Best Small Cap: Flamel

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Drug-delivery-platform specialist Flamel Technologies (Nasdaq: FLML  ) has what it takes to be a big winner. It has patented technologies that can improve the therapeutic characteristics, safety profile, and ease of use of a wide variety of drugs. The Motley Fool Hidden Gems team likes Flamel's potential so much that it has recommended the company twice.

Flamel has two drug-delivery technologies that are the foundation of its business. The Medusa platform is used for enhancing therapeutic proteins and peptides, and the Micropump technology is applied to small-molecule drugs. While neither technology is currently used in a marketed product, that may change shortly. In December, Flamel's partner, GlaxoSmithKline (NYSE: GSK  ) , submitted a New Drug Application to the Food and Drug Administration for a Micropump formulation of Glaxo's beta-blocker Coreg, a billion-dollar drug that's still growing at a healthy clip. If the new and improved Micropump version is approved, Flamel will receive royalties on the drug's sales and thereby enjoy a revenue stream that could grow into the tens of millions of dollars annually.

Micropump offers a number of advantages, and it can be used to improve many products. One key advantage is that it makes drugs easy to swallow. For example, few controlled-release applications have been approved for pediatric applications because large tablets are not generally authorized for children (and can be a problem for seniors) and because large particle-based controlled-release systems do not allow stable suspension. The small size and stable suspension of drugs using Micropump make them ideal for children.

Medusa technology is being used for a number of drugs being developed at Flamel. With many drugs coming off patent, there's a big market for the Medusa technology in the creation of patent-protected second-generation products. By using the Medusa technology, these drugs can become longer-acting (patients can take a once-a-day formulation versus a three-times-a-day dosage, for example) and can have a lower incidence of side effects (because of a better release technology).

As promising as these technologies sound, the big news last year was that shareholders voted for a new board. As the new team members took control of the company, they made one thing clear: The company needs to find a number of development partners, not have a few partners and a flock of in-house developed products. Meeting that goal will lower the company's development risk, increase the likelihood that more products will get to market faster, and accelerate Flamel's efforts to get to profitability.

Investors can find satisfaction that the company's partners include Glaxo and Merck (NYSE: MRK  ) . But Flamel's future is being written now. The upcoming approval of Coreg should make the company profitable and prove to potential partners that its drug-delivery technologies are valuable.

This is a small company with a market capitalization of $492.9 million. But the balance sheet is rock-solid with $89 million cash, barely any debt, and a very low cash burn. There's no question that drugs are needed that have longer-lasting formulations, lowered side effects, and better delivery mechanisms -- and Flamel has the technology to help drug companies meet that need.

Add it up. Flamel could be a big winner.

For more:

Are you looking for great small-cap companies that are ready to grow and gush free cash flow? Let theMotley Fool Hidden Gemsnewsletter bring you two small-cap selections to consider each month. Try a free trial subscription today.

Merck and Glaxo are Motley Fool Income Investor recommendations.

Fool contributor W.D. Crotty does not own any shares in the companies mentioned. Clickhereto see The Motley Fool's disclosure policy.


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