Given their dependence on the success or failure of their drug candidates, biotechnology stocks are generally high-risk propositions. For those comfortable with the inherent risks of the sector, several contributors have found potentially promising ideas within the small cap biotech space.

Bill Mathews, The Cheap Investor

Over the past couple of decades our most profitable sector has been biotech stocks. We use a process that has been refined over the years. The analysis is complex and time consuming, but worth the effort. We evaluate the company’s management and products and its collaborations and licensing agreements with major pharmaceutical firms. We review the institutions that own blocks of shares and the company’s financial health. All these factors are important elements of the potential success of that company.

Of course, the key to almost any stock move is news. And news is especially important for development-stage biotechs. News can move biotech stocks significantly on both the upside and the downside. The news that has the most impact on biotech stock movement would be FDA results on one of the company’s potential products. Good news can send the stock skyrocketing, and bad news can cause it to plummet.

The markets have been extremely volatile these past few months, and that volatility has filtered down to biotech stocks, where many of them have fallen to very attractive levels. Just remember, all biotech stocks are speculative, but by carefully analyzing their potential, you can reduce your risk and increase your profits.

Intec Pharma Ltd. (NTEC) focuses on developing drugs based on its proprietary Accordion Pill platform technology in Israel. Its Accordion Pill is an oral drug delivery system that is designed to enhance the efficacy and safety of existing drugs and drugs in development by utilizing a gastric retention and specific release mechanism.

The firm’s lead product candidate is Accordion Pill Carbidopa/Levodopa (AP-CDLD), which is in a Phase 3 clinical trial for the treatment of Parkinson's disease symptoms. It is also developing Accordion Pill Zaleplon (AP-ZP) that is in a Phase 3 clinical trial for the treatment of insomnia.

Accordion Pill has completed a Phase 1 clinical trial for the prevention and treatment of gastroduodenal and small bowel Nonsteroidal Anti-Inflammatory Drug induced ulcers. The Accordion Pill platform with Cannabidiol and 9-Tetrahydrocannabinol, (AP-CBD/THC) is in a Phase 1 clinical trial for the treatment of various indications, including low back neuropathic pain and fibromyalgia.

In April, Intec closed an offering of 6.75 million shares at $5.25 per share for gross proceeds of $35.4 million. The company has a decent balance sheet with about $43 million ($1.65 per share) in cash, not including that April underwriting for $35 million. Book value is $1.87 per share, and Intec has no debt. The stock has fallen about 50% from its 52-week high of $9.45 last October. Good news about any of its FDA trials could move the stock considerably higher.


Tom Bishop, BI Research

Aurinia Pharmaceuticals (AUPH) is a clinical stage biopharmaceutical company focused on developing and commercializing therapies to treat targeted patient populations that are suffering from serious diseases with a high unmet medical need. The company is currently developing voclosporin, an investigational drug, for the potential treatment of lupus nephritis, FSGS and Dry Eye Syndrome. Aurinia has shifted from an early stage company with one program to a late stage clinical company with multiple programs.

The 320-patient, global 52-week Phase III “AURORA” clinical trial to evaluate voclosporin for the treatment of lupus nephritis (LN), initiated in May 2017, remains on track to complete enrollment in Q4 2018. 

In addition, the company announced that a 20-patient “Phase II open-label study of voclosporin has also been initiated for the treatment of FSGS, a serious and potentially life-threatening kidney disease, which is a leading cause of nephrotic syndrome. There are currently no FDA or EMA approved therapies for FSGS.

Aurinia also expects to initiate a four-week, 90-patient Phase 2a head-to-head tolerability study of voclosporin ophthalmic solution (VOS) versus Restasis for the treatment of dry eye in the coming weeks, with data due around yearend. The goal here is to find the best in class treatment option including showing if VOS is more tolerable than Restasis. An estimated 20 million people are affected by dry eye syndrome in the U.S. alone and a fair percentage of them are not able to tolerate Restasis.

Moreover, the global market opportunity is currently around $4 billion-$5 billion and heading toward $6 billion-$7 billion by 2025. Net cash used in operating activities during Q1 was $14.4 million and cash totaled $159 million as of March 31, which they believe will be enough to accomplish the foregoing clinical trials and last into 2020. The shares of this underappreciated company remain a Buy.


