The big news Friday morning is that small oncology concern Ignyta, Inc. (RXDX) is being purchased by Roche Holding AG (RHHBY) for $27 a share, nearly a 75% premium to RXDX's closing price on Thursday. One of the themes I have been recently articulating is that 2018 should see a marked increased in M&A activity across the biotech sector now that clarity around tax rules and structure has been provided.
I have a small stake in Ignyta and this makes for a nice stocking stuffer before the Christmas holiday. When I picked Ignyta up to start to 2017 it was selling around $6.00 a share and was what I like to dub a "Busted IPO." Busted IPOs are stocks that have been public for 18 months to six years that are trading substantially below their IPO prices.
Ignyta's shares were down significantly from where the company came public in early 2014 despite its pipeline advancing nicely through development. This is the primary reason I never purchase a stake in a company until it has been public at least a year and a half. Often once the analyst hyperbole has died down and insider lock-ups have expired, you can purchase the same equity for 30 to 50 cents on the dollar to its debut price.
Ignyta was a solid 'four-bagger' for me this year.
Here are a couple more Busted IPOs I have high hopes for in 2018.
Let's start with another small oncology concern named Verastem (VSTM) , which trades for a quarter of where it when public in 2012. However, the company should soon file a NDA (new drug application) for its wholly owned compound duvelisib, which could have peak sales in the $200 million to $300 million range.
Verastem also has some earlier-stage compounds in development and partnerships with some of the drug giants. The company's market cap is only $150 million. Several analyst firms have price targets in the mid-teens on this ~$3 stock and it does seem substantially undervalued at current trading levels.
Source: Investor Presentation
Next up is T2 Biosystems (TTOO) . This is a small diagnostics company with superior technology. Its platforms can receive different sample types (urine, saliva, serum, plasma, whole blood, sputum) and swiftly detect biomarkers and pathogens (see above).
T2 is another name that trades at a quarter of its IPO level in the summer of 2014. This is a "razor & razor blade" story as the company has been working to get its machines into hospitals and other medical facilities, which triggers demand for the panels used for these tests. It continues to get new panels approved and recently addressed a funding overhang via a secondary offering.
The company should see a huge sales ramp as its install base continues to grow in coming years. T2 has a similar $150 million market cap to Verastem and this off-the-radar growth story should be in my portfolio for years to come.
This commentary originally appeared on Real Money Pro on Dec. 22. Click here to learn about this dynamic market information service for active traders and get more great columns like this from Bret Jensen, Paul Price, Doug Kass and others.