2 Small-Cap Biotech Stocks I Continue to Like

While the media was focused on impeachment hearings in D.C., and third quarter earnings season was winding down, equities once again hit all-time highs last week. All the major indices set new records and the Dow crossed the 28,000 level for the first time on Friday. While manufacturing continues to be hit hard by trade tensions and a slowing global economy, the consumer is keeping the economy afloat. October retail sales rose a better than expected .3% Friday, showing a strong jobs market continues to buoy consumer confidence despite the nonsense emanating from the capital. Today, we are going to revisit two small-cap biotech names after the third quarter results they posted last week. Omeros posted better than expected top and bottom line Q3 results Tuesday. Omidra sales came in stronger than expected with a 12% sequential increase from the previous quarter. The company also continues to advance narsoplimab, its late stage pipeline asset that has blockbuster potential and is targeting five rare disease indications. Recently, the company submitted to the FDA the nonclinical sections of the Biologics License Application (BLA) for narsoplimab for the treatment of hematopoietic stem cell transplant-associated thrombotic microangiopathy also known as HSCT-TMA. Approval looks likely for this indication in the second half of 2020. So why is the stock down over the past month? Evidently the CMS' final rule related to its outpatient prospective payment system for opioids and non-opioid alternatives for 2020 published on November 1st did not include Omidria in the non-opioid exclusion from packaged payment. This means Omidria will lose its 'pass-through' status for Medicare and other government programs on October 1st of next year. The last time this happened it came on short notice and Omidria took a huge hit to sales for a year until this was resolved by legislation that restored pass through status for two years. This time the company has more notice, and since more products were impacted in the industry, created more potential allies. The company and this coalition is already lobbying for and seems to be finding a bipartisan ear for resolving. New legislation if successful would establish 'pass-through' status for a period of five years this time around. The CEO sounded extremely confident on the third quarter conference call that this would be resolved in the first half of 2020. In addition, Omidria received a coveted J-Code effective October 1 which makes reimbursement much easier for commercial payers which is approximately 45% of overall sales. I added some more exposure to Omeros on the stock's dip this month. Amicus Therapeutics reported better than expected Q3 results the day before Omeros. The rollout of Galafold for Fabry Disease continues to go swimmingly well. The compound delivered just under $50 million in revenues for the quarter, a 137% increase from a year ago and up 11% sequentially from the second quarter. The company expects Galafold to deliver $170 million to $180 million in sales in FY2019 and $500 million by FY2023 on its way to peak sales of approximately $1 billion. In addition, its candidate for Pompe Disease is advancing in mid-stage development. If successful and approved, the company believes this candidate has $1 billion to $2 billion peak sales potential. The company should end FY2019 with approximately $420 million in cash on the balance sheet. With a market cap of less than $2.5 billion, the stock seems significantly undervalued from a 'sum of the parts' valuation. Given the interest in rare disease concerns, the company would also make a bit size acquisition for a larger player in the space.

2 Small-Cap Biotech Stocks I Continue to Like

Both these names reported third-quarter results last week.

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