2 Speculative Small-Cap Biotech Stocks You Should Know About
Many small-cap biotech names in my portfolio have more than doubled since the summer.
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I have to admit I am somewhat envious of investors who have ridden the AI wave to great profit or that have large gains in Bitcoin in recent months. Neither area fits my investment criteria or style, so I will just have to learn to live with my sense of FOMO that was never exercised.
Helping to ease that pain greatly, however, is the huge bounce we have seen in small biotech stocks in recent months. Since its low in late October, the SPDR S&P Biotech ETF XBI is up some 50%.
Indeed, I have many small-cap biotech names in my portfolio, such as Tourmaline Bio TRML , that have more the doubled since the summer. Iovance Biotherapeutics IOVA has more than quintupled off its recent lows.
To be honest, a good portion of my holdings in these names are via covered call positions, which will naturally reduce themselves when they expire in the money. I am also taking some gains in the positions I hold straight equity in as well.
There are a couple of reasons to do this. First, no investor ever went broke taking some profits. Second, the small biotech sector tends to move in waves and historically has been one the areas of the market where one wishes they would have "sold in May and went away." In short, I could see some profit-taking around the corner in many of these names and I am slowing my investment in the space considerably.
That said, there are a couple of speculative names that have decent runs but could have more upside. One of these is Lyra Therapeutics LYRA , which sports a market cap just under $300 million.
Lyra is working on a more effective mouse trap so to speak. In Lyra's case, this is an implant that can deliver steroids effectively to treat Chronic Rhinosinusitis (CRS), which is an inflammatory disease of the paranasal sinuses. This would be more effective than nasal sprays in several respects. Top-line results from a Phase 3 study from the company's primary pipeline candidate should be out sometime in the first half of this year. I am willing to make a small wager, the results will be positive. Positive data would also help validate the company's underlying development platform.
I also still like OmniAb OABI as a speculative name, with a market cap of around $750 million. The company was spun off from Ligand Pharmaceuticals LGND in late 2022, where it came public merging with a SPAC.
OmniAb feels like it is just starting to come into its own. The company's business model is to discover promising antibody candidates which it then licenses to larger concerns for development. This has resulted in three approved compounds on the market as well as some two dozen in some state of clinical development and hundreds in a pre-clinical state.
OmniAb gets a small upfront licensing fee for these license fees from these arrangements. It then can earn development/regulatory milestones as well as a royalty stream on approved products. Its business model is similar to AbCellera Biologics ABCL , a name in which I also have a small position, in a rapidly expanding market.
To put this in perspective, there were more than 50 antibody-based products that each had $1 billion worth of sales or more in 2022. My long-term small position in OABI is a way for me to play this huge and growing market.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider and LYRA and OABI to be a small-cap speculative stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
At the time of publication, Jensen was long ABCL, IOVA, LYRA, OABI and TRML.
