I really like looking for
small-cap biotech stocks that have potential for growth. This is a high-risk
industry because a lot of these companies rise and fall on the results of the
trials. Investing in companies based upon trial information before it’s brought
to market could be highly speculative. It could also be highly profitable if
timed properly.
There is one company I
recently ran across with a “small market drug” that could drastically increase
in value during the next couple of years. If the Phase 2 testing for this
specific drug it now markets is positive, this could mean a lot more revenue.
The name of the company is Exelixis and it currently has one approved drug on
the market called Cometriq.
Cometriq treats thyroid
cancer that has metastasized to other parts of the body. Exelixis brought the
drug to market in the United States in January 2013 and it has generated a
paltry $10.7 million in revenue through September. The annual sales estimates
are not expected to top $15 million because the size of the market is so small.
Exelixis is hoping to expand
that $15 million revenue base to Europe. The European Committee for Medicinal
Products for human use has been looking over the drug for marketing in Europe.
The company has a partner, Sobi, which it will work with for distribution in
Europe. Exelixis’ progress in commercializing Cometriq remains an important
factor for investors to watch.
Besides that, the company
does not look like an exciting biotech stock. If you watched it through 2013,
you may have fallen asleep. While most of the market prospered, this barely
scraped a single digit growth rate.
In fact, the stock really
hasn’t moved much at all for the last two years. In January 2012, the stock was
just over the five dollar mark; had a couple peaks up to seven but came back
down again. Since April 2012, the stock has floated up and down between its
high now of 6.8 and around 4.5. There have been no significant moves at all
because there has been nothing that the company has been working on with a huge
revenue potential until now.
Since there were so many
better biotech stocks to look at, this company has consistently been under the
radar and neglected by most investors.
Starting Phase 2 Trials
Exelixis has initiated its
Phase 2 trial for Cabozantinib, a treatment for castration resistant prostate
cancer that had metastasized to the bone and not been previously treated with
chemotherapy.
This trial will combine the
drug with one already being used to treat prostate cancer called abiraterone
with prednisone. This trial testing will compare results against the
combination of just prednisone and abiraterone together.
The trial will enroll 280
non-chemotherapy CRPC patients in the trial across 50 sites in North America.
Why could 2014 be a significant
year for the stock?
Another company you might be
familiar with, Johnson and Johnson (NYSE: JNJ), had a CRPC drug “Zytiga”
approved and sales in the first nine months of 2013 topped $1.2 billion. I am
not comparing Exelixis to Johnson & Johnson, just the marketing
opportunity.
If the Phase 2 studies turn
out to be successful, there is a high probability we will be watching the
company’s shares increase in value.
Dr. Eric Schmidt, a managing
director and senior research analyst at Cowen, believes there is a market
potential for a later-line prostate cancer drug in excess of $500 million.
Recently, Maxim Group
upgraded its outlook on the company from hold to a buy with a price target of
$7.50. That price target represents a 20% return from the current share price.
Maxim Group must have faith in the ability of Cabozantinib to produce positive
trial results of 2014.
I would encourage “growth
investors” to watch this company closely next year; it has all the signs of a
possible “growth investment.” If you are a “value investor,” this might turn
into a good long-term investment if everything works out right.
As I wrote at the beginning
of this article, investing in biotech stocks at this stage is very risky and an
investor needs to know what they’re doing if they are going to look at a
possible investment like this.
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