3 Names Making the Case That Investing in Small Biotech Is Never Dull

One thing nice about investing in the small biotech space is that there is never a dull moment. This is especially true during earnings season, when there is a litany of quarterly results to digest along with the usual spate of trial data, conference presentations, Food and Drug Administration (FDA) actions and new analyst ratings. There has been quite the news flow this week in small biotech land. Here, I'll update my investment theses on three names I have highlighted previously in order to account for recent items in the news. Let's start Karyopharm Therapeutics Inc. , which blew away the consensus when it posted third-quarter results Monday. Initial sales of recently approved Xpovio were slightly below $13 million, which beat any expectations for this drug that was just approved for heavily pretreated multiple myeloma. Karyopharm has a couple potential near-term catalysts on the horizon. In early 2020 Xpovio should be approved in Europe for the same indication. In addition, there are pending late-stage trial results for Xpovio to treat relapsed or refractory diffuse large B-cell lymphoma. If the data are good, which I think is likely, Karyopharm will file a New Drug Application (NDA) requesting accelerated approval for that indication, which would expand Xpovio's label nicely. The double-digit percentage rise in the stock this week could be the start of a longer-term rally if Karyopharm continues to execute. Pieris Pharmaceuticals Inc. is also on the move higher this week. Pieris announced it has executed a private placement with existing and new institutional investors to raise $32 million. One of the big headwinds to the stock in recent months has been this financing overhang that now has been addressed, relieving a major source of downward pressure on the shares. Indeed, Pieris shares are up about 20% this week. Pieris investors now can go back to monitoring the progress of its pipeline, which has a large amount of shots on goal even if the pipeline is early stage. Phase 1 results from PRS-060, which is targeted for severe asthma and is being developed in partnership with drug giant AstraZeneca AZN, should be out before the end of the year. In addition, early-stage study data from wholly owned PRS-343 aimed at solid tumors should be out before 2019 comes to a close. Finally, we have Supernus Pharmaceuticals Inc. . Supernus shares were off more than 27% before Wednesday's opening bell following the delivery of disappointing third-quarter results after Tuesday's market close. Instead of being up a few percent, revenue growth was flat. In addition, Supernus' late- stage candidate for impulsive aggression failed to meet its primary endpoint in a key study, probably curtailing development of that asset. However, with the projected decline in its stock Supernus will have a market cap of about $1.1 billion. Supernus holds about $550 million in net cash on the balance sheet. It should still do just under $400 million in revenue this year, leaving the shares priced at less than 1.5x sales accounting for the cash balance; that's very cheap for this space. In addition, Supernus' new entry into the $10 billion ADHD space should be approved and launched next year. It also has a late-stage drug candidate aiming at bipolar disorder. Finally, Supernus should deliver over $150 million in free cash flow in fiscal 2019. This gives it a cash flow yield north of 20%, taking net cash on the balance sheet into the equation. That is cheap in any sector of the market. I plan to add to my position via buy-write orders here on Wednesday morning on the equity's decline. Like I said, never a dull moment investing in small biotech.

3 Names Making the Case That Investing in Small Biotech Is Never Dull

Karyopharm Therapeutics and Pieris Pharmaceuticals are climbing this week on positive news, while Supernus Pharmaceuticals takes a hit.

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