Don’t Miss Out, Buy These 2 Hot Biotech Stocks Under $3

Most of my day is taken up by researching, investing in and writing about the lucrative but extremely volatile biotech sector. It is not an area for the timid, the faint of heart or for investors that like to keep volatility low within their investment portfolios. However, when you purchase a stake in a small, speculative and promising concern that delivers successful trial results the returns can be outstanding.

This fact was brought home once again when a recent Biotech Gems recommendation (shameless plug) Tracon Pharmaceuticals (NASDAQ: TCON) rallied over 35% on the 17th. The trigger for the rally was an announcement by the company that a patient with an aggressive form of uterine cancer is experiencing an ongoing complete response after being treated with the company’s investigational TRC105 in combination with blockbuster drug Avastin (bevacizumab). The patient received this investigational combination under a “compassionate use” exception.

Although this potentially lucrative new compound is still in early stage trials, the investment case for Tracon has strengthened as the company has some upcoming catalysts that could lead to even more capital appreciation. By year end, this drug “TRC105” should have initiated a Phase II trial for this type of uterine cancer. The company also plans to apply for Orphan Drug Status for this indication and soft tissue sarcoma by the end of the year with the FDA.

Obviously most early stage trials do not deliver this sort of impressive result and most drugs fail somewhere along their rigorous journey to approval. This is why it is crucial that investors must be widely diversified within this portion of their portfolio dedicated to “risk on” and high beta small biotech stocks. Because, when a trial at a company you own blows up in your face – and it will sooner or later, trust me on this, having a widely diversified portfolio will mitigate the fallout.

I have long dubbed this philosophy “Shotgun Investing” and it involves taking myriad smaller stakes in attractive but speculative concerns in a variety of treatment areas that comprise biotech/biopharma research at the moment. That being said, here are a couple of these smaller concerns that are in my portfolio and have been on the move lately. Both should have significant further capital appreciation potential if upcoming catalysts prove to be positive. Both stocks currently go for approximately $3.00 a share.

Synthetic Biologics (NASDAQ: SYN) is a small (around $300 million market capitalization) clinical-stage biotechnology company, that develops pathogen-specific therapies for serious infections and diseases with a focus on protecting the microbiome. Our microbiome resides on the surface and in deep layers of the skin (including in mammary glands), in the saliva, oral mucosa, and in the gastrointestinal tracts of the body, and is an essential part of the human body’s overall health. Synthetic Biologics is developing therapeutics to protect the microbiome while targeting pathogen-specific diseases.

This stock has been on the move since being included in the Biotech Gems portfolio two weeks ago. On Monday, the company presented data from its novel SYN-004 program that demonstrated SYN-004 protected the gut microbiome from damage often caused by the intravenous (IV) beta-lactam antibiotic, ceftriaxone, in a pilot study of humanized pigs. This promising compound is in the midst of a Phase II trial.

In addition, the company is expected to deliver a top-line readout in the near future for its compound “Trimesta.” If positive, this could result in a collaboration deal with a larger industry name. A partnership opportunity could create substantial shareholder value because it is likely that a multiple sclerosis drug like Trimesta would command a substantial license agreement given the drug’s potential to enhance the treatment for MS in combination with Teva Pharmaceutical’s (NASDAQ: TEVATEVA) blockbuster drug Copaxone which does over $4 billion in annual sales. I like Synthetic’s evolving pipeline and its multiple “shots on goal” at current valuation levels. Upcoming catalysts could take the shares significantly higher if they are positive.

Next up is OncoGenex Pharmaceuticals (NASDAQ: OGXI) is about where it was since I last talked about it on these pages six months ago (Notation 1).  The stock had moved just above $3.00 a share recently, but gave up those gains as one of the indications it was testing its compound “apatorsen” in a phase 2 trial did not meet its primary endpoint last Wednesday.  I still think the shares have substantial upside if the company can deliver positive trial results for other indications of apatorsen or of its other compound “custirsen”.  Needham  recently reiterated its “Buy” rating and $6.00 a share price target on OncoGenex.

The company has several late stage trials ongoing currently for custirsen and apotorsen in late stage trials.  The next potential positive catalyst should be a topline readout from a poor prognosis subpopulation in the Phase III AFFINITY trial with custirsen for treatment of prostate cancer.

The company has a market capitalization of just under $75 million.  With a recent secondary offering, OncoGenex has some $70 million of net cash on the balance sheet with will fully fund trials through 2016.  With some positive developments within its evolving pipeline, the stock could easily shoot much higher.

Both of the stocks profiled above are high risk/high reward small cap concerns worthy of consideration within one’s “Shotgun Investing” portion of their biotech portfolio.