotech stocks can offer. Here are 2 smallcap stocks I've been following for a while.

1) Delcath Systems (NASDAQ: DCTH)

Delcath, like most development-stage drug firms, is volatile. It's currently trading near its all-time high, after shooting up 85% in the last three months alone.

The company has a promising method for treating liver cancer, one of the deadliest and hardest to treat. Essentially, their system seals the liver off from the blood stream.

Highly-concentrated chemotherapy drugs are then delivered directly to the diseased organ. Sealing off the liver from the rest of the body allows the delivery of far higher doses than are normally possible. The rest of the patient's body is spared the toxic chemicals.

Here's a diagram from Delcath's site, depicting the catheters and balloons used to seal off the organ and deliver high doses directly to the affected area:

delcath-systems

You can watch a video on how the system works on Delcath's site here.

Delcath's system is currently in Phase III clinical trials for two types of cancer: primary liver cancer and melanoma which has spread to the liver. A lot is riding on those two trials. Data from previous trials is promising, but anything can happen in larger phase III trials. The FDA is often cautious when dealing with new technologies like DCTH's.

After a parabolic move like DCTH has had recently, it's tempting to chase here. But I'd proceed with caution. Remember, nothing goes straight up. If you do jump in, I recommend using a stop-loss order to protect yourself. This stock can easily move 5%-10% a day. Lately those moves have been up, but it could reverse at any time. Stocks like this are not for the faint of heart.

Here are some key stats for Delcath Systems:

  • Market Cap: $371m
  • 52 week range: $2.09 - $10.35
  • Current price: $9.84

2) Curis, Inc. (NASDAQ: CRIS)

Curis has three cancer drug candidates in Phase II trials. They're working in partnership with biotech giant Genentech on these small molecule drugs.

The partnership with Genentech is what first caught my eye. They're arguably the greatest biotech story ever; producing some of the best new cancer drugs of the last 20 years while growing revenue from $400m in 1990 to $12bn in 2009 in the process. They were bought by Roche in 2009. Early investors made a killing.

The fact that Genentech is teaming up with a tiny company like CRIS is reassuring. So even though most of the biology is way over my head, it's good to know that the best in the biz sees potential here. But that fact doesn't guarantee success — not by any means. This is high-risk science and it still has major clinical trials to pass.

The Hedgehog Pathway

The drug candidates Curis is developing aim to disrupt the communication of cancer cells. (Yes, cancer cells communicate with each other. It sounds like a blob-style horror film, but think about it... ) In order to spread, cancer cells have to build highways of blood vessels.

To do that, cancer cells coordinate with each other. CRIS believes their drug candidates may be able to block this communication, which occurs via 'hedgehog pathways' — halting the spread of dangerous cancers. If they're right, the resulting drugs could revolutionize treatment for some forms of cancer. Needless to say, it would also be a positive development for investors.