Revisiting 3 Promising Small Biotechs

Being an investor in small-cap biotechnology stocks has been about as fun as being a diehard Los Angeles Lakers fan over the past six months. The overall biotech sector is down some 40% from its highs in July. And small-cap biotechs have borne the brunt of this collapse, with myriad names down 50% to 75% on little more than a shift in sentiment to a completely risk off mode. However, it seems like the sector has either bottomed or is getting very close to doing so. A number of the small-cap names I have profiled in my Small-Cap Friday columns have lately been on the move. Given this, now is an appropriate time for an update on some promising stocks that have been oversold. Let's start with Acadia Pharmaceuticals (ACAD), which has advanced 25% since I highlighted it in early March. The stock was up nearly 10% in trading Wednesday after it was announced that the company's drug Nuplazid had been recommended for approval by the U.S. Food and Drug Administration's Advisory Committee in a 12-2 vote. Despite their recommendation, members of the Ad Comm raised some safety concerns. However, although not a sure thing, chances are the FDA follows their recommendation and approves Nuplazid as there are no other approved treatments for psychosis associated with Parkinson's disease. Approval would be a game changer for Acadia as peak sales for Nuplazid, based on approval for this condition I have seen, have ranged from $1 billion to $3 billion. The drug is also in trials for other indications. BioDelivery Sciences (BDSI) is another name I have touch on in recent months. The stock is up some 15% so far this week. Maybe the market has figured out the decline after its last quarterly report was way overdone? The only reason the company missed expectations was how it accounted for a $50 million milestone payment. BioDelivery's technology and pain management products should also benefit from the increasing focus on opioid abuse and drugs that can lessen the potential for this abuse. Its new product Belbuca is just starting to get traction and there should be some interest in the company's underlying technology, which can take existing drugs and deposit them on a thin film that can melt in your mouth, ensuring more effective delivery of some compounds. Finally, Dynavax Technologies (DVAX) reminds one of Waiting for Godot, as it seems it is taking the market a long time to realize the underlying value of this undervalued biotech concern. However, catalysts are on the near-term horizon. Dynavax's Biologics License Application (BLA) on its hepatitis B vaccine Heplisav-B was just accepted by the FDA. This compound should be approved by the end of summer. I expect it to garner share in this more-than-$600 million market due to its superior protection qualities and the fact it can be effectively delivered in two doses, instead of three in the current standard of care. In addition, Dynavax is co-developing a promising asthma drug with AstraZeneca (AZN) that is entering Phase II trials. The company also possesses an intriguing oncology product, SD-101, which has drawn some analyst praise despite being in early-stage trials. With a market capitalization of only $700 million and almost $200 million in cash on the books, the stock is too cheap given what should be very positive catalysts in 2016 and beyond.

Revisiting 3 Promising Small Biotechs

They are oversold and lately been on the move.

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