This commentary originally appeared on Real Money Pro at 8:00 a.m. on Jan. 3. Click here to learn about this dynamic market information service for active traders.
I spent part of the weekend thinking about what I should put as my "top pick" for 2017. A month ago this selection could very well have come from some of the beaten-down construction and infrastructure names in my portfolio that I have mentioned frequently in Real Money Pro. However, since the unexpected election outcome many of the stocks in these categories, like United Rentals (URI) and Beazer Homes (BZH) are up 50% or more.
That led back to the myriad holdings in small biotech and biopharma concerns within my portfolio. Both sectors have under-performed the overall market by a wide margin over the past year and a half. Bargains abound and I believe both pharma and biotech will outperform the overall market in the year ahead.
The problem is narrowing down my selection to just one choice. BioDelivery Sciences (BDSI) and Dynavax Technologies (DVAX) both had miserable years in 2016 but could make very attractive but high-risk turnaround stories in 2017. I also hold high hope for Acadia Pharmaceuticals ACAD. Its recently approved Nuplazid drug for the psychosis often found in the Parkinson's population. Acadia also is on the top of my buyout target list for 2017.
However, in the end it came down to Aratana Therapeutics (PETX) and Progenics Pharmaceuticals (PGNX) . Both companies had great years advancing their pipeline candidates, are cash flush and have significant upcoming catalysts in 2017. In a close call, I am going to tag Progenics as my 2017 pick of the year, despite the fact the shares are up some 80% in 2016.
The future just keeps getting brighter for this "off-the-radar" biopharma concern. In July, the oral version of the company's injectable GI compound Relistor was approved by the FDA. This has already led to a nice bump in sales of the drug in the third quarter. It also accelerated the timeline Progenics can earn up to $200 million in sales milestones from marketing and distribution partner Valeant Pharmaceuticals (VRX) , in addition to royalties in the mid to high teens. I project Progenics will earn $10 million in milestones in 2017, $15 million in 2018 and another $20 million in 2019 using conservative growth estimates for Relistor. In addition, Valeant after failing to sell its gastrointestinal business to Takeda; announced it was expanding the sales force it uses to sell Relistor among other GI products. This should goose sales of Relistor further in 2017.
Progenics is not a one-trick pony either. Its compound Azedra, a treatment for two rare forms of cancer, has a key trial readout in the first quarter and could be on the market as soon as late in 2017. Also very promising is "1404," a prostate cancer imaging agent that analysts are very high on and will have key readouts in 2017 as well.
Although not yet profitable, the company is well-funded and there should be no need for secondary capital raises going forward. Even with stock's rally up past the $9 a share level, the company has just a $650 million market capitalization. This is too low given the growth of Relistor and its pipeline assets. I could easily see PGNX trading in the mid-teens before 2017 comes to a close. Therefore, it is my top pick for the New Year.