The biotech space has been one that has garnered incredible attention as of late, and for good reason. The truth of the matter is that new treatments are being developed for various ailments on a regular basis, and when these treatments receive regulatory approval, they tend to quickly become high-value assets.
When many think of investing in biotech, they tend to look for large companies like Bristol Myers Squibb (NYSE: BMY), Pfizer (NYSE: PFE), and AbbVie (NYSE: ABBV). The idea is that size brings stability, and with respective market caps of $82 billion, $200 billion, and $110 billion, these are some of the biggest players in the game.
However, taking a look at any of these stocks over the past year paints a concerning picture. Pull up your stock chart and this is what you’ll see:
- Bristol Myers Squibb – One year ago, BMY was trading at more than $62 per share. Today, the stock is trading at around $50 per share after giving up around 20% of its value.
- Pfizer – One year ago, PFE was trading at more than $44 per share. Today, it trades at under $36 per share after falling around 18%.
- AbbVie – One year ago, ABBV was trading at more than $94 per share. Today, the stock trades at around $74 per share after losing more than 20% of its value.
So, the large, what many consider to be “safe” plays aren’t always what you would expect them to be. Moreover, because these companies already have an established value and established products on the market, there’s not much room for monumental runs.
That’s why I’ve taken a particular interest in clinical stage biotech companies. After all, could you imagine investing in Bristol Myers Squibb at $2 per share, PFE at around $0.70 per share, or ABBV at $30 per share? That’s the kind of opportunity that you see when you make the right moves in the clinical-stage biotechnology space.
One stock that I see as a potential blockbuster opportunity is Spherix (NASDAQ: SPEX). Here’s why:
SPEX Recently Made A Huge Move
In the past, Spherix was essentially a technology agnostic patent company. It didn’t actually take part in the R&D, choosing to license the use of its patents out and generate revenue in that way.
More recently, outside of the patent business, the company acted much like a hedge fund, making investments in biotechnology companies with high value assets. The most successful of these investments was a $700,000 investment in Hoth Therapeutics, which in a short period of time, grew to be worth more than $10 million.
Nonetheless, the core of the business took an interesting, and what may prove to be an incredibly valuable, turn as of late. In early September, SPEX announced that it would acquire CBM BioPharma.
This is an important acquisition because along with the company, comes its clinical-stage assets under development. The first of these assets is known as KPC34, a drug under development as an orally administered therapeutic option for patients with Acute Lymphoblastic Leukemia (ALL) and Acute Myeloid Leukemia (AML). Importantly, this treatment has already shown signs of improved efficacy over the standard of care in these two types of cancer. Unlike other drugs on the market, KPC34 appears to have a dual action in cancer cells, both inhibiting DNA replication and interfering with an important enzymatic process.
The second drug under development at CBM BioPharma is known as DHA-dFdC, or Gem-DHA. Designed to target pancreatic cancer by oral administration, this treatment is also showing great promise. In particular, animal studies have shown that the drug inhibits tumor growth in aggressive pancreatic cancers and is significantly more effective than the chemotherapy drug gemcitabine, one of the current standards of care. Unexpectedly, the drug shows higher accumulation and slower clearance from the pancreas relative to other organs. Another promising finding is that the drug is effective against cancer even in animals that have developed resistance to gemcitabine.
The Market Potential Is Astonishing
Both of these assets have the potential to become highly valuable in the long run. To start, KPC34 targets some of the hardest-to-treat cancer types in ALL and AML. At the moment, the standard of care options in the space are known as gemcitabine and cytarabine. KPC34 has already outperformed cytarabine in early studies.
This is a huge win for the company, and its KPC34 asset. After all, cytarabine is used in various combination treatments, generating hundreds of millions in sales annually. In fact, just one of these combinations, Vyxeos® by Jazz Pharmaceuticals (NASDAQ: JAZZ), generated $75 million in sales in the first three quarters of 2018.
Should SPEX bring KPC34 to market, it will hold a commercial asset that has the potential to perform better than the current standard of care. This means that it could take a large chunk of the ALL market that’s expected to grow to be worth more than $3.5 billion by the year 2026, the AML market that’s expected to be worth $2.2 billion by the year 2025, and the Pancreatic cancer market with expectations that it will grow to be worth more than $4 billion by 2025. A break into any one of these markets would generate significant growth for the company and its investors.
Looking at the DHA-dFdC asset, we see more of the same. The treatment is targeting the high-value pancreatic cancer indication, and drug is showing serious promise.
Pancreatic cancer is the 7th highest cause of cancer mortality in the world. There are currently almost 460,000 new diagnoses per year and more than 430,000 deaths. The incidence of pancreatic cancer is steadily increasing in the Western world. Data indicate that, in the US, the incidence of pancreatic cancer has increased by a little over one percent every year between 1973 and 2014. Predictions are that, by 2030, pancreatic cancer will rise from from being the 4th to the 2nd most common cause of cancer-related death.
Thus, the DHA-dFdC could end up giving gemcitabine a run for its money, and there’s a lot of money to run for. Annual sales of gemcitabine come to more than $1 billion! Think about the amount of money a competing drug that generates superior results could generate!
An Important Factor To Consider In Developmental Biotechnology Companies
The truth of the matter is that developing new drugs can be a very expensive process. So, if you’re looking into potential investments in early-stage biotechnology plays, it’s important to look at the foundation, the company’s finances.
This is yet another area where SPEX shines. At the moment, the company trades with a market cap of under $5 million. That’s less than half of the book value of its assets, screaming undervaluation.
Importantly, due to its diverse investments, the company has $13 million in assets. This ultimately means that the company is in a strong financial position, with enough funding to make it through multiple catalysts ahead.
In fact, as a source of validation to that statement, just take a look at the company’s most recent press release. When was the last time you heard of a NASDAQ-listed company that trades under $5 million offering up dividends? Well, Spherix recently did just that!
The Bottom Line
The bottom line here is simple, large biotech plays can be just as risky as small ones. However, small, clinical-stage biotech companies tend to offer the opportunity for much larger gains in value. Spherix is a perfect example of this.
While SPEX currently trades with a market cap of under $5 million, the argument that the stock is highly undervalued is an easy one to make. Just take a look at its balance sheet. Moreover, with the company embarking on a journey into incredibly valuable market opportunities with its recent acquisition of CBM, combined with the financial stability that its moves in patents and investments in third-party biotech’s provides, Spherix is a stock that should not be ignored!
Don’t Miss The Next Big Story!
Join our mailing list below to receive real-time news alerts!