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Biotech Bets (and a Goodbye) from a Favorite Expert
05/02/2019 5:00 am EST
After nearly 38 years, small cap, biotech expert Bill Mathews is retiring as editor of The Cheap Investor; we wish Bill and his wife Karen the very best for their coming years. Meanwhile, we leave our readers with some of Bill's parting comments on some of his favorite biotech ideas.
Analyzing biotech stocks is pretty straight forward. The company needs to have enough cash to run for two to three years, several products in various stages of FDA trials, large institutions owning blocks of shares, and a low stock price. Collaborations or licensing agreements with major pharmaceutical firms are icing on the cake.
Enzo Biochem (ENZ) researches, develops, manufactures, and markets diagnostic and research products based on genetic engineering, biotechnology, and molecular biology. Its Life Sciences Products segment manufactures, develops, and markets products and tools to clinical research, drug development, and bioscience research customers.
It offers proteins, antibodies, peptides, small molecules, labeling probes, dyes, and kits, which provide life science researchers tools for target identification/validation, content analysis, gene expression analysis, nucleic acid detection, protein biochemistry and detection, and cellular analysis to life science researchers.
Recommended in the November issue at $3.15, Enzo Biochem moved up 31% to hit a high of $4.13. Now that the price has fallen back to a four-year low, we think it’s time to take another look at the company. It has a fair balance sheet with $42 million ($0.89 per share), a book value of $1.43 per share and debt of $4 .5 million.
The stock is volatile, down from its July 17, 2018 high of $12.04. If the company turns around its financial results, the stock should move upward from this low point.
Aptinyx (APTX) is a clinical-stage biopharmaceutical company focused on the discovery, development, and commercialization of proprietary synthetic small molecules for the treatment of brain and nervous system disorders.
Aptinyx has a platform for discovery of novel compounds that work through a unique mechanism to modulate — rather than block or over-activate — NMDA receptors and enhance synaptic plasticity, the foundation of neural cell communication.
Aptinyx was a hot IPO (Initial Public Offering) in June 2018. It went public at $16, and the stock soared to a high of $32.25 in September. Since then, it has plunged 85% from that high, and we think it’s at a very attractive level to purchase shares.
The stock plunged 63% on January 16 after announcing that its diabetic peripheral neuropathy product failed its Phase 2 clinical trial. While this is not good news for that drug candidate, the company has other products that could do well. We’ve seen a number of biotech stocks rebound from situations like this, and we think that Aptinyx has the potential to do the same.
We like Aptinyx because it has three potential products in various stages of FDA trials for four major diseases – Diabetic Peripheral Neuropathy, Fibromyalgia, PTSD and Parkinson’s Disease. While the stock price has been trending downward, positive news about any of its drugs could send the stock flying.
Achillion Pharmaceuticals (ACHN), a clinical-stage biopharmaceutical company, discovers, develops, and commercializes small molecule drug therapies for immune system disorders.
Its lead drug candidate is ACH-4471, an inhibitor of factor D that is Phase 2 clinical trials for patients with paroxysmal nocturnal hemoglobinuria (PNH) and C3 glomerulopathy/immune complex membranoproliferative glomerulonephritis.
The company is also developing ACH-5228, a factor D inhibitor that is in Phase 1 clinical trials; and ACH-5548, a factor D inhibitor, which is in Phase 1 clinical trials for the treatment of PNH and other complement mediated diseases.
Achillion has a huge amount of cash ($271 million), several drug candidates in FDA trials and collaboration agreements with major pharmaceutical companies. We like the stock for the longer term, as it is selling significantly below its 52-week high of $4.34. The stock is extremely volatile, so we would consider purchasing shares if it fell below $2.25.
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