Top Picks 2017: Aratana Therapeutics

01/11/2017 6:00 am EST


Bret Jensen

Editor, Biotech Gems

With a market capitalization of approximately $300 million, our Top Pick among small caps is an under the radar biotech idea, explains Bret Jensen, editor of Investor Alley's Biotech Gems.

Aratana Therapeutics (PETX) had a good year in 2016 as the shares rose some 60% during the year. 

However, the company might have had a better year and one that was not fully reflected in its stock price primarily because 2016 was a dismal one for the biotech sector, which dropped some 20% on the year.

Aratana saw not only its first drug approved by the FDA, but its second and third as well. The company is a unique veterinary drug play.

Animal health saw some significant M&A activity during the year as drugs are much less costly to develop in this space and the amount of spending on animal health keeps rising nicely on an annual basis.

The compound partnered its first compound, galliprant -- which treats osteoarthritis in canines -- with Elanco, a subsidiary of Eli Lilly (LLY). 

Aratana received a large upfront payment with Elanco in charge of marketing and distributing this drug with Aratana collecting sales milestones and royalties.

I expect the company to enter similar deals in 2017 for its two other approved drugs if Elanco does not end up buying the company outright.

Aratana has another half dozen compounds in development and is well funded. I like the company’s future either as a standalone entity or as a buyout target. 

From a “sum of the parts” evaluation the shares still appear significantly undervalued despite a nice rally in 2016. I think it books a similar gain in 2017 -- if the company is not purchased outright.

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