With biotech underperforming the overall market by a wide swath over the past two years and still down nearly 25% from its previous peak in July 2015, I believe the sector could outperform the larger market through the end of the year.
A late-day selloff Tuesday saw the main biotech indices pull back nearly 3% when all was said and done yesterday. However, some profit-taking was inevitable given the sector had a 10% surge last week, especially in high-flying names such as Omeros Corporation (OMER) , which had shot up 75% in a blink of an eye.
As we look to close out the first half of 2017 on a winning note this week, here are three attractive small-cap sector names.
Portola Pharmaceuticals Inc. (PTLA) had a big rise last week as the FDA approved its compound Betrixaban, an extended-duration anticoagulant for the prevention of venous thromboembolism (VTE) in hospitalized at-risk adult patients. The San Francisco-based company is also expected to resubmit a Biologic License Application (BLA) for its compound AndexXa.
AndexXa is the first universal antidote to the new anticoagulants that have come out in recent years, including Eliquis and Xarelto. Around 1-4% of individuals who use these anticoagulants will have adverse side effects that require hospitalization or a trip to the ER -- some 90,000 incidents a year. Once approved, every hospital and ER will have to have a supply of AndexXa on hand.
Portola would also make a logical buyout target for a larger player with an established sales force. Several analyst firms have hiked price targets on Portola into the $70s this week.
Going smaller, Pieris Pharmaceuticals Inc. (PIRS) has had a nice run over the past couple of months, but there appears to be more upside to this one-time "Busted IPO." Pieris is pioneering the use of small-sized proteins called Anticalins. These proteins have high specificity to their targets and demonstrate tight binding and effective biological activities at their targets. They could prove effective in a variety of settings, including immuno-oncology, oncology, anemia, asthma and infectious diseases.
Pieris has a diverse pipeline and signed a large collaboration deal with drug giant AstraZeneca plc (AZN) . This deal provided an over $50 million upfront payment and Pieris could receive up to an additional $2.1 billion in development-dependent and commercial milestones along with tiered royalties on any approved products -- pretty significant given the company has a current market capitalization of just $200 million.
Lastly, the FDA has finally approved Adamis Pharmaceuticals Corp.'s (ADMP) generic version of the EpiPen in mid-June. And I expect the company to sign a distribution deal with a larger drug player by fall to market this device.
Adamis has a market cap of less than $150 million so even a 5% to 10% market share in the over $1 billion EpiPen market could trigger significant capital appreciation for the stock.
Editor's Note: This article contains one or more stocks with a market cap between $100 million and $2 billion. Such small-cap stocks tend to be volatile.
This commentary originally appeared on Real Money Pro. Click here to learn about this dynamic market information service for active traders.
