Smart Money Highlights Oversold Stocks in Small Cap Biotechs

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Biotech has taken a big hit so far in 2016. At the turn of the New Year, the iShares Nasdaq Biotechnology (NASDAQ:IBB) traded at $340. At the end of last week, the index closed out at $284 – a 16% decline across a two-week period. Some companies, of course, have suffered more than others. This is especially true in the development stage as investors pull capital out of riskier small caps. Not all companies warrant their declines, however, and market weakness looks to have left a few stocks oversold. At times like these, following the smart money can help us to identify the oversolds. Here are four companies with top investor backing that could be trading at a significant discount.

Corbus Pharmaceuticals Holdings, Inc.

Corbus Pharmaceuticals Holdings (NASDAQ:CRBP) is down 32% from its 2016 open despite no negative developments associated with its pipeline. The company’s lead candidate, Resunab, is currently undergoing three separate phase II trials, one in cystic fibrosis, one in systemic sclerosis and one in dermatomyositis. The cystic fibrosis indication is the company’s lead, and if Corbus can hit commercialization with Resunab for CF, its market potential is huge.

Current treatment options like Vertex Pharmaceuticals’ (NASDAQ:VRTX) Orkambi for example, price in at more than$250,000 a year. With a target market of 30,000 US CF sufferers, and assuming similar pricing, Corbus will only need a fractional market penetration to turn Resunab into a blockbuster therapy, meaning over $1 billion revenues annually.

Top-line results are expected before the end of the year, giving us plenty of scope for upside if efficacy is demonstrated. Institutional holders include Knoll Capital Management, Blackrock and Perceptive Advisors LLC, with all three having increased their positions over the last twelve months.

Epizyme, Inc.

Epizyme, Inc. (NASDAQ:EPZM) just announced the closing of a public offering that saw it generate a little over $130 million in aggregate net proceeds. Despite this, the company is trading at a 48% discount to its 2015 closing price. Capital from the well-timed offering will go towards advancing its lead candidate, Tazemetostat, in a host of clinical trials investigating the drug across various oncology indications. Lead targets include relapsed or refractory non-Hodgkin lymphoma, for which the company is carrying out a phase II currently, and INI1-negative solid tumors, which again is in an ongoing phase II. Secondary indications include pediatric variations of those already mentioned, three of which are currently in phase I trials.

With additional study initiations pending and slated for the first half of 2016, and interim data from its ongoing phase IIs before the middle of 2016, there is plenty of potential for upside catalysts. At last count, September 30, 2015, Epizyme had $230 million cash on its books. We can assume it has burnt through some of this, but including the latest capital raise, the company looks capable of completing all its ongoing trials without the need for a further raise. At a market capitalization of $500 million – its cash holdings alone probably amount to more than half of this number – Epizyme looks both cheap and full of potential. Smart money looks to agree, with Palo Alto Investors, a small cap fund started by renowned investor William Leland Edwards, disclosing a $27 million, 2.1 million share holding at September 30, 2015.

Repros Therapeutics Inc.

Repros Therapeutics Inc. (NASDAQ:RPRX) hit biotech headlines at the beginning of December, 2015, when the FDA issued a complete response letter (CRL) relating to its lead candidate’s NDA. That candidate is Enclomiphene, which Repros is trying to get approved in a secondary hypogonadism indication. The CRL requested additional phase II data, which requires the conducting of a fresh phase III study, and the cost and delays associated with the extra study impacted investor sentiment. The delays, however, are likely to be just that, and if the company can replicate efficacy data in its extra trial, the CRL induced decline will quickly start to look like an oversell. Repros is meeting with the FDA in February to discuss the CRL, so keep an eye out for this meeting’s conclusions as an indication of the letter’s implications on the company’s cash position.

Looking at its remaining pipeline, focus is now turned to its secondary candidate, Proellex. The company has three ongoing phase IIs – two in a uterine fibroid indication and a third targeting endometriosis. Interim data on endometriosis showed promise, and Repros has stated that it expects top-line data from all three trials before the end of September this year, giving us plenty of data catalysts over the coming 6 to 12 months.

The big name behind this company is Alex Denner, founder of Sarissa Capital Management. He’s the Yale biologist that ran famous billionaire Carl Icahn’s Healthcare Investments portfolio, and his fund currently owns just shy of 5% of Repros.

Akebia Therapeutics, Inc.

Akebia Therapeutics, Inc. (NASDAQ:AKBA) announced the pricing of a public offering during the first week of January, stating a target of $75 million generated through stock issue. It also announced the initiation of a global phase III to investigate the efficacy of its lead candidate, an HIF stabilizer called Vadadustat, in a non-dialysis chronic kidney disease (CKD) indication. A concurrent version of the trial in dialysis patients is set to start enrollment this quarter. If Akebia can successfully develop its candidate through to commercialization, it will open up the company to what analysts expect to be a $19 billion industry during 2016 – a far cry from its current market capitalization of just shy of $300 million. We’ll likely get some interim data from the two phase IIs before the end of 2016, and anything that suggests efficacy should boost Akebiain in anticipation of positive top-line data.

Factor in a large portion of its float being short (currently circa 17%) and a recent raft of insider buys that exceed $4 million across the last six months alone, and Akebia looks primed for a turnaround. At a 40% discount to it’s 2016 open, it also looks oversold.

Market Exclusive is not an investment advisor, make sure to do your own due diligence. Read our disclaimer here.

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