Investing in biotech stocks can be hazardous to your financial health, or in the alternate they may provide a miracle cure to the FMV of your portfolio. Our thought has always been to research the group, “cherry pick” your favorites and then buy a basket of them. The rationale for the purchase of the basket is to provide some diversification of the risks inherent in biotech.
The nature of the beast is that many drug candidates that appear to be safe and/or have efficacy will prove not to be during the more rigorous Phase III testing. Additionally, when attempting to reconcile some FDA panel recommendation with actual FDA approval/disapproval one must conclude that approval process is not immune from the influence of politics.
We have compiled a list of twelve depressed biotechs that we have dubbed ‘The Dirty Dozen’. Each of the dirty dozen have great potential, assuming of course that they can get their drug candidates approved and then win a place in the market (or sell out to big pharma).
Here are the profiles of the first four of the ‘Dirty Dozen’:
Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA)
Ariad is a biopharmaceutical company that focuses on the discovery, development and commercialization of small molecule drugs for cancer treatment. The company has a market cap of $1.34 billion and trades close to 4 million shares per day.
Ariad has a global partnership with Merk & Co, Inc. (NYSE:MRK) to develop and commercialize ridaforolimus which is Ariad’s lead cancer product candidate, which is presently in Phase 3 clinical development pursuant to an FDA granted Special Protocol Assessment. Ariad has already received $125 million in upfront payments from Merck and if ridaforolimus is approved Merck will fund commercialization. Potential approval could come in the first half of 2012 here in the US and in the second half of 2012 for the EU. We like the Merck connection.
The stock is down from a 52 week high of $13.50 (and an all-time high of around 18 back in 2000) and should have good news flow ahead with their Phase 3 results and subsequent planned FDA filing. Additionally, coverage on Ariad was recently initiated with an “outperform” rating by BMO Capital.
Cardiome Pharma Corp. (NASDAQ:CRME)
Cardiome is a biopharmaceutical company that focuses on the development and commercialization of novel treatments for disorders of the heart and circulatory system. The company has a market cap of $223 million and trades approximately 250,000 shares per day. Merck recently bought the North American rights for the commercialization of vernakalant (IV) and now holds the global rights to the intraveneous (IV) formulation of vernakalant. Verbakalant (IV) is currently marketed in the European Union under the trade name BRINAVESS. The rollout in Europe is in the initial stages but the early feedback is positive. At midyear the company had $61.3 million in cash.
The stock is down from the 52 week high of $7.10. Cardiome was recently initiated as an “outperform” by BMO Capital, and Oppenheimer just issued a $12 price target.
Halozyme Therapeutics, Inc. (NASDAQ:HALO)
Halozyme is a biopharmaceutical company that engages in the development and commercialization of recombinant human enzymes. The company has a market cap of $686 million and trades 500,000 shares per day. HALO has one approved product (Hylenex) and their analog insulin product is in Phase 2. They entered the year with $83 million in cash and their net burn guidance for 2011 is $30-35 million. Royalties from the planned introduction of partnered products in 2012-2014 should lead to positive cash flow. They have partner/collaboration deals with Roche, Baxter (NYSE:BAX) and ViroPharma (VPHM). The stock is down from its 52 week high of $8.31 and was recently initiated by BMO Capital with an “outperform” rating.
Human Genome Sciences, Inc. (HGSI)
Human Genome has developed into a biopharmaceutical company. Its principal products in development are the approved BENLYSTA (for lupus) and raxibacumab for inhalation anthrax. The company has a market cap of $2.59 billion and the stock is very liquid trading over 3.7 million shares per day. BENLYSTA was the first new FDA approved drug for lupus in over 50 years and is partnered with GlaxoSmithKline (NYSE:GSK). It was launched in the US in March and in Canada in August. European approval is expected soon and regulatory applications have been submitted in Australia, Russia, Brazil and the Philippines.
The company is working closely with the FDA to respond to the Complete Response Letter and obtain approval of raxibacumab for the treatment of inhalation anthrax. In the meantime the company has already achieved first product sales by delivering 41,000 doses of raxibacumab to the US Strategic National Stockpile for emergency use with another 15,000 doses still to be shipped.
The stock is down from its 52 week high of $30.45 because although BENLYSTA is still expected to be a worldwide blockbuster the ramp up is not happening as quickly as expected. Investors should know that the company was just initiated by BMO Capital with an “outperform” and that rumors constantly circulate that the company is takeover bait.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.