Keryx and Peers are Strong Buys
Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There is no shame in wanting to find cheap investments that pay off in the long run. The trouble is it can be tough to tell what is worth your money and what is cheap simply because it is worthless.
Some are struggling companies that might never recover and I would encourage you to avoid the temptation of a low price. In other cases the prices are low, but the stocks are worth a great deal. For these stocks, now is the time to buy and hang on until something major happens and the prices soar.
Keryx (NASDAQ: KERX) is currently selling for around $1.50 and has been floundering, primarily because its flagship drug perifosine failed its latest round of clinical trials. The drug was intended to offer a new treatment option for those suffering from colorectal cancer. When it did not live up to expectations, Keryx plummeted more than 60% and continues to fall.
Now, the stock is priced like a "call" option with a binary outcome of either failure or success. Keryx still has hope, but investors do not really share their positive views. The company released a statement following the drug failure stating it would focus on the only other drug in its pipeline, Zerenex, which is used to treat chronic renal failure. Part of the reason Zerenex has gotten so little attention is because people were focused on perifosine. Fans of Zerenex are glad to hear perifosine will no longer be a distraction, although Zerenex already has several competitors capable of performing just as well. This is why many believed the future of Keryx needed perifosine to survive.
The company still has approximately $30 million in cash to fund operations, and a quarterly burn rate of around $4 million to $6 million, depending on research demands. For the company to succeed with Zerenex, it needs successful trials in its fourth quarter and a new drug application from the FDA. Recently, the stock saw a 22% gain on news of a successful clinical trial for Zerenex that was completed in Japan. Thus, this stock may be down, but it is definitely not out.
Your next low-budget option is Arena Pharmaceuticals (NASDAQ: ARNA). Arena is currently selling for around $6 a share after nearly doubling from $3.50 to $6.50 on May 10th after the FDA advisory committee found that the benefits from Lorcaserin outweigh the risks. Lorcaserin is an investigational weight loss drug.
Arena is a clinical-stage biopharmaceutical company with a focus on developing and commercializing oral drugs targeting the central nervous system, inflammatory disease, cardiovascular disease, and metabolic disease. Arena's pipeline receives a lot of attention because of its drug Lorcaserin. It is a weight-loss drug in phase three clinical trials and intended to help with weight management. The market size is huge. 150 million people in the U.S. alone are obese.
The weight loss market and weight loss drugs are a big deal in the biotech industry. It has been a long time since a weight loss drug has received approval, following several problems with drugs approved in the last few decades. Weight loss drugs tend to make the FDA nervous and that can frighten investors. However, consumers are going to embrace weight loss drugs even if there are some risks involved. For this reason I think Arena is one of the best stocks trading like a "call" option out there. It is dirt cheap at the moment, but if it manages to get a weight loss drug to market, the stock price is likely to soar. On top of this, Arena's first quarter 2012 results showed a decline in expenses across the board, another good sign this biotech is able to manage expenses when necessary. The company has $57 million in cash on hand.
Next up is Idenix Pharmaceuticals (NASDAQ: IDIX). The company is focused on developing treatments for viral infections and other infectious diseases, including hepatitis B, hepatitis C, and HIV. Idenix is best known for its role in the development of telbivudine, a drug it discover and co-developed with Novartis Pharma AG (NVS), which is now marketed under the names Tyzeka and Sebivo. This agreement permits Idenix to collect royalty payments, one of my favorite things to which a company can have access. Investors should note that Idenix could be looking for an additional licensing partner (beyond Novartis) for other earlier stage drugs in its pipeline like IDX719. Novartis already has exposure to Tyzeka and could take a wait-and-see approach before committing to earlier stage drugs.
Idenix has a great approach to developing new drugs and has a healthy pipeline with a forward-looking approach. There are five drugs in development, all intended to treat hepatitis C. Granted, there are significant marketing and partnership risks for Idenix and a volatile market could turn the company upside.
Coming in around $10 is Spectrum Pharmaceuticals (NASDAQ: SPPI). Spectrum is a biopharmaceutical company with a diverse portfolio of oncology and other drug candidates that meet critical health challenges for which there are few other treatment options. Spectrum has a self-stated goal that reads "… to identify, develop and deliver better options for people suffering from cancer. Everyone is committed to excellence and strives to make a difference every day." The company is considered one of the country's best companies to work for. Though this has no direct effect on its marketable products, it usually means the company will be around for awhile because employees are content.
Spectrum focuses primarily on cancer treatments and has a number of drugs in various stages of development for both urology and oncology. Two of the drugs, Fusilev and Zevain, have been available for awhile now. Fusilev for injection was approved in April 2011 and is for the treatment of patients with metastatic colorectal cancer. The drug was previously approved in 2008 as a high-dose methotrexate rescue therapy in osteosarcoma. Spectrum has been increasing its production of Fusilev, which successfully treats colorectal cancer. Spectrum also has a strong pipeline filled with drugs in phase 2 and 3 clinical trials. Little attention has been paid by market participants to Spectrum's Chronic Kidney Disease candidate, SPI-014, which has a potential $1 billion market if it earns eventual approval. The drug is in phase 1 trials at present and might not be available for 2 to 3 years.
Dendreon (NASDAQ: DNDN) is worth discussing in this analysis. Dendreon's flagship drug, Provenge, has faced a number of problems, but it continues to fight back and overcome the challenges. Provenge is also expensive, at around $90,000 per patient (approximately $31,000 per infusion) and tends to scare off some investors, but it works and is supported by Medicare. The company invested over $1 billion developing the drug, and with the help of patent protection, should be able to recoup it and more. The company has met its goals for drug production. Dendreon did get approval for its Georgia factory and California manufacturing facility last fall. Production is likely going to be less of an issue going forward.
In addition to Provenge, Dendreon is focused on creating cancer therapies that help more than hinder. Many common treatments make a patient sick and cause secondary problems, but Dendreon sees a healthier, brighter future for cancer patients. I think this attitude makes Dendreon a standout in the industry. Dendreon also has another drug in its pipeline targeting various forms of cancer including ovarian, breast, and colorectal forms of the disease. I believe Dendreon is an investment with strong potential for those looking for low-cost stocks.
jordobivona has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.