2 Speculative Small Cap Biotechs Insiders Are Buying

Includes: ITCI, TBRA
by: Bret Jensen

"The bold adventurer succeeds the best." - Ovid

Executive summary:

  • Biotech investing calls for a different investment philosophy than most other sectors of the market.
  • Insider buying can provide better buy signals than other sectors given the nature of industry and premium on insider knowledge.
  • Below are two biotech prospects with interesting areas of investigation and strong insider buying.

Regular readers of these columns know by now my philosophy on buying small biotech stocks, which I call "Shotgun Investing". This involves purchasing small positions in a myriad of promising companies realizing most of my investments will come to naught. However, the strategy will be nicely profitable overall as I should hit enough five to ten baggers over time to be solidly in the black.

I have also found quite often that insider buying precedes improving prospects for this type of company as a premium is put on insider expertise knowledge due to the complexity of the sector. Below are two speculative biotech companies who have had substantial insider buying recently.

Regado Biosciences (RGDO) is a biopharmaceutical company focused on the discovery and development of novel, first-in-class, actively controllable antithrombotic drug systems for acute and sub-acute cardiovascular indications. The company's lead product candidate, REG1, is an actively controllable anticoagulant targeting coagulation Factor IXa for use in patients with a wide variety of acute coronary syndromes.

The company originally desired to come public last summer in the $14 to $16 a share range. However, it ended up coming public at $4 a share. Although the shares have appreciated some 50% since then, they are still way below their original targeted range.

Insiders and beneficial owners have bought tens of millions of dollars of shares since summer in frequent purchases. They are definitely showing they have confidence in the company's long term prospects with their new investments.

The analyst community is also very positive on the Regado's future. The five analysts that cover the shares have price targets ranging from $10 to $14 a share on RGDO, all substantially above the current ~$6 a share level in the market. Regado Bioscience's investigational new drug application for REG2 has just been accepted by the FDA as well. The company is also sitting on ~$40mm in net cash which is approximately one third of the company's market capitalization.

Intra-Cellular Therapies (NASDAQ:ITCI) is a biopharmaceutical company focused on the discovery and clinical development of innovative, small molecule drugs that address underserved medical needs in neuropsychiatric and neurological disorders. Its lead product candidate, ITI-007, is in Phase 2 clinical trials as a first-in-class treatment for schizophrenia. The company came public in early January. The stock has been basically flat since becoming a public company.

A director just bought ~$500K of new shares in early February a month after the company's IPO. Only one analyst currently has a price target on ITCI. It is at $34 a share, twice the current stock price. The company presented at two healthcare conferences last week which should to start to increase analyst attention on this new biotech play. ITCI is a very speculative play at this point as not much data is available at this point. It is down 15% from its post IPO highs and the insider buying is encouraging. A small position might be warranted for aggressive investors.

Disclosure: I am long RGDO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.