2 Biotechs That Could Flex Their Muscles

Yesterday, I opined on my increasing caution on what has been a bifurcated market. Stocks promptly sprinted to their best daily showing in four months. Even some high-beta areas of the market that have been under pressure over the past month had big days. Small-caps saw a rebound of better than 1%. Biotech advanced nearly 2% on the day. Today, futures are underwater thanks to increased worries about a possible and approaching government shutdown. Yesterday's action did nothing to change my view on the overall market. I continue to believe equities at current trading levels are at least fully valued if not slightly overvalued. That does not mean there are not pockets of value in the current market. I continue to like the small biotech and biopharma arenas. The main biotech indices are still down almost 25% from their last peak over two years ago, while the overall market has had a nice advance over that time frame. New leadership at the Food and Drug Administration (FDA) is pushing hard to increase competition in the generics markets by focusing on streamlining the drug development and approval process. This should be good news for most of the industry. Here are two smaller names I like at current levels. The stock of Adamis Pharmaceuticals Corp. has been on the move recently despite the overall weakness in the sector. The contract manufacturing business it recently acquired already is operating on a breakeven basis and growing rapidly. The company's revenues in first half of 2017 were just under $7 million compared to just south of $2 million in the same period a year ago. This side of the business should be running at an annual rate of $20 million to $25 million by year end. In addition, the Adamis generic version of the EpiPen was approved this summer and I would not be surprised if the company announces a distribution partner for this product in the near future. Even if the Adamis product garners just 5% of the over-$1 billion market, the business will be significant given the company's $150 million market capitalization. A warrant exchange recently boosted its balance sheet, which now has about $25 million in cash on the books. Finally, the company has a couple inhalers in mid-stage development that the market is assigning no value to at the present time. The shares of Flexion Therapeutics Inc. have done little over the past six months but gyrate. This is occurring despite a critical Oct. 6 date with the FDA. At that time, its primary compound Zilretta should get the green light to treat osteoarthritis of the knee. This is a large market as injections to relieve this sort of pain in the knee happen some 20,000 times daily. Zilretta is also in trials for use in other indications, such as osteoarthritis of the hip and shoulder. Zilretta is not an opioid, is easy to administer and has shown significant benefits over the current standard used on the market. After a secondary offering earlier in the year, Flexion is well-funded to roll out Zilretta on approval. Flexion has been a frequent target of buyout rumors over the years. If the merger-and-acquisition market ever gets off the mat, it would be another possible catalyst. Recent analyst price targets have ranged from the mid $30s to mid $40s. The stock currently trades at just under $23 a share.

2 Biotechs That Could Flex Their Muscles

Flexion Therapeutics and Adamis Pharmaceuticals are names to like at current levels.

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