Two Attractive Biotech Plays

After a horrid six to eight weeks in the biotech sector, shares are starting recently to rebound. The debacle in biotech that occurred from March on was one of the most violent sector rotations the market has seen in quite some time. Huge biotechs like Celgene (CELG) and Gilead Sciences (GILD) lost 15% to 25% of their value from peak to through over the six weeks of decline before starting to bounce back recently. Small-cap biotech stocks were hit even harder. Most lost 25% to 50% over the same time period as sentiment shifted overnight on the sector. On the bright side, valuations are much more reasonable than where they were at the beginning of March. For speculative growth investors, it might not be a bad time to tip the toe back into the water. Below are two small, attractive but speculative biotech plays worth considering. ZIOPHARM Oncology (ZIOP) is a biotechnology company employing novel gene expression and control technology to deliver DNA for the treatment of cancer. ZIOPHARM's technology platform helps to turn on and off and precisely modulate gene expression at the cancer site in order to improve the therapeutic index. This technology is currently being evaluated in Phase II clinical studies for the treatment of breast cancer and advanced melanoma. Multiple new indicators for new targets using similar technology are expected in 2014 and 2015. The shares were right at $5.50 a share before the biotech correction began and now sell right for just over $3.50 a share. I recently picked up a solid position in this price range. Griffin raised its price target on ZIOP last week to $12 a share as it believes it has several important partnership possibilities. The median price target by the other four analysts that follow the shares is $7.50 a share. The company has a market value of around $350 million. Obviously, the breast cancer and melanoma spaces are huge potential markets if Ziopharma's technology is effective. Insiders hold a good portion of the shares and are not selling. In fact, an insider made a $10 million purchase in October in a solid vote of confidence. The company should have some $ 8 million in sales this year, which the consensus says will double in FY2015. Ziopharma is posting losses but has nearly $70 million in net cash on the balance sheet to get through trials for new products. I believe Ziopharma should be considered by aggressive growth investors as it seems the stock could have significant upside if it delivers positive trial results. Regado Biosciences (RGDO) is a biopharmaceutical company focused on the discovery and development of novel, first-in-class, actively controllable antithrombotic drug systems for acute and sub-acute cardiovascular indications. The company's lead product candidate, REG1, is an actively controllable anticoagulant targeting coagulation Factor IXa for use in patients with a wide variety of acute coronary syndromes. The shares fell from over $13 a share in March to about $6 a share before bouncing recently to above $7 a share. The company raised some $60 million in April to develop REG1 at $6 a share. Impressively, the shares have climbed from there as usually they fall for some time after a secondary like this. A beneficial owner has bought over $5 million in shares so far in 2014 and with the secondary the company has no cause to raise additional funds for the foreseeable future. The five analysts that cover the shares have a $14 a share median price target on RGDO. Price targets range from $10 to $16 a share, all substantially above the stock's current price level. As with all small biotech positions in my portfolio, I have much smaller stakes in these two stocks than in stocks in other sectors. I believe one has to spread their bets among a larger universe of equities. Most will not work out. However, the occasional five-to-ten bagger will more than make up for the myriad losers a patient and aggressive investor will have in their small biotech allocation.

Two Attractive Biotech Plays

Speculative growth investors might want to test the water.

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