Two Small Biotech Stocks With Big Potential

Following a note in a recent edition of BusinessWeek, I decided to check out the prospects on Clinical Data (CLDA). The stock is up 175% in the past year. For a small Biotech, this actually isn't any more abnormal than a 90% decline year over year. However, there were some notable characteristics that drew my attention to the prospects of continued gains here:

• This is an RJ Kirk stock. He's a billionaire investor who owns 40% of the shares of CLDA. If anyone recalls the Shire buyout of New River Pharma for $2.6 billion in February, this was another one of Kirk's inventions...He was the founder and chairman.
• Kirk also co-founded General Injectables and Vaccines, which was purchased by Schein in 1998.
• Kirk has obviously shown a penchant for pursuing the right deals and having his companies taken out for premiums following their already impressive ascent.
• CLDA has an antidepressant in Phase 3, which is not nearly as risky as the earlier stages and with a 40% stake from a veteran biotech investor/founder, there's probably a high likelihood of success of commercialization.
• Given the relatively weak pipelines of big pharma/biotech these days, these deals are being done daily. I'm seeing companies taken out based on Pre-clinical through Phase 2, so a strong Phase 3 compound in a popular therapeutic category could bring a hefty premium.

Another RJ Kirk investment is HALOZYME THERAPEUTIC (HALO). During the same 1 year period, HALO is up 232%. HALO's Enhanze Technology is a different version of its Hylenex drug, which breaks down the matrix outside cells, creating channels for the large drug molecules to enter. This is another platform that many large players would like to get their hands on (and the exclusivity that comes with an acquisition).

Not only is this the age of Biotech, but now is the time for Biotech seasonality, as I showed based on several years of past data in this post.

Here is a 1 year chart of these two Kirk companies (click to enlarge):

Disclosure: The author has no position in either stock mentioned in this article.