3 Biotech Stocks Under $5

Out of all the investing topics I’ve covered over the years, small-cap biotech tends to be one of my favorites.

Not for the faint of heart, young, development-stage biotechnology companies have the ability to inject some real excitement into your portfolio. Due to the nature of catalytic events such as clinical trials and FDA panels, it’s no surprise these stocks can go either “boom” or “bust” in a matter of hours.

Now, it should go without saying that small-cap biotechs are generally high-risk investments. Anyone who tells you otherwise is likely a fraud…

But that’s not to say the potential rewards are never worth putting your money on the table. After all, over the last four years, the biotech sector has been nothing short of unstoppable.

Even with the S&P up a respectable 60%, biotech has dramatically outperformed the broader market:

Yet even a 243% gain over four years is chump change to the kind of movement you often see from small companies within this industry. Four-digit gains aren’t uncommon over the same time frame. Three-digit gains happen all the time on a yearly basis…

I could go on and list all the numbers, but that would be a bit tacky. The key takeaway here is when biotechs move, they tend to do so quickly.

That being said, the best way to pull a profit on these kinds of investments is to get in early, either leading up to the release of clinical trial results or right before a crucial regulatory decision or event.

Of course, picking the best prospects isn’t always easy. Between obscure press releases, dense clinical data, and manipulative message boards, there sure is a lot of noise out there to sift through — not to mention the fact that doing so requires at least some background in scientific study methods and data analysis.

Even if you do have all the data and the skills to interpret it, though, there’s still no such thing as a guarantee. This is true with virtually all forms of investing, but it is especially so with development-stage biotech…

This is why when you invest in small-cap biotech, you should never put down more than you’re willing to lose. Obviously every individual’s financial situation is unique, but having anywhere from 10% to 15% of your portfolio allocated to speculative investments is a good rule of thumb.

That being said, let’s take a trip to what many are keen to refer to as the stock market casino. If you’re not a regular, don’t worry: We’re about to direct you to a few of the tables with the best odds.

3 Biotech Stocks Under $5.00

Synergy Pharmaceuticals (NASDAQ: SGYP)

Synergy Pharmaceuticals is a small, $500 million company developing a number of novel treatments for gastrointestinal (GI) disorders and diseases. It has two major products in the pipeline…

The first candidate is Plecanatide (SP-304), a treatment for irritable bowel syndrome (IBS) and constipation.

SP-304 is currently in phase 3 trials for both indications, each of which is being split into two studies. That’s four catalysts for one drug, all phase 3.

This is the absolute sweet spot for development-stage biotech, as phase 3 results will generally determine whether or not a therapeutic makes it to market.

After looking at phase 2 trials, I’m convinced Plecanatide has a strong potential for approval. The drug met all endpoints for both IBS and constipation — and with a strong safety profile. Specifically, results showed statistically significant improvement in complete spontaneous bowel movement (CSBM) frequency.

Taken from the data release:

Plecanatide showed a statistically significant difference from placebo in the overall FDA responder endpoint (21% placebo vs. 41.9%, p=<0.05).

Of equal importance is the addressable market and competitive advantage Synergy offers.

Plecanatide works similarly to a drug called Linaclotide (marketed as Linzess) from Ironwood Pharmaceuticals (NASDAQ: IRWD), but with decreased side effects (a lower rate of diarrhea). Revenue for Linaclotide hit $95.5 million last quarter, and sales have been increasing ~57% year over year.

Needless to say, these would be huge numbers for a company valued at just $500 million. For perspective, Linzess is Ironwood’s only commercial product, and the company sports a market cap of $1.77 billion.

Adding to this growth potential is another novel candidate, SP-333, which is targeted to treat opioid-induced constipation (positive phase 2 results) as well as ulcerative colitis (currently in phase 1). It’s likely Synergy is waiting to see what happens with Plecanatide before entering into phase 3 for SP-333.

Geron Corporation (NASDAQ: GERN)

Geron Corp. is a development-stage biotechnology company with a market cap just above $600 million. The company’s future depends largely on the successful development of cancer therapeutic Imetelstat — its primary pipeline candidate.

Imetelstat works by inhibiting telomerase, a molecule responsible for regulating cell division. Without getting into too much detail, Imetelstat prevents malignant tumors from growing by cutting off their instructions to do so.

Our non-clinical data also suggest that inhibiting telomerase is particularly effective at limiting the proliferation of malignant progenitor cells, which have high levels of telomerase and are believed to be the key drivers of tumor growth and progression.

As for efficacy, the data for Imetelstat is incredibly positive so far. The key indication for the drug right now is myelofibrosis, a rare and often fatal form of leukemia without any disease-modifying drugs available.

Imetelstat was able to produce a 44% response rate in recent trials, far better than any other treatment anywhere near development. Likewise, the drug resulted in ~23% complete and partial remissions. That might sound low, but this is a highly fatal disease with one- to three-year survivability.

As Dr. Ayalew Tefferi of the Mayo Clinic in Rochester stated after seeing the data: “We have never seen this kind of complete response.”

It should be of little surprise then that Geron has recently entered into an exclusive agreement with Johnson & Johnson, providing the company with a strong development partner and also some working capital.

It’s still early in the development phase, but with such promising data and Big Pharma now at its side, Geron’s future is looking pretty bright.

AcelRx Pharmaceuticals (NASDAQ: ACRX)

At a $180 million market cap, AcelRx is nearly as small as biotech companies get.

AcelRx is currently developing therapies for pain treatment, which on its own probably sounds like nothing new… The value of AxelRx’s novel therapeutics, though, is in the rapid delivery of pain medication where standard oral and intravenous methods are not practical.

Specifically, the company is targeting the battlefield and certain emergency room situations/hospital settings. In fact, the company was recently rewarded a $17 million development contract from the United States Army Medical Research and Materiel Command within the U.S. Department of Defense.

The company’s leading product candidate is Zalviso (sufentanil sublingual NanoTab system). Zalviso is an oral tab that’s rapidly absorbed through oral mucosa — a specialized type of tissue that lines the mouth.

This delivery method allows Zalviso to bypass the gastrointestinal tract as well as first-pass metabolism in the liver. In short, it combines the speed of intravenous delivery with the convenience of oral delivery.

In mid-2014, AcelRx was bidding for a new drug application (NDA) through the FDA. At the time, shares were trading near $11.00. However, a complete response letter (CRL) from the FDA asking for additional data sent the stock plummeting.

Then in May 2015, the company was denied a request to meet with the FDA, essentially forcing it to perform an additional study. The events are likely to set back the approval of Zalviso towards the back end of 2016, which was enough to spark another major sell-off.

For longtime investors, this was no doubt unwelcome news, but for anyone not yet in the stock, it could be a major discount. In fact, we think these events have made AcelRx one of the most attractive biotech stocks under $5.00 right now.

Until next time,

Jason Stutman

Check us out on YouTube!