Many growth investors who have an increased appetite for risk are attracted to the enormous potential biopharma companies bring to the table. The world of biopharma companies is filled with exponential risk that could essentially equate into exponential rewards. The two stocks in focus certainly bring a lot of promise to the table, but there is certainly an implied risk when examining some of the drugs in their pipelines. The secondary variable to consider in the case of both companies is the fact they carry very low total debt to total cash ratios.
ChemoCentryx, Inc. (NASDAQ:CCXI) - trades in a 52-week range of $9.87 (52-week low) and $17.73 (52-week high), closed trading at $14.49/share on Tuesday. There are several reasons as to why I'm attracted to CCXI at current levels, but the driving force behind my attraction is the company's current pipeline which includes CCX354. The company recently announced positive peer review data with regard to the Phase II clinical trials of CCX354 when applied to patients with Rheumatoid Arthritis. "CCX354 has been shown to be a potent and selective antagonist of CCR1, a chemokine receptor that drives the recruitment of certain inflammatory cells including populations of monocytes, macrophages and T cells into the joints of patients with RA. By selectively blocking the CCR1 receptor, CCX354 is designed to reduce the infiltration of inflammatory cells into the joints of RA patients, thus inhibiting the inflammation, swelling, pain and associated joint destruction while minimizing the potential for off-target effects."
From a financial perspective CCXI carries two positive catalysts. First the company has a very low total debt to total cash ratio. The company currently has $1.3 million in total debt and $119.49 million in total cash which equates to a total debt to total cash ratio of 0.0108 which is excellent.
Cempra, Inc. (NASDAQ:CEMP) - trades in a 52-week range of $6.00 (52-week low) and $9.56 (52-week high), closed trading at $7.91/share on Tuesday. In my opinion, there are two positive catalysts that make CEMP attractive. First is the company's pipeline which consists of the drug Taksta which is participating in clinical trials here in the US. According to Cempra's website, "TAKSTA could be ideal for patients seen in emergency departments with severe skin and skin structure infections who are candidates for oral therapy. Hospital or long-term care patients who are IV intolerant, at high MRSA risk or require transition to oral therapy are also candidates for TAKSTA."
The second catalyst is the company's total debt to total cash ratio. CEMP currently has $9.59 million in total debt and $65.91 million in total cash on its books. That equates to a total debt to total cash ratio of 0.1455 which pretty good in my opinion.
In my opinion I think both CCXI and CEMP are good growth plays that have potential based on their current pipelines. From an investment standpoint I keep a close eye on both companies' current debt. Secondary offerings have the ability to occur when cash is exhausted especially in the mid-research stages of clinical trials. EPS announcements are also going to be a key variable potential investors should consider. CEMP's first quarter was very impressive surpassing estimates by 39.50% and CCXI's first quarter was a bit shaky missing estimates by -33.30%. A cautious approach should be applied to both stocks and only small positions should be initiated at current levels.