John McCamant, The Medical Technology Stock Letter

The Medicines Company (MDCO) announced that the Independent Data Monitoring Committee (IDMC) for the ongoing inclisiran Phase III trials recommended that the studies continue uninterrupted and without modification. The IDMC’s recommendation was based on its planned review of un-blinded safety and efficacy data from the trials.

The ORION Phase III studies with 18-months follow up were fully enrolled between November 2017 and March 2018, with 3,660 patients randomized 1:1 across three trials — ORION-9 (482 patients randomized), ORION-10 (1,561 patients randomized) and ORION-11 (1,617 patients randomized) — to receive either inclisiran or placebo.

This is the third IDMC review since the ORION Phase III program began and substantially all randomized patients had been treated with two doses of inclisiran or placebo. More than 1,550 patient-years of safety data has been accumulated in the ORION Phase III program, a three-fold (or 1,000 patient-years) increase over the total patient exposure from the ORION Phase I and Phase II trials.

Also, during an oral presentation at American Diabetes Association annual meeting (ADA 2018) the company presented data showing that a subcutaneous injection of 300 mg of inclisiran given at Day-1 and Day-90 lowered LDL-cholesterol (LDL-C) at Day-180 by more than 50% in patients with atherosclerotic cardiovascular disease (ASCVD) and those considered ASCVD-risk equivalents, regardless of whether those patients had diabetes.

Inclisiran demonstrated a similar adverse event profile in patients with and without diabetes, including no effects on control of blood glucose levels over six months. The data presented at ADA 2018 further confirm the robust and consistent efficacy of inclisiran on atherogenic lipoproteins across multiple patient populations, irrespective of their diabetes status.

The continued excellent safety profile with over 1,500 patient years of safety has further de-risked the Phase III data readouts expected in H2:19, and in our view, also makes the Phase III outcomes trial an even lower risk endeavor. We continue to believe that inclisiran is one of the most undervalued Phase III assets with blockbuster potential in the drug industry.


Mike Cintolo, Cabot Top Ten Trader

Ultragenyx Pharmaceuticals (RARE) is a commercial-stage biotech company that specializes in gene-therapy treatments for serious, debilitating genetic diseases. It currently has two approved therapies and boasts a stacked pipeline with 13 additional candidates in various stages of development.

The stock has made compelling pipeline progress and broad strength in gene-therapy stocks after positive data from peer Sarepta Therapeutics (SRPT) a couple weeks ago. Ultragenyx’s Crysvita therapy was approved in April and is now available to adults and children with X-linked hypophosphatemia (XLH), a market estimated at 48,000 people.

The second commercial treatment is Mepsevii, which was approved by the FDA in November 2017 for the treatment of children and adults with Mucopolysaccharidosis VII, an extremely rare and debilitating disease estimated to affect 400 people worldwide. Mepsevii is also one step closer to being approved in Europe.

These aren’t huge markets, but investors are looking forward to data readouts for pipeline drugs in the second half of this year which, when all added up, could generate a sizable amount of sales.

Gene therapy is as cutting-edge as it gets and analysts expect Ultragenyx revenues of $43 million this year and nearly $100 million next, but that’s just the beginning—some see the company’s top-line rising to north of $1 billion by 2024! Encouragingly, big investors are believers, with 400 mutual funds owning shares.

Maryland-based Supernus Pharmaceuticals (SUPN) is a drug company focused on central nervous system diseases with two marketable drugs and a pipeline with a couple of high-potential drugs. Its Trokendi XR, an extended-release treatment for migraines, and Oxtellar XR, an extended release treatment for epilepsy, both of which launched in 2013, have made the company solidly profitable, with revenue up 46% in 2016, 41% in 2017 and jumping 57% higher in Q1.

The company has two important drugs in its pipeline: SPN-810, a treatment for Impulsive Aggression in ADHD (a condition for which there are no approved products), and SON 812, a treatment for ADHD, both of which are in Phase III trials. Also in Phase III trials is an additional indication for Oxtellar XR and SPN-809, a depression treatment that is in development and is Phase II ready.

Supernus is driven by news from clinical trials and by increases in the annual prescriptions written for Trokendi and Oxtellar, which have enjoyed a combined annual growth rate of 110% since their introduction in 2013. The combined target markets for the two drugs is $13.4 billion, with some analysts seeing a peak market share of 8% for the two drugs’ use against epilepsy and migraine and 5% for Oxtellar’s use against bipolar conditions. This is a healthy drug company with excellent upside potential.

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