For some, the combination of biotechnology and small cap stocks sounds like a recipe for capturing the greatest growth potential. For others, it appears to be a big gamble. To find the companies in this category that are truly worthy of investigation, we focused on those that have a large cash reserve. If used wisely, this cash can fund further innovation and growth to guide the company to the next level. We further narrowed our search to stocks with recent analyst ratings of 'Buy' or 'Strong Buy'. Take a look at the list below and make your own assessment.
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 small cap biotechnology stocks. We then screened for businesses with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We then screened for businesses that analysts rate as "Buy" or "Strong Buy" (mean recommendation < 3).
Do you think these small-cap stocks are worth more than the market currently says? Use our screened list as a starting point for your own analysis.
1) QLT Inc. (QLTI)
QLT Inc. has a Current Ratio of 21.52, a Quick Ratio of 21.21, and a Analysts' Rating of 2.50. The short interest was 1.83% as of 08/02/2012. QLT Inc., a biotechnology company, engages in the development and commercialization of ocular products that address the unmet medical needs of patients and clinicians. It offers Visudyne that utilizes light-activated photodynamic therapy to treat the eye disease known as wet age related macular degeneration. Visudyne is also used for the treatment of subfoveal choroidal neovascularization secondary to pathologic myopia, severe near-sightedness, and presumed ocular histoplasmosis.
2) Immunogen Inc. (IMGN)
Immunogen Inc. has a Current Ratio of 12.29, a Quick Ratio of 12.22, and a Analysts' Rating of 1.90. The short interest was 10.31% as of 08/02/2012. ImmunoGen, Inc. engages in the research and development of targeted therapeutics for the treatment of cancer using cancer biology, monoclonal antibodies, and highly potent cell-killing agents. The company develops its products using its Targeted Antibody Payload (TAP) technology. Its product candidates include Trastuzumab emtansine (T-DM1), a Phase III clinical trial product for HER2+ breast cancer; lorvotuzumab mertansine (IMGN901), a Phase I clinical trial product, which targets CD56 found on small-cell lung cancer, Merkel cell carcinoma, multiple myeloma, ovarian cancers, carcinoid tumors, and other cancers of neuroendocrine origin; IMGN529, a pre-investigational new drug stage drug for CD37+ B-cell malignancies, such as non-Hodgkin's lymphoma; and IMGN853, a preclinical stage product for cancers that overexpress folate receptor 1, including ovarian cancer.
3) VIVUS Inc. (VVUS)
VIVUS Inc. has a Current Ratio of 25.92, a Quick Ratio of 25.70, and a Analysts' Rating of 2.30. The short interest was 15.32% as of 08/02/2012. VIVUS, Inc., a biopharmaceutical company, is developing therapies to address obesity, sleep apnea, diabetes, and male sexual health. Its lead investigational product, Qnexa, has completed Phase 3 clinical trials for the treatment of obesity. Qnexa is also in Phase 2 clinical development for the treatment of type 2 diabetes and obstructive sleep apnea.
4) Acorda Therapeutics, Inc. (ACOR)
Acorda Therapeutics, Inc. has a Current Ratio of 4.24, a Quick Ratio of 3.89, and a Analysts' Rating of 2.30. The short interest was 7.12% as of 08/02/2012. Acorda Therapeutics, Inc., a commercial-stage biopharmaceutical company, engages in the identification, development, and commercialization of novel therapies for multiple sclerosis (MS), spinal cord injury (SCI), and other central nervous system disorders primarily in the United States. Its marketed products include Ampyra (dalfampridine), a potassium channel blocker for improving walking in patients with MS; and Zanaflex Capsules and Zanaflex tablets (tizanidine hydrochloride), a short-acting drug for the management of spasticity. The company also markets products for the improvement of walking in adult patients with MS with walking disability under the Fampyra name internationally.
5) ViroPharma Inc. (VPHM)
ViroPharma Inc. has a Current Ratio of 6.12, a Quick Ratio of 5.57, and a Analysts' Rating of 2.50. The short interest was 14.19% as of 08/02/2012. ViroPharma Incorporated, a biotechnology company, develops and commercializes therapeutic products that address serious diseases in the United States and internationally. It focuses on developing products used by physician specialists or in hospital settings. The company markets and sells Cinryze, a C1 esterase inhibitor therapy for the routine prophylaxis against angioedema attacks in adolescent and adult patients with hereditary angioedema, a life-threatening genetic disorder; and Vancocin HCl capsule, an oral capsule formulation for the treatment of C. difficile-associated diarrhea (CDAD) and to treat enterocolitis caused by staphylococcus aureus, including methicillin-resistant strains.
6) Cadence Pharmaceuticals Inc. (CADX)
Cadence Pharmaceuticals Inc. has a Current Ratio of 5.48, a Quick Ratio of 5.36, and a Analysts' Rating of 2.20. The short interest was 7.64% as of 08/02/2012. Cadence Pharmaceuticals, Inc., a biopharmaceutical company, focuses on acquiring, in-licensing, developing, and commercializing proprietary product candidates principally for use in the hospital setting in the United States and Canada. It holds rights to OFIRMEV injection, a proprietary intravenous formulation of acetaminophen for the management of pain and reduction of fever in adults and children. The company in-licenses rights to OFIRMEV from Bristol-Myers Squibb Company, which sells intravenous acetaminophen in Europe and other markets for the treatment of acute pain and fever under the Perfalgan brand name.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.