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Biotech stocks are a long-time favorite of investors, especially during bear markets, due to their catalytic nature which tends to be resistant to the vagaries of the macro-economic climate. With this in mind, we have been tracking a number of biotech companies with the potential for positive FDA decisions in the coming weeks and months. Should any of these companies receive FDA approval, their stocks should see substantial moves to the upside. Here are a few of our most compelling ideas in the biotech space:

Affymax Inc. (OTCPK:AFFY)

Affymax Inc. engages in the development of drugs for the treatment of serious and life-threatening conditions. Affymax’ leading drug candidate is Hematide, which is in Phase 3 clinical trials for the treatment of anemia associated with chronic renal failure. We expect positive data to be reported from all four Phase 3 trials of Hematide in CKD-induced anemia in early June. If the data reflects the non-inferiority of Hematide to the current erythropoiesis-stimulating agents (ESA), as well as a comparable safety profile, an NDA submission should occur in 4Q10 and an FDA approval in late 2011. The current ESA market for dialysis and pre-dialysis is valued at $3.8B in the U.S. alone.

According to the FDA, ESAs work by stimulating the bone marrow to produce red blood cells. ESAs are currently approved for the treatment of anemia (low red blood cells) resulting from chronic kidney failure, chemotherapy, and certain HIV treatments. ESAs are also employed to reduce the number of blood transfusions during and after certain major surgeries.

We believe visibility into Hematide’s efficacy read-out remains high but must acknowledge that safety data will have a slim margin of error given the well-publicized safety concerns (stroke, malignancy) for existing ESA agents. One of the unique characteristics of Hematide is it may be able to bypass some of the non-erythroid responses thought to be potentially responsible for some of the higher risk-adjusted mortality observed with other ESAs such as Amgen’s (NASDAQ:AMGN) drug, Aranesp.

AspenBio Pharma Inc. (NASDAQ:APPY)

AspenBio Pharma Inc. is a bio-pharmaceutical company focused on blood-based human diagnostic tests for evaluating acute appendicitis as well as drugs used in animal and livestock reproduction. AspenBio’s lead product, AppyScore, is intended for use in hospital emergency room settings, allowing doctors to more accurately diagnose patients suspected of having acute appendicitis. It is currently estimated that 1 in 8 appendicitis procedures are misdiagnosed in the ER, costing insurance companies millions of dollars in unnecessary surgeries and MRI scans. If AppyScore is approved, the potential savings for insurance companies would be enormous.

Within the next two to three weeks, we expect AspenBio to report summary data from its 800- patient multicenter study for AppyScore. If successful, AppyScore would address a US market opportunity estimated greater than $400M annually.

Analysts believe negative predictive value (NPV) is the key metric to watch in the multicenter study. General consensus is a rule-out test with NPV greater than 85% would be useful in the emergency room, with unanimous agreement that 90% or better would be a “home run”. If AppyScore’s NPV is greater than 85% expect AspenBio to file a 510(k) by early July with subsequent FDA clearance by Q4/10.

Ardea Biosciences, Inc. (NASDAQ:RDEA)

Ardea Biosciences, Inc. focuses on the discovery and development of small-molecule therapeutics for the treatment of cancer, gout and HIV. The company’s main products are RDEA594, a Phase 2b clinical trial product for the treatment of gout; RDEA684, a preclinical trial product for the treatment of gout with hyperuricemia; RDEA427, the first-in-human micro-dose pharmacokinetic study for the treatment of HIV infection; and RDEA806, a non-nucleoside reverse transcriptase inhibitor, which completed Phase II clinical trial for the treatment of patients with HIV.

The most important product for Ardea Biosciences in the near future is the RDEA594 gout program. The company recently announced it will present additional data from its completed Phase 2a/b monotherapy studies at the Annual European Congress of Rheumatology (AECR), to be held in Rome, Italy on June 18th. Ardea will also include additional data from its Phase 2a combination study of RDEA594 with allopurinol. In its recent Q1 earnings report, the company announced that due to “excellent tolerability and activity” of the 600 mg dose of RDEA594 in the monotherapy study, they are now adding this dose to the combination study with allopurinol. Positive developments from the AECR could create a major catalyst to Ardea’s stock price as well as when the company announces the complete results from the combination trial in the third quarter of 2010.

Additionally, Ardea will also release further data from a separate study of RDEA594 in patients with renal impairment in second quarter of 2010. According to the analyst at Jefferies, the results of this trial will help provide a basis for the Phase 3 development meetings with the U.S. and EU regulatory agencies and potentially facilitate a partnership in the latter half of the year. Senior analyst at Brean Murray, Dr. Jonathan Aschoff, Ph.D. expects “positive Phase 2b data to beget acquisition of the company.” Of final note, on April 6th, two separate Ardea directors purchased 500k shares at an average price of $20. Since these purchases, approximately 36k shares have been sold by various insiders. Such action also bodes well for the stock performance.

Questcor Pharmaceuticals, Inc. (QCOR)

Questcor Pharmaceuticals, Inc. provides prescription drugs for central nervous system and inflammatory disorders. Questcor’s primary drug is H.P. Acthar Gel, an injectable drug that is approved for the treatment of certain disorders with an inflammatory component, which include treatment of exacerbations associated with multiple sclerosis, infantile spasms, opsoclonus myoclonus syndrome and nephrotic syndrome.

Acthar was initially used to treat nephrotic syndrome in 1952, when the drug received its FDA approval. Nephrotic syndrome is a disorder in which the kidneys are damaged, causing them to leak large amounts of protein from the blood into the urine. Acthar was specifically used in childhood nephrosis, which may have been caused by minimal disease in many cases. In treating childhood nephrosis, Acthar was utilized rather than steroids, since its effects do not suppress children’s adrenal glands, thus potentially stunting their growth.

On May 10th the FDA voted to approve the use of Acthar gel on infants by a vote of 22 to 1. The PDUFA date is scheduled for June 11, 2010. Analysts estimate Acthar sales will increase from $16M in 2010 to $45M by 2015 and a market potential of $500M.

Disclosure: No position in any of these.

Source: 4 Small Cap Biotechs to Keep an Eye On