2 Healthcare Stocks With Upside Potential

Includes: ATRS, KERX
by: Michael J. Ray

When it comes to investing, most people tend to shy away from speculation and rightfully so. Speculating in the stock market can be a very risky affair where one day you might be up 100%, only to find that you lost it all the next. A prime example was to watch the events that unfolded over the course of a time with Dendreon (NASDAQ:DNDN). The first situation was watching this stock rocket on positive Food and Drug Administration (FDA) outcomes, only to tank when the FDA reversed its initial decision by asking for more data. Then another wild swing occurred as investors waited for an FDA decision, only to suffer a massive bear raid minutes before the stock was halted for the decision. Fortunes were lost and won within minutes, and it is these types of wild swings that drive away many would-be investors. Now as risky as it can be, there is a place for speculation in one’s portfolio as long as the risk is contained and losses can be held within a tolerable level. On the flip side, speculation can result in some very lucrative profits and bring that bit of excitement to the table. Below are two such speculative stocks that have the potential to bring huge profits in the future.

Antares Pharma (AIS): Antares is a small pharmaceutical company that focuses on very specialized products. Their current product mix deals with self injection technologies and topical gel-based products. Unlike other small speculative pharmaceutical companies AIS does generate revenue so they are not completely dependent on big piles of cash from constant secondary stock offerings to survive. That being said though, the company did just complete a public offering of 12,500,000 shares of the company’s common stock at a purchase price of $1.60 per share on May 13, 2011. In the injector arena they have licensed their products to the likes of Teva (NYSE:TEVA) and Ferring. In 2009 Teva announced that they did adopt the use of the injection products that resulted in income of $5.8 million in 2010 compared to $3.5 million in 2009 for AIS. Also the royalty income increased to $2.1 million in 2010 compared to $600,000 in 2009. As a result, AIS has made great strides in its net income. With the current products in play, AIS’s total revenue for the end of 2010 was $12.8 million generated a net loss of $6.01 million for the year. This was actually a great improvement when compared to the 2008 fiscal year when the corresponding numbers were total revenue of $5.6 million which generated a $12.7 million loss.

The real key event for AIS though is their gel-based product Anturol which is a topic treatment for overactive bladders. The FDA agreed to review the company’s application to market Anturol, and a decision is probably coming by early December 2011. As many as 33 million adults in the United States suffer from overactive bladders, and the market currently for the condition exceeds $1.8 billion on an annual basis. If AIS were to capture this market with a topical gel product, the stock price should move up much higher than where it currently trades.

Keryx (NASDAQ:KERX): Keryx is an interesting company that trades on the NASDAQ. Much like AIS, their business model is also involved in trying to commercialize new medical treatments for some very serious conditions like renal disease as well as cancer. Unlike AIS, there really is no consistent revenue stream for the company from sales of their product. The company does expect to recognize license revenue in 2011 from a sublicense agreement for the initiation of a Phase 3 clinical trial Japan. In this case KERX is dependent on their on hand cash to survive and hope their burn rate is not too high.

Keryx has two products that are being developed and moving through the FDA acceptance process. The first product is Perifosine which is an oral anti-cancer drug which has shown good test results so far. This drug is a result of a commercial license agreement in 2002 with Zentaris AG, which is a wholly-owned subsidiary of AEterna Zentaris Inc. (NASDAQ:AEZS). This agreement granted exclusive rights for KERX to promote Perifosine in the U.S., Canada, and Mexico. At the current time over 2,000 patients in the US and Europe have been involved with the trials. The drug is being used to treat advanced colorectal cancer and multiple myeloma. Perifosine is also in Phase 1 and 2 clinical developments for several other tumor types. If KERX can get FDA final approval and become a new standard of care, then the price per share will be well above the current $5 level where it trades now. Needless to say, the company would become a buyout candidate as well.

The second product being developed is Zerenex which is also an oral compound that is used to treat end stage renal disease. A US Phase 3 study is currently underway and the company is working with the Japanese under a partnership to complete a Phase 3 as well. The market for a product like this is very robust. In just the United States some 485,000 people are afflicted with end stage renal disease. By the year 2020 this number should increase by over 60% to and estimated 785,000. Needless to say, the stock price will react very positively if Keryx can get final FDA approval and get their product to market.

Disclosure: I am long KERX.