A Cheap Risk May Make for a Huge Reward
On July 8, 2009, I recommended five cutting-edge medical products and biotech stocks. If you had bought them the next day and held them through the close on Jan. 4, 2011, your returns would look like this:
Questcor Pharmaceuticals (NASDAQ: QCOR) +184%
Cepheid (NASDAQ: CPHD) +165%
Curis (NASDAQ: CRIS) +54%
Cerus (NASDAQ: CERS) +189%
Illumina (NASDAQ: ILMN) +98%
The one loser I picked then was the more established Gilead Sciences (NASDAQ: GILD), which is off 20% since that recommendation, but even factoring in that dud, you would still have an average return of over 110% in these 5 best stock picks. Do I have your attention?
Good, because I’ve put together a list of the hottest bargain biotech stocks to buy for 2011. Some of the names will look familiar because I think the stocks still have legs, while others have been swapped out for new names that I think have more potential in the year ahead.
Here are the best biotech stocks to own now:
#1 Cerus (CERS)
Cerus (NASDAQ: CERS) developed and markets the INTERCEPT Blood System, which is designed to inactivate blood-borne pathogens in blood components so the blood can be used in transfusions. In other words, it “cleans” donated blood of viruses, bacteria and parasites.
Cerus is pretty much the only game in town with this remarkable technology, and it has gained approval in most large European countries. Why not the United States? Well, management has not stood up to the FDA. The approval has been held up by one member of the FDA even though Cerus hit the primary endpoints in its pivotal Phase III trial and is receiving grants from the Department of Defense.
The FDA should quit dragging its feet eventually. There is no scientific or product risk in this stock. Their system works. My target price is $14 in one to three years.
#2 Curis (CRIS)
Curis (NASDAQ: CRIS) has developed a series of cancer treatments based on a technology that disrupts intercellular signaling in the Hedgehog pathway. Disrupting communication disrupts cell duplication, the foundation of tumor growth.
Curis has more than 20 trials under way with Genentech/Roche and the National Cancer Institute. This year, Genentech will likely report results of a basal cell carcinoma trial for skin cancer, and it has said it will go from this mid-phase trial directly to an application for approval if the results are strong enough.
One success means a volcanic eruption in the stock, as it will prove the core technology is a viable platform for cancer treatments. A failure could put the entire program — and the company — in jeopardy. I believe the technology will be a success, which means this $2 stock could be worth $40-plus. If I’m wrong, you will probably be looking at a 50-cent stock. I’d say it’s worth the risk.
#3 Compugen (CGEN)
Compugen Ltd. (NASDAQ: CGEN) is the world’s leading molecular intellectual property company. Based in Israel, the company has revolutionized the early phases of drug development through a highly automated process of exploring and selecting molecules with the greatest promise to serve as the basis for a particular treatment.
The company licenses its peptides and proteins for a fee to the who’s who of the drug industry, and also receives a back-end cut of any drug that makes it to market using its discoveries.
Compugen just announced that it entered into an agreement with Baize Investments under which it will receive $5 million in R&D funding. My target for CGEN is $20 in three to five years.
#4 Spectrum Pharmaceuticals (SPPI)
Spectrum Pharmaceuticals (NASDAQ: SPPI) is a commercial-stage biotechnology company with a primary focus in oncology and hematology The company specializes in rescuing treatments abandoned, in development stages, by other companies.
It has had a tremendous run based on market introductions and partnerships in the past two years, but now has even greater potential for a blockbuster with a drug called Zevalin for non-Hodgkin’s lymphoma. This drug is currently approved as a salvage and adjunct therapy, and the company is in mid-stage trials for the use of Zevalin as a front-line treatment, which would be a much larger market.
The risk in this stock is high. It could be cut in half or worse on bad news from one of several clinical trials. However, successful trial results could take this stock from under $7 to $32 in one to three years. SPPI could also become a takeover target.
#5 Impax Laboratories (IPXL)
The not-so-small generic drug maker Impax Laboratories (NASDAQ: IPXL) has arguably the best manufacturing technology for time-released drugs in the entire generic industry.
Pfizer’s (NYSE: PFE) patent for its $11 billion cholesterol drug Lipitor expires this year, and we know IPXL believes it has the expertise to manufacture a sophisticated statin such as Lipitor given recent legal actions concerning Merck’s drug Vytorin, a combination of a competing statin and a blood pressure drug. In other words, IPXL has the technical expertise to enter this market should it choose to do so.
Two other major product introductions are anticipated in 2011 — generic Concerta for ADHD and generic Solodyn for bacterial infections, currently with combined sales of $1.8 billion.
My target for the stock is $35-$40 in one to two years. IPXL is also the possible target of an acquirer.
Disclosure: Michael Shulman owned shares of CERS and CRIS at the time of this writing.
