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A Small Biotech Stock To Pick Up After Today's Pullback

|Includes: Cempra, Inc. (CEMP)

"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." - Winston Churchill

We have not seen a sell-off like this in biotech in a few weeks as the sector was off more than three percent amidst increasing worries about Deutsche Bank which caused high beta sectors of the market to pull back. It is important to remember that we get one of these drops at least once a month. Remember on Sept 9th when biotech dropped over 3% because of worries that the Federal Reserve would raise rates at their September 20th - 21st meeting? In addition, 50% to 60% of trading is done via algorithms these days, so you see more and more of these one off sell-offs in certain sectors of market.

There were myriad small cap biotech stocks that were off big today on no news other than a shift in sentiment on the sector during the day. This presents some good bargain buying opportunities tomorrow. One of those is biopharma Cempra (NASDAQ:CEMP) which dropped some 9% in trading today.

The company's lead drug candidate is called Solithromycin. Cempra has filed new drug applications (NDAs) for both the oral and IV version in the United States, as well as for approval in Europe. Based on solid Phase III trial results, Solithromycin should help address the urgent problem of antibiotic resistance and provide physicians with a new, potent macrolide monotherapy option that currently does not exist when treating patients with community-acquired bacterial pneumonia {CABP}.

This is a growing problem that does not get the attention it deserves. The U.S. Centers for Disease Control and Prevention results in the death of more than 53,000 people each year in the U.S., making it the leading cause of death due to infectious disease in the country. Around 10 million scripts are written annually for CABP in the U.S. Obviously, this is a big addressable market.

The company's other main compound in the pipeline is Taksta, or fusidic acid. This compound has been used outside the U.S. for decades, but not here. Cempra has completed a Phase II trial in acute bacterial skin and skin structure infections and a Phase II clinical trial in patients with prosthetic joint infections. Enrolment for Phase III trials is under way.

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The company raised some $75 million in the second quarter and has approximately $250 million on hand to roll out Solithromycin, both versions of which should be approved in late December in the U.S. Approval for Europe should follow in the second half of 2017.

There has been a rash of analyst activity since early August in this name, which partly accounts for its recent run up until today's pull back. Seven analyst firms have either initiated or reiterated the stock as a Buy over the past two months -- including Morgan Stanley, Needham and Jefferies. The latest analyst activity came from Raymond James on September 13th, which initiated the shares as A Buy noting Solithromycin holds a "unique value proposition". Price targets proffered range from $32 to $48 a share.

Given definable upcoming catalysts, a significant potential market, strong analyst support and the highly likely approval of the company's lead drug candidate by the end of the year, one has to like the prospects for this small-cap biotech. If you do not have a position in this name, today's drop seems like an actionable opportunity to pick up a small stake at a lower entry point.

Thank You & Happy Hunting

Bret Jensen

Founder, Biotech Forum & Insiders Forum

Disclosure: I am/we are long CEMP.