No one can deny the performance of biotech and biopharma stocks over the last six months as they have outperformed the entire market. The sector has done so well that it has brought back that dreaded word that everyone has feared in this sector since 2000: “bubble.”
However, it’s shortsighted to look at what these sectors have done since last October. Credit Suisse stated in a note that the NYSE Biotech Index has surged 204% since 2011, while the S&P 500 is up only 64% in that time. If you take it back to the great dotcom bubble of 2000, the index has increased nearly 400%.
The note goes on to say that it doesn’t believe the sector is facing imminent doom due to the financial makeup of its large caps. But what about small cap stocks in the space?
It’s here where we see the potential for major home runs or disastrous busts.
Usually you want to look for a company with a healthy pipeline of drugs to be approved or have attained a strong competitive advantage. Here are three small caps that fit into this category.
3 Biotech Small Caps to Buy: Eagle Pharmaceuticals Inc (EGRX)
Eagle Pharmaceuticals Inc (NASDAQ:EGRX) is a specialty pharmaceutical company with a specific niche. EGRX develops improved injectable versions of drugs that are already on the market. The drugs they are enhancing have been FDA approved and have a known market in existence.
EGRX also makes use of the 505(b)(2) process that “is a new drug application which contains full safety and effectiveness reports, but allows at least some of the information required for approval to come from studies not conducted by or for the applicant. This method gains approval for new drugs in a fraction of the time and cost required by traditional paths.”
The process allows for quicker approval from the FDA and designates these new improved drugs as different from the original they were based form. If they are different, they can be patented and priced as if a entirely new drug — not a generic.
EGRX stock is up 200% since the start of the year but it still has upside as there are more products in the pipeline that could be profitable.
3 Biotech Small Caps to Buy: Curis, Inc. (CRIS)
Partnerships can be the key to the longevity of a small cap in the space, that’s why Curis, Inc. (NASDAQ:CRIS) is my second choice. CRIS manufactures drugs for cancer treatment and has a first-in-class drug already in the market.
Erivedge (vismodegib) was approved by the FDA to treat advanced forms of basal cell carcinoma (BCC). According to the Skin Cancer Foundation, BCC is a generally localized skin cancer that in certain rare instances can spread to other parts of the body. Erivedge is being commercialized by CRIS’ partner, Genentech, to help shrink the dangerous lesions.
CRIS has a number of other cancer fighting drugs in its pipeline — the result of other partnerships with bigger players in the market.
Case in point: Back in January, Curis entered into an exclusive deal with Aurigene Discovery Technologies, an independent wholly-owned subsidiary of Dr Reddy’s Laboratories Ltd (ADR) (NYSE:RDY).
Business Standard reported on the deal:
“The collaboration provides for inclusion of multiple programmes and Curis retains the option to license compounds once a development candidate is nominated within each respective programme. The collaboration focuses on immuno-oncology and selected precision oncology targets.”
This could be a huge catalyst for the stock going forward.
3 Biotech Small Caps to Buy: Dynavax Technologies Corporation (DVAX)
Dynavax Technologies Corporation (NASDAQ:DVAX) is a clinical-stage biopharmaceutical company that discovers and develops products to prevent and treat infectious and inflammatory diseases.
In early March, the company’s independent data and safety monitoring board completed its second preview of HBV-23, better known as Heplisav. The findings were part of an ongoing Phase 3 trial for DVAX’s adult hepatitis B vaccine. The board recommended that Heplisav continue unchanged.
That’s a good thing and the markets responded in kind.
Currently, there is no cure for Hepatitis B, which makes vaccination that more significant. The disease can lead to cancer and death. In the U.S., 47 states require that school-aged children be vaccinated.
The Centers for Disease Control (CDC) make it mandatory for all migrant workers in the U.S. to be vaccinated. The agency also recommends that any adult with either Type 1 or Type 2 diabetes be vaccinated in case there is any sharing of devices or equipment — those in healthcare and/or long-term facilities may be at greater risk due to outbreaks.
Testing shows that Heplisav produces faster and more long-lasting results than anything currently on the market. With no Hepatitis B cure and many in need of vaccination, DVAX stock should continue up if there are no setbacks.
As of this writing, Jason Jenkins did not hold a position in any of the aforementioned securities.