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Biotechnology is an exploding category for investors. With so many companies to choose from it can be difficult to discern the flash in the pans from those with staying power. We ran a screen of biotech stocks that are showing real promise. The criteria we employed today were solid and strong profits with the added bonus of a recent rating of 'Buy' or 'Strong Buy' from industry analysts. The list below is a great place to start your research.

Return on Assets [ROA] illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue very few can make very large profits with little investment.

The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue

We first looked for biotechnology stocks. We then looked for businesses that analysts rate as "Buy" or "Strong Buy" (mean recommendation < 3). We then looked for businesses with strong profitability (ROA > 10%)(Net Margin [TTM]>10%). We did not screen out any market caps.

Do you think these stocks have strong fundamentals? Use our list to help with your own analysis.

1) BioDelivery Sciences International, Inc. (BDSI)

Sector:Healthcare
Industry:Biotechnology
Market Cap:$142.66M
Beta:1.70

BioDelivery Sciences International, Inc. has a Analysts' Rating of 1.50, a Return on Assets of 13.72%, and a Net Margin of 18.10%. The short interest was 9.04% as of 07/30/2012. BioDelivery Sciences International, Inc., a specialty pharmaceutical company, focuses on developing and commercializing therapeutics in the areas of pain management and oncology supportive care. The company uses its patented BioErodible MucoAdhesive (BEMA) drug delivery technology that consists of a small, bi-layered erodible polymer film for application to the buccal mucosa in the development of its products. Its pain franchise consists of products utilizing the patented BEMA technology, including ONSOLIS, a fentanyl buccal soluble film for the management of pain in opioid tolerant adult patients with cancer; and BEMA Buprenorphine that has completed a Phase III trial for the treatment of moderate to severe chronic pain in a mixed opioid nave and opioid experienced population, as well as BEMA Buprenorphine/Naloxone, which is in development stage for the treatment of opioid dependence.

2) SIGA Technologies, Inc. (SIGA)

Sector:Healthcare
Industry:Biotechnology
Market Cap:$154.92M
Beta:1.38

SIGA Technologies, Inc. has a Analysts' Rating of 2.00, a Return on Assets of 25.51%, and a Net Margin of 113.99%. The short interest was 19.82% as of 07/30/2012. SIGA Technologies, Inc., a pharmaceutical company, engages in the development and commercialization of pharmaceutical solutions for smallpox, Ebola, dengue, Lassa fever, and other dangerous viruses. Its lead product is ST-246, an orally administered antiviral drug that targets orthopoxviruses. The company also has two drug series in the pre-clinical development stage against four serotypes of virus for dengue disease.

3) Obagi Medical Products, Inc. (OMPI)

Sector:Healthcare
Industry:Biotechnology
Market Cap:$287.51M
Beta:1.27

Obagi Medical Products, Inc. has a Analysts' Rating of 2.30, a Return on Assets of 20.81%, and a Net Margin of 13.06%. The short interest was 10.12% as of 07/30/2012. Obagi Medical Products, Inc., a specialty pharmaceutical company, develops, markets, and sells topical aesthetic and therapeutic prescription skin care systems. It offers Obagi Nu-Derm System, including prescription and OTC drugs that are used for the treatment of fine lines, wrinkles, acne, photo damage, hyperpigmentation, melasma, laxity, and skin sallowness; Obagi Condition and Enhance Systems that are used before and after surgical and non-surgical cosmetic procedures; Obagi-C Rx System comprises Vitamin C with 4% hydroquinone system to treat skin conditions resulting from sun damage and the oxidative damage of free radicals; and Professional-C products consisting of Vitamin C serums for the treatment of antioxidant protection, fine lines, wrinkles, and hyperpigmentation. The company also provides ELASTIderm Eye and Dcolletage, which increases the elasticity and skin tone of eyes, face, neckline, and chest; and ELASTILash Eyelash Solution that enhances the appearance of thickness and fullness of eyelashes.

4) Progenics Pharmaceuticals Inc. (PGNX)

Sector:Healthcare
Industry:Biotechnology
Market Cap:$365.69M
Beta:1.41

Progenics Pharmaceuticals Inc. has a Analysts' Rating of 1.70, a Return on Assets of 24.11%, and a Net Margin of 23.89%. The short interest was 4.65% as of 07/30/2012. Progenics Pharmaceuticals, Inc. engages in research and development of biotechnology product candidates in the areas of oncology, virology, supportive care, and gastroenterology worldwide. The company offers RELISTOR (methylnaltrexone bromide), a subcutaneous injection for the treatment of opioid induced constipation (OIC) in patients with advanced illnesses, such as cancer. It is also developing RELISTOR, a subcutaneous injection for the treatment of OIC in patients with non-cancer pain; and RELISTOR-Oral, which has completed Phase III testing for the treatment of OIC in patients with non-cancer pain.

5) Spectrum Pharmaceuticals, Inc. (SPPI)

Sector:Healthcare
Industry:Biotechnology
Market Cap:$913.63M
Beta:1.46

Spectrum Pharmaceuticals, Inc. has a Analysts' Rating of 2.00, a Return on Assets of 31.68%, and a Net Margin of 39.33%. The short interest was 42.02% as of 07/30/2012. Spectrum Pharmaceuticals, Inc., a biotechnology company, engages in acquiring, developing, and commercializing prescription drug products primarily in the areas of hematology and oncology. It offers ZEVALIN, a prescribed form of cancer therapy which combines a source of radiation with an antibody; and FUSILEV for patients with osteosarcoma after high-dose methotrexate therapy, as well as to diminish the toxicity and counteract the effects of impaired methotrexate elimination or inadvertent overdose of folic acid antagonists. The company also develops apaziquone that is under Phase 3 clinical trials for non-muscle invasive bladder cancer; and belinostat, which is under Phase 2 registrational trial for relapsed or refractory peripheral T-cell lymphoma.

6) Momenta Pharmaceuticals Inc. (MNTA)

Sector:Healthcare
Industry:Biotechnology
Market Cap:$761.98M
Beta:1.40

Momenta Pharmaceuticals Inc. has a Analysts' Rating of 2.40, a Return on Assets of 32.10%, and a Net Margin of 51.66%. The short interest was 10.27% as of 07/30/2012. Momenta Pharmaceuticals, Inc., a biotechnology company, specializes in the structural characterization, process engineering, and biologic systems analysis of complex molecules. These complex molecules include polysaccharides, polypeptides, and proteins and antibodies. Its technologies are used to develop a product portfolio of complex generic, follow-on biologic, and novel therapeutics.

7) Exelixis, Inc. (EXEL)

Sector:Healthcare
Industry:Biotechnology
Market Cap:$950.27M
Beta:2.00

Exelixis, Inc. has a Analysts' Rating of 2.20, a Return on Assets of 16.96%, and a Net Margin of 28.30%. The short interest was 17.90% as of 07/30/2012. Exelixis, Inc., a biotechnology company, engages in developing small molecule therapies for the treatment of cancer. Its focuses on developing cabozantinib product candidate that inhibits MET, VEGFR2, and RET proteins, which are key drivers of tumor growth, vascularization, and/or metastasis. The cabozantinib is in Phase III clinical trial for the treatment for medullary thyroid cancer.

*Company profiles were sourced from Finviz. Financial data was sourced from Google Finance and Yahoo Finance.

Source: 7 Profitable Biotech Small Caps With Analyst Backing