For many investors, biotech can seem too risky of a bet. But what if the company is backed with strong cash reserves? We contend that cash is key for picking smart biotech companies, since it's cash that can fuel innovative research and development, smart acquisitions or mergers, and long term capital investments, all of which could make a stock a winner over time. We are focusing on biotechnology stocks that have strong cash reserves built up, and that industry analysts have rated favorably in recent months. We came up with a motley list of companies, but we're certain they merit more research and analysis.
The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.
The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the Current Ratio because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).
We first looked for biotechnology stocks. We then looked for companies that analysts rate as "Strong Buy" (mean recommendation < 2). We next screened for businesses with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We did not screen out any market caps.
Do you think these stocks hold solid value? Use this list as a starting-off point for your own analysis.
1) ShangPharma Corporation (SHP)
ShangPharma Corporation has a Analysts' Rating of 1.30, a Current Ratio of 2.86, and a Quick Ratio of 2.74. The short interest was 0.03% as of 07/11/2012. ShangPharma Corporation, through its subsidiaries, operates as a pharmaceutical and biotechnology research and development outsourcing company. It offers various integrated services across the drug discovery and development process to international and Chinese pharmaceutical and biotechnology companies, and academic and research institutions. The company's services include discovery chemistry, discovery biology and preclinical development, pharmaceutical development, and biologics services.
2) Cornerstone Therapeutics Inc. (CRTX)
Cornerstone Therapeutics Inc. has a Analysts' Rating of 1.50, a Current Ratio of 2.65, and a Quick Ratio of 2.42. The short interest was 3.13% as of 07/11/2012. Cornerstone Therapeutics Inc., a specialty pharmaceutical company, engages in the acquisition, development, and commercialization of prescription pharmaceutical drugs for the hospital, niche respiratory, and related specialty markets. The company offers CUROSURF, a natural lung surfactant used for the treatment of respiratory distress syndrome in premature infants; and ZYFLO CR and ZYFLO, which are leukotriene synthesis inhibitor drugs used for the prevention and chronic treatment of asthma in adults and children. The company's product pipeline also includes CRTX 080, a vasopressin receptor 2 antagonist lixivaptan used for the treatment of hyponatremia; CRTX 073, an anti-asthma product candidate used for the treatment of asthma; and CRTX 067, a cough/cold product candidate for the treatment of cough and cold.
3) Repligen Corporation (RGEN)
Repligen Corporation has a Analysts' Rating of 1.00, a Current Ratio of 5.77, and a Quick Ratio of 4.20. The short interest was 1.56% as of 07/11/2012. Repligen Corporation engages in the manufacture and supply of biologic products used to manufacture biologic drugs. The company offers commercial bioprocessing products based on protein A and IFG-1 growth factors; and pre-packed chromatography columns under the Opus brand, which are used in the production of monoclonal antibodies and other biopharmaceutical products. It also develops SecreFlo, a synthetic human hormone that has completed a Phase III clinical trial and is to be used in combination with magnetic resonance imaging to improve the detection of pancreatic abnormalities in patients with pancreatitis; RG3039, which is in Phase I study for the treatment of patients with spinal muscular atrophy; and RG2833, a class I histone deacetylase inhibitor that is in Phase I study for the treatment of patients with Friedreich's ataxia.
4) Optimer Pharmaceuticals, Inc. (OPTR)
Optimer Pharmaceuticals, Inc. has a Analysts' Rating of 1.30, a Current Ratio of 3.87, and a Quick Ratio of 3.70. The short interest was 24.77% as of 07/11/2012. Optimer Pharmaceuticals, Inc., a biopharmaceutical company, focuses on development and commercialization of pharmaceutical products. It offers fidaxomicin tablets, an antibacterial drug for the treatment of adult patients with Clostridium difficile-associated diarrhea (CDAD). The company sells its fidaxomicin products through wholesalers to hospitals, retail, and specialty pharmacies in the United States.
5) Immunomedics Inc. (IMMU)
Immunomedics Inc. has a Analysts' Rating of 1.20, a Current Ratio of 7.66, and a Quick Ratio of 7.57. The short interest was 14.58% as of 07/11/2012. Immunomedics, Inc., a biopharmaceutical company, engages in the research, development, manufacture, and marketing of monoclonal, antibody-based products for the treatment of cancer, autoimmune, and other serious diseases in the United States and Europe. The company's products include epratuzumab, a Phase III clinical trail product for the treatment of systemic lupus erythematosus and non-Hodgkin's lymphoma; Veltuzumab, a Phase I/II clinical study completed product for the treatment of patients with non-Hodgkin's lymphoma, immune thrombocytopenic purpura, and chronic lymphocytic leukemia; Yttrium Y 90 Clivatuzumab tetraxetan, a humanized monoclonal antibody for pancreatic cancer that is in Phase Ib/II clinical trail; and Yttrium Y 90 epratuzumab tetraxetan, a Phase I/II clinical study product for patients with non-Hodgkin's lymphoma. Its early phase clinical trial products comprise Milatuzumab, a transmembrane protein product for antibody-drug conjugate therapy.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.