3 Profitable Small Biotech Names to Consider

After a promising start last Monday, stocks last week reverted back to the abysmal environment they have been trading in throughout the fourth quarter. By the end of the week the S&P 500 had fallen 4.6%, its largest weekly drop since March. The Nasdaq lost almost 3.5% on the week. Worst hit was the Russell 2000, which fell over 5.6% on the week, as seen in the iShares Russell 2000 ETF . iShares Russell 2000 ETF (IWM) View Chart » View in New Window » The direction of small-caps is perplexing, outside of investors going completely risk off in their portfolio allocations over the past few months. As can be seen above, the performance of small-caps has been dismal since the fourth quarter began. Other than housing and auto sales, the domestic economy is strong and consumer as well as business confidence remains near historical highs. Job growth continues to be steady and the unemployment rate hovers near half-century lows. The Federal Reserve also seems to be considering a less aggressive interest rate trajectory in 2019 than previously signaled. Now if we can just see some ebbing of trade tensions and the advancement of trade negotiations in coming months, stocks could see much sunnier skies in the New Year. One of the worst-hit parts of the market is the small biotech space. Investors there can't be blamed for feeling somewhat Twistian for wondering when the beatings will stop. It was encouraging that we saw mid-cap oncology play Tesaro Inc. taken out in a $5.1 billion buyout with a large premium early last week. A return of merger-and-acquisition activity would substantially boost the sentiment on this beaten-down area of the market. I have continued to add some allocation to the biotech sector during the recent dip in the market. I primarily am doing so by executing buy-write option strategies using diversified biotech ETFS such as the SPDR S&P Biotech ETF as well as on large biotech stalwarts such as Gilead Sciences Inc. . Going down the risk curve, several small-cap companies that have achieved profitability and have no need for raising additional capital come to mind. They include Exelixis Inc. , ANI Pharmaceuticals Inc. and Supernus Pharmaceuticals Inc. . The first two names have behaved well recently. Supernus saw its shares sink around 20% last week after results from two late trials around evaluating its drug candidate SPN-812 in children with attention deficit hyperactivity disorder (ADHD) came out. It should be noted that both trials hit their primary endpoints and that Supernus still attends to file a marketing application for this new compound in the second half of 2019. However, the data were not as impactful as some investors had hoped. More data around these trials will be released in coming months. More importantly, the company's two major approved drugs continue to see rapid sales growth. Earnings should be up some 50% in fiscal 2018 and the stock now sells for 20x those expected profits. This is too cheap, and I added some exposure Friday to Supernus on the stock's sell-off. Next down on the risk scale are small companies that are not generating earnings yet but have recently approved compounds. Importantly, these names should be able to reach profitability with little or no additional capital needs. I'll look at some of these promising but beaten-down concerns in my next column.

3 Profitable Small Biotech Names to Consider

Exelixis Inc., ANI Pharmaceuticals and Supernus Pharmaceuticals should not need to raise more capital in the foreseeable future.

Columnist Conversation

Semiconductor Sector Dynamics

Updating the DIA

Pondering These Pot Stocks

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.