Why Is Wall Street Gobbling Up These 2 Small-Cap Biotech Stocks?

When institutional investors start buying large blocks of shares in a company, it could be a good sign that the stock is getting positive attention because of its potential to move higher. In the last quarter, we saw institutions dramatically increase their stake in Prothena Corp. (NASDAQ: PRTA  ) and (NASDAQ: PRTA  ) Five Prime Therapeutics (NASDAQ: FPRX  ) . 

Although each company has fallen by double digits year to date, Wall Street apparently believes firmly in their long-term prospects. Let's take a closer look at what might be fueling this heavy institutional buying lately. 

FPRX Chart

FPRX data by YCharts

Prothena's experimental AL amyloidosis treatment looks promising
Prothena is developing a novel treatment for AL amyloidosis with cardiac involvement that has caught Wall Street's eye. AL, or amyloid light-chain, amyloidosis is a rare blood disorder characterized by protein fibrils that invade various organs, leading to the formation of protein deposits. The disease tends to progress rapidly, often resulting in death. 

Prothena's experimental treatment for AL amyloidosis is currently known as NEOD001. It's designed to neutralize the amyloid fibrils and dissolve the protein deposits, thereby improving organ function. 

In an early-stage study, patients receiving the drug reported no serious adverse events, but a number of patients did show encouraging signs of improved cardiac function. Based on these results, the company plans on launching a combined mid- and late-stage study in the fourth quarter.

Given that there are no approved therapies for this rare disorder and NEOD001 has a unique therapeutic mechanism in the dissolution of protein deposits, you might want to keep tabs on this small-cap biopharma moving forward.  

Five Prime's novel platform has attracted the attention of major pharmas
The little-known biotech Five Prime Therapeutics is starting to garner attention from both Wall Street and Big Pharma alike. At its core, Five Prime's commercial prospects revolve around its extensive protein library that is being used to discover new therapeutic targets.

Although this isn't exactly a new approach to drug development, Five Prime's high-throughput protein production system has allowed it to build out one of the most complete protein libraries in the industry. As a result, Big Pharmas such as Bristol-Myers Squibb (NYSE: BMY  ) have recently signed collaborative research agreements with this tiny biotech to develop novel immuno-oncology therapies. The agreement with Bristol entitles Five Prime to developmental and regulatory milestone payments that should help reduce the frequency of secondary offerings that are part and parcel of clinical-stage biopharmas.

Five Prime is also developing its own host of immuno-oncology therapies, which is expected to become a major focus of the company moving forward. Overall, I think we'll see more licensing and partnership deals come Five Prime's way, given the completeness of its protein library and the high barrier to entry for potential rivals.  

Foolish wrap-up
While institutional buying is a positive sign for any stock, it's important to remember that small-cap biopharmas like Prothena and Five Prime Therapeutics are risky investments by their nature. Specifically, we may never see either company produce a commercial product from their current host of clinical candidates, and any lucrative market is surely to attract a fair number of competitors. 

That said, I think these two companies do offer compelling value propositions for investors with a long-term outlook. Prothena's flagship drug could become a breakthrough therapy in AL amyloidosis, and it is launching other intriguing clinical activities in the near term as well. Five Prime Therapeutics stands to become a "go-to" company for the development of new immuno-oncology targets, which is a red-hot area in biopharma these days. Put simply, it's easy to see why Wall Street is noticing these companies. As such, I think they are definitely worth putting on your watch list.

Leaked: This coming blockbuster will make every biotech jealous
The best biotech investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. To that end, there is a product in development that will change how we treat a common chronic illness and also potentially revolutionize the entire health industry. Analysts are already licking their chops at the sales potential. To outsmart Wall Street and realize multibagger returns, you need The Motley Fool's new free report on the dream team responsible for this game-changing blockbuster. Click here now.

  


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3018164, ~/Articles/ArticleHandler.aspx, 10/24/2014 10:02:21 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement