Hitting The Jackpot With Small Cap Bio Pharma Investment, Part 1

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 |  Includes: ARNA, ATRS, IBIO, VVUS
by: StockMatusow

Yesterday, investors who placed their bets on Arena Pharma (NASDAQ:ARNA) receiving a favorable recommendation from an FDA advisory committee on lorcaserin hit the small cap bio pharma jackpot. Shares have basically doubled overnight, and more than tripled from when I wrote an article about 10 days ago calling for the Arena stock to make a move over $2.50 when it was trading at $2.06, then calling for a move to $3.00 last week.

I missed last week's $3 dollar call on over all market weakness, but got it this week and then some, with Arena shares closing at $3.60, before making the huge move on the advisory committees positive vote. Lorcaserin should receive approval from the FDA next month and actually beat Vivus's (NASDAQ:VVUS) weight loss drug Qnexa to the punch and become the first FDA approved weight loss drug since 1999.

Vivus investors know what it is like to hit the small cap bio pharma jackpot as Arena investors just did. Vivus's Qnexa was recommended by an advisory committee vote of 20-2 in February of this year (but will not be up for approval until after lorcaserin). Upon this news, the stock also basically doubled like Arena's, with a closing stock price before the news on Feb 21, 2012 of $10.55, and an opening price 2 days later (stock was halted from trading for one day) of $20.70 a share, basically another double.

This is what I love about the small cap bio pharma sector of the stock market; one drug approval and/or favorable recommendation from an advisory committee, and a small cap stock can double and sometimes quadruple over night, often times creating instant millionaires. However, there is tremendous risk of investors basically losing everything they have as well if a review and/or flat out rejection goes against them.

So which stocks do I think will provide the best chance for small cap investors to hit the jackpot? In part one of my two part article, I will list 2 I think that will reward small cap investors the big jackpot.

Antares Pharma (AIS) 5/10/12 pps: $3.13.

Antares engages in the development and marketing of self-injection pharmaceutical products and technologies, and topical gel-based products. It offers Vision/Tjet reusable needle-free injectors that deliver precise medication doses through high-speed pressurized liquid penetration of the skin without a needle; Vibex disposable pressure assisted auto injector devices that are used for the controlled pressure delivery of drugs into the body utilizing a spring power source; disposable pen injection systems, which are needle-based devices designed to deliver multiple drugs by injection through needles from multi-dose drug cartridges.

I find Antares to be the least riskiest on my list here, but likely has the largest time frame in order for a long term jackpot for patient investors willing to wait to hit the big one.

If we value Antares on what the company earns now, the stock would appear to be over valued. Antares will likely bring in around $30 million dollars in revenue this year. These revenues will primarily come from royalty deals the company has made in the last few years with larger pharmas.

If you are looking for an instant jackpot with Antares, the stock is likely not for you, barring a buy out which I think could happen in the next year by Pfizer (NYSE:PFE). With Antares, my focus is on top line growth and future revenue. The royalty deals help immensely with this by investing this money back into these top line products. Let's take a look at 2 of these top line products that I think will eventually bring the Antares stock price north of $50 a share by 2017.

VIBEX MTX:

The VIBEX MTX system employs a proprietary coil-spring power source to rapidly deliver the prescribed medication. This spring is combined with a tiny hidden needle in a disposable, single-use injection system compatible with conventional syringes. After use, the device can be disposed of without the typical "sharps" disposal concerns. Antares and its development partners have successfully tested the device in patient preference and clinical bioavailability studies. Antares continues to explore product extensions including multiple dose and variable dose applications as well as integrated reconstitution systems for lyophilized drugs.

VIBEX MTX is expected to come to market by 2014 (possibly earlier). MTX is short for Methotrexate, which is a treatment for Rheumatoid Arthritis and several other autoimmune diseases.

Antares intends to price VIBEX MTX competitively and obtain very strong margins while locking in a range of 14-15% or higher of the U.S. methotrexate market. Therefore, in collaboration with a fellow Antares investor, our Vibex MTX U.S. market earnings formula is as follows:

  • 2 million patients in U.S.+
  • 10-15% market share +
  • $50 -$100 per injection +
  • 52 weeks +
  • 52% margin +
  • May 2014 commercial launch (possibly earlier).

Our equation produced the following high/low MTX earnings projections for 2014 and 2015:

2014 - $203M-$406M ($1.70- $3.40 eps)/$135M-$270M ($1.13- $2.26 eps)
2015 - $405M-$810M ($3.24-$6.48 eps)/$270M -$540M ($2.16-$4.32 eps)

We are assuming 120M shares outstanding in 2014 and 125M in 2015, the increase in shares based solely on share-based compensation. In my opinion, Antares should not need to conduct any significant additional share dilution based on its current cash position and estimated profitability in 2H 2012.

Does Antares look over valued now after running these numbers? The question for investors looking at Antares for investment now is whether or not they are willing to buy and hold for a substantial amount of time to get the big jackpot.

Antares just recently announced in its latest earnings call that it's next VIBEX product, VIBEX QS (quick shot) will be a testosterone self injector. I project that this testosterone injector will see more revenue of VIBEX MTX, considering the male testosterone market is well over $1.5B and growing rapidly. Self injected drugs are more potent at lesser doses, carry little to no side effects because they are not absorbed in the stomach, and mainly by-pass liver absorption. Standard needles just do not cut it for most people, so this type of technology is sorely needed.

These self injectors take 75% less the time to inject than standard needles, carry little to no pain, and most of all, eliminate the 'fear of needles' factor that deter people from currently self injecting at home. Another potentially huge monetary factor to consider is the Obama administration directing officials within the administration to issue reports as to why there is a shortage of self injectable drugs on the market.

Does Antares still look over valued when considering these factors? Antares is a real investment for the future in my strongest opinion, and should be a part of every wise investors growth portfolio.

I encourage smart and patient investors, along with fund managers and other various investment groups to do serious due diligence on Antares. Antares should be the number one pick in its sector for growth based mutual funds in my strong opinion.

It is my opinion that Antares is the best long term small cap opportunity in the entire market, and a large jackpot awaits those investors patient enough to wait for it; good things often times come to those who wait, as we have so often heard before, right? By 2017 it is possible, if not likely that Antares will see earnings around $10 EPS on revenues over $1 billion. Using a most bearish multiple of 5x, this equates to $50 a share.

iBIO (NYSEMKT:IBIO) 5/10.12 pps: $1.46

IBIO engages in the development and commercialization of vaccines and therapeutic proteins through its proprietary technology, the iBioLaunch platform. Its product portfolio consists of seasonal and H1N1 influenza vaccines for the seasonal influenza virus strains; pandemic avian influenza vaccine for the pathogenic avian influenza viruses; and therapeutic vaccines for human papilloma virus.

The company also offers oral anthrax booster vaccine candidates and candidate plague vaccines. In addition, it provides therapeutic protein product candidates, including human alpha-galactosidase A for the treatment of Fabry disease; human C-1 esterase inhibitor for the treatment of hereditary angioedema; and human alpha-1 antitrypsin for treatment of disorders caused by a deficiency of alpha-1 antitrypsin.

The iBioLaunch platform uses transient gene expression in plants for superior efficiency in protein production. Advantages include significantly lower capital (more than a 90% reduction) and process costs (more than a 90% reduction), and the technology is designed for infectious disease applications or proteins where speed, scalability, and surge capacity are important.

iBioLaunch in part is designed to make influenza vaccines better by eliminating conventional animal cell production techniques. Current Swine flu (H1N1) vaccine shots are made up of all kinds of animal pathogens. Many people become ill just from receiving animal pathogen based vaccines, as it is common place for these conventional vaccines to actually cause their own illnesses. iBio's process would greatly reduce, or eliminate these side-effects all together.

Jackpot factor: Basically, IBIO has a platform that can address an serious pandemic and/or epidemic outbreak of a serious disease in the fraction of the time that the current technology provides. IBIO can address new strains of influenza with a vaccine in as little as 5 weeks, possibly faster. Not only is this hugely important for the safety and well being of society, it's also a potential huge money maker. IBIO makes this list because an approval of Ibiolaunch should cause the stock price to spike north of $6 a share, In my opinion, IBIO is well worth the risk considering its current attractive price of near $1.50 a share.

Next week I will be releasing part 2 of this article with at least 2 more small cap bio pharmas for investors to consider.

Disclosure: I am long AIS.