"Perpetual optimism is a force multiplier." - Colin Powell
Investing in biotech is different than investing in other sectors. How drugs & compounds end up doing in actual trials is next to impossible to predict consistently. Some hedge funds employ PhDs in biochemistry but still get it wrong as much as they get it right.
The space 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 call this "Shotgun Investing".
When you do get a biotech investment right, the impacts can be huge on portfolio performance as anyone holding Intermune (NASDAQ:ITMN) prior to yesterday can attest to. The stock rose 170% Tuesday after the company announced positive Phase III trial results on its main compound.
Those kinds of results more than compensate for the occasional biotech 'landmine' in your portfolio - and these will happen. Today, I want to follow up a couple of my recent selections that have been on the move since I last profiled them. Both coincidentally go for right around $7 a share.
Synta Pharmaceuticals Corp (SNTA) is a small (less than $400mm market capitalization) biotech concern primarily focusing on developing its lead cancer drug "ganetespib" as a treatment for non-small-cell lung cancer, breast cancer and colorectal cancer.
This biotech play is up ~40% since I last profiled it a few weeks ago. I bought the shares and put together an article on Synta after noticing the substantial insider buying in the stock. I have found insider buying has a greater correlation to future stock rises in the biotech sector than any other. This makes sense due to the complexity of the compounds being tested as well as the approval process. Insider & industry knowledge makes insiders more prescient than investors & analysts in my opinion.
The stock has been buoyed since that article by the company announcing it has demonstrated "proof of principle" for its Hsp90-Inhibitor Drug Conjugate (HDC) platform in several pre-clinical cancer models. The platform delivered "the complete or near complete regression of tumors in non-small cell lung cancer, small-cell lung cancer, breast cancer, pancreatic cancer, colon cancer, and skin cancer. "
Even with the stock's recent rise, SNTA is less than half of the $16.50 a share median price target held by the six analysts that cover the shares have on it. The company has $30mm in net cash on the balance sheet and has less than a $500mm market capitalization. Synta could make a good bite sized acquisition for a larger player looking to fill their product pipeline.
Regado Biosciences (RGDO) is a biopharmaceutical company focused on the discovery and development of novel, first-in-class, actively controllable antithrombotic drug systems for acute and sub-acute cardiovascular indications. The company's lead product candidate, REG1, is an actively controllable anticoagulant targeting coagulation Factor IXa for use in patients with a wide variety of acute coronary syndromes.
Regado was another selection that came to my attention just over a week ago because of major purchases by beneficial owners and insiders. The stock is up more than a whopping 25% since then and goes for just over $7.50 a share.
However, even after the stock's recent rise, the shares go for substantially below the $14 to $16 range the company originally wanted to come public at last summer. The company has ~$40mm (~25% of market capitalization) of net cash on the books and also offers a bite sized acquisition (less than $170mm market capitalization) for a more significant player. RGDO sells significantly below the median price target on it of $12 a share by the five analysts that cover it.
Disclosure: I am long RGDO, SNTA. 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.