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Biotech is an innovative sector. Here we see research and application coming together to solve health problems and improve lives. With so many choices to review, it can be overwhelming to know where to start your investigation for potential investments. Today, we focused on small-cap biotech stocks with solid profit margins. Additionally, the companies we included in our list all have been given the 'Buy' stamp from industry analysts. We think you will be inspired by our findings.

The Operating Profit Margin is a profitability ratio that measures the effectiveness of a company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time, this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.

EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock, as it directly correlates to the profitability of the company as a whole.

We first looked for small-cap biotechnology stocks. We then screened for businesses that analysts rate as "Buy" (2 < mean recommendation < 3). We then looked for businesses with strong profit margins (1-year operating margin >15%)(1-year fiscal EPS Growth Rate >10%).

Do you think these small-cap stocks have higher to rise? Please use our list to assist with your own analysis.

1) Spectrum Pharmaceuticals, Inc. (SPPI)

Sector:Healthcare
Industry:Biotechnology
Market Cap:$797.57M
Beta:1.46

Spectrum Pharmaceuticals, Inc. has Analysts' Rating of 2.00, an Operating Profit Margin of 29.03%, and an Earnings Per Share Growth Rate of 184.84%. The short interest was 42.02% as of 08/03/2012. 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.

2) Exelixis, Inc. (EXEL)

Sector:Healthcare
Industry:Biotechnology
Market Cap:$879.00M
Beta:2.00

Exelixis, Inc. has Analysts' Rating of 2.20, an Operating Profit Margin of 33.41%, and an Earnings Per Share Growth Rate of 168.19%. The short interest was 17.90% as of 08/03/2012. 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.

3) ViroPharma Inc. (VPHM)

Sector:Healthcare
Industry:Biotechnology
Market Cap:$1.38B
Beta:1.36

ViroPharma Inc. has Analysts' Rating of 2.50, an Operating Profit Margin of 36.59%, and an Earnings Per Share Growth Rate of 14.14%. The short interest was 14.19% as of 08/03/2012. 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.

4) Momenta Pharmaceuticals Inc. (MNTA)

Sector:Healthcare
Industry:Biotechnology
Market Cap:$727.46M
Beta:1.40

Momenta Pharmaceuticals Inc. has Analysts' Rating of 2.40, an Operating Profit Margin of 51.28%, and an Earnings Per Share Growth Rate of 337.21%. The short interest was 10.27% as of 08/03/2012. 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.

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

Source: 4 Small-Cap Biotech Stocks Generating Profits With Buy Ratings