Four Small Biotech Stocks With Great Promise
I'm actively trading all four names. Here's what you need to know.
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Market action is mixed on Tuesday, with breadth running 3,500 gainers to 5,400 advancers. The big recent stock movers are seeing profit-taking, and there is some rotation back into the Magnificent Seven MAGS names. Bitcoin-related names, small-caps, and Tesla TSLA are weaker, while Nvidia NVDA and Meta META are better.
This is not unhealthy action. Many stocks need to reset after the big run, and they can afford to pull back without doing any significant technical damage. Dip buyers are lurking, and we should see signs of interest as things drift lower.
I wanted to update several small-cap biotechnology names that recently reported earnings.
Xeris Biopharma XERS reported its twelfth straight quarter of better than 20% growth. Estimates were raised slightly, the company has plenty of cash, and it is expanding its sales force. All three of its core products are selling well and growing. If the company was simply selling these products, it would have an attractive valuation, but the primary reason I'm interested in Xeris is that it is looking for ways to leverage its subcutaneous Xerijet technology.
The company is currently testing with Amgen AMGN and others, but there are nondisclosure agreements, and there are few details available about progress. If the company does obtain a licensing agreement, the stock will fly. Xeris is also working on its own new product in a program called XP-8121. This is a potential billion-dollar market, and there will be some substantial progress in it in 2025.
I view Xeris as a very safe play due to the valuation based on its current product, and it also has huge upside on a partnership or new product basis. News could come at any time, but not likely until the first quarter of 2025. Extreme patience is required.
Humacyte HUMA has also been tremendously frustrating. It is ready to launch its Acellular Tissue Engineered Vessel and is moving on to a variety of other indications, but the FDA is over three months late in granting a biological license.
Humacyte was awarded an accelerated review and expected an FDA decision in August, but the decision has been delayed, and it is very unclear why. Management believes that they will receive approval "imminently," but this is not a sure thing. The normal FDA deadline would have been December 9, so that may be a likely target date now.
Two other small biotechnology names that had good reports this quarter and sold off are ClearPoint Neuro CLPT and Delcath Systems DCTH. Both companies are at an early stage of ramping up revenues and have had good operational performance.
ClearPoint provides a 3d MRI platform for neurosurgery that helps guide precision brain and spine procedures. After ClearPoint's third-quarter report, Lake Street raised its price target to $17 and stated, "Q3 outperformance was driven by another quarter of broad-business strength. The business has significant growth momentum, expectations are in check, profitability is improving, and the balance sheet is solid."
Delcath Systems sells a delivery system called Hepzato for drugs used to treat a rare form of cancer. The company reported $11.2 million in revenues in third quarter, beating estimates of $9.45 million. It has paid off all debt and is in a good cash position. Sales should ramp up nicely next year, but the big potential lies in expanding its Hepzato platform to treat other forms of cancer. The company says there is broad interest from oncology leaders.
I'm actively trading all four stocks, but they will all require patience, and they will trade very thinly and randomly at times.
At the time of publication, Rev Shark was long XERS, HUMA, CLPT and DCTH.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider several of the names mentioned to be small-cap 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.
