(This commentary originally appeared on Real Money Pro on Friday. Click here to learn about this dynamic market information service for active traders.)
On this "Small-Cap Friday" we look at a couple developmental, so-called "Tier 4" biotech stocks. Like all developmental concerns in this high-beta sector, they are high risk/high reward plays. However, they both seem to have attractive risk/reward profiles at current trading levels. I believe they are worthy of a small stake within a well-diversified biotech portfolio.
Let's start with Genocea Biosciences (GNCA) . This concern is attempting to leverage the body's natural T cell immune response as opposed to standard vaccines, which leverage B cell (or antibody) immune response. Genocea is based in Cambridge, Massachusetts, has a market cap of around $165 million and trades at $6.25 a share.
Genocea debuted on the stock market in early 2014. The shares soon traded above $20 a share after its initial public offering, but since have sunk to 30% of previous highs. The big drop makes Genocea a classic "busted IPO" -- one of my favorite niches in the market.
Genocea's lead candidate is GEN-003, which is a therapeutic vaccine for the treatment of genital herpes. About 500 million individuals globally have this affliction and one out of every six people ages 18 to 49 carry it in the United States. There are no known cures, but there are treatments to lower the duration of the outbreaks. GEN-003 is aimed at reducing the viral shedding during these outbreaks.
In Phase II studies, the vaccine has shown an encouraging reduction in lesions of about 40%. A key Phase III trial should be fully enrolled and commence in the fourth quarter of this year.
Genocea is aimed squarely at what it believes is a $2 billion annual market. Analysts are all over the map on this name, with price targets all the way up to $40 a share. It should be noted that absent a collaboration deal Genocea probably will need to raise more money in the first half of 2018 to support the development and, it is hoped, the rollout of GEN-003. The shares seem to be providing an asymmetrical risk/reward ratio at current trading levels.
Then there is Eiger Biopharmaceuticals (EIGR) . This is another developmental concern the stock of which has seen better days but with a pipeline that is progressing nicely.
Eiger completed a reverse shell merger with failed biotech Celladon Corporation late in the first quarter of last year. However, the company currently has five Phase 2 candidates being investigated for the treatment of four orphan diseases.
Eiger's most promising drug candidate is Lonafarnib, which is has licensed from Merck (MRK) . It is aimed at treating HDV. This is the rarest form of hepatitis and its most lethal. About 100,000 individuals suffer from the disease in the United States. Lonafarnib inhibits the prenylation of HDV replication inside liver cells and blocks the virus life cycle at the stage of assembly. Eiger is conducting six different Phase 2 studies on Lonafarnib comprising more than 100 patients in combination with Ritonavir and/or PEG-INF-alfa in Turkey, Germany, Mongolia and the United States.
Eiger is the ultimate high risk/high reward play. The stock trades for around $7.50 a share, with Oppenheimer and Piper Jaffray chiming in with Buy ratings with price targets in the mid-$30s over the past few weeks. Eiger's market cap is just over $60 million currently.
Lonafarnib's next key Phase II results should be out by the end of this quarter and if all goes well, the compound should advance to Phase III studies sometime in 2018. Eiger also has two other compounds that should disclose Phase II results in the first half of 2018.
I offer up both of these "swing for the fences" plays to aggressive investors out there within a well-diversified biotech portfolio.