Seeking Alpha
Long only, contrarian, special situations, value
Profile| Send Message|
( followers)  

Summary

  • The small cap biotech sector is one of the most volatile in the market and calls for a different investment strategy.
  • Investors should spread their bets by taking much smaller positions in a variety of promising concerns to diversify risk.
  • Below are two speculative but potentially attractive small biotech plays that have been moving up on positive news recently.

Very few sectors of the market can provide the volatility and returns than the small cap biotech/biopharma space. A new drug that gets through the approval process can drive huge gains within one's portfolio. One that fails in phase trials can wipe out most of your investment in that company overnight.

For this reason, I have a different investing strategy for this speculative part of the market. 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.

Cell Therapeutics (NASDAQ:CTIC) 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.

The company has a partnership with Baxter International (NYSE:BAX) to develop pacritinib. The company recently completed patient enrollment for a Phase III trial to test this inhibitor's effectiveness for myelofibrosis. This enrollment completion caused Janney Capital to reiterate its "Buy" rating and a $4 a share price target

The stock is up more than 50% since I last profiled it approximately six months ago. Cell Therapeutics should receive a $20mm milestone payment from Baxter when the last patient in this trial begins dosing which should happen this quarter. The company already has over $35 million in net cash on its balance sheet. A speculative play but a company that has several possible "shots on goal." The median price target by the five analysts that cover the stock is $4.50 a share, about 50% upside from current levels. Price targets range from $4 to $6 a share.

Agenus (NASDAQ:AGEN) is a recent addition to this part of my speculative portfolio. Agenus is a small (~$225 million market capitalization) with myriad compounds in development ranging from advanced programs in late-stage development to our earlier clinical candidates.

The company delivered exciting news earlier this week when it announced its experimental cancer vaccine helped brain tumor patients live nearly twice as long compared with those who received standard of care treatment in Phase II trials. Phase III trials still have to conducted but these are very encouraging early results and could place the company on a bigger player's radar as a possible buyout target as well in my opinion.

The stock has rallied some 15% since this news broke and the shares are trading at ~$3.70 a share which is still significantly below the median price target of $6 a share price target the four analysts that cover the company have on the stock. Price targets range from $5 to $11 a share. Insiders own about a third of outstanding shares and have been very reluctant and rare sellers of shares. The company has over $60 million in net cash on their balance sheet, which is better than one fourth of its total market capitalization.

Source: $4 Or Less: 2 Small Biotechs Moving On News