There's cheap, then there's cheap.
Some stocks are cheap in the sense of the definition of the word relating to relatively low price compared to their potential value. Others are cheap under another definition of the word -- because they are of inferior quality.
In a lot of cases, stocks with prices below $10 fall into the latter category. However, there are some that fit into the former group. Three top stocks under $10 that I'd keep an eye on are Insys Therapeutics (NASDAQ:INSY), Novavax (NASDAQ:NVAX), and 22nd Century Group (NYSEMKT:XXII).
Country singer Willie Nelson once sang about the postman delivering a past-due bill notice, the alarm clock ringing two hours late, the garbage man spilling all the trash on the sidewalk, the hinges falling off the gate, spilling all his coffee, opening a door against his knee, and having his wife leave him -- all in one morning. That's in the same ballpark as what Insys Therapeutics has gone through over the last six months.
Insys stock price has fallen more than 40% so far in 2017 and now stands well below $6. Sales for the company's current top product, breakthrough cancer pain drug Subsys, have plummeted in the midst of the opioid epidemic. Insys founder John Kapoor, who's no longer with the company, was arrested on charges of engaging in conspiracies to commit racketeering, mail fraud, and wire fraud. The biotech is also under investigation by the U.S. Department of Justice for its marketing practices related to Subsys.
Even with all of the gloom and doom befitting a sad country song, I think Insys' future should get brighter. Insys CEO Saeed Motahari (who came on board earlier this year) stated in the company's third-quarter conference call that sales for Subsys appear to have stabilized in the early part of the fourth quarter. The drug will be on the formularies of two of the largest pharmacy benefits managers and one of the largest insurers beginning in January.
Insys is also cooperating with the DOJ to try to conclude the investigation and set aside $150 million as a minimum amount for an expected settlement. Sales for newly launched cannabinoid Syndros are slowly picking up steam and could reach $200 million in a few years. And Insys stock appears to have stopped the bleeding over the last month. Putting all this together gives me reason to think that Insys just might become the biggest comeback story of 2018.
Things haven't been as bleak this year for Novavax. Still, the stock has taken investors on a roller-coaster ride, with nine swings of at least 20% in 2017 so far. Novavax stock now trades at less than $1.50, but that reflects a year-to-date gain of more than 10%.
However, the stock's gain this year masks the heights from which Novavax has fallen. In 2016, the biotech's RSV F vaccine flopped in a late-stage study for immunizing older adults. Novavax promptly lost around 80% of its market cap.
I'm cautiously optimistic about Novavax's prospects going forward, though. You could even say I'm cautiously super optimistic, because I think there's even a chance that the stock could double next year. Why? Novavax has another shot (no pun intended) at success for its RSV F vaccine. The company expects to report interim data in 2018 from a late-stage study of maternal immunization of infants. My view is that the prospects for positive results are pretty good.
Then there's NanoFlu, Novavax's nanoparticle-based influenza vaccine. This one's more of a long shot (again, no pun intended), since NanoFlu is only in an early stage study. However, pre-clinical results were off the chart, and the company is moving fast to advance the vaccine. If NanoFlu proves to be successful in clinical testing (and that's still a big if for now), this stock won't be so cheap in the future.
22nd Century Group
It's been a great year for 22nd Century Group. The stock has more than doubled year to date and at one point had almost tripled, making 22nd Century Group the hottest marijuana stock on the market at the time. However, a stock offering in October resulted in a significant pullback, with 22nd Century Group shares now trading at less than $2.50.
22nd Century Group is classified by many as a marijuana stock because the company has genetically engineered cannabis plants to contain no THC, which is the primary psychoactive chemical in marijuana. However, its main product is tobacco that's genetically engineered to contain very low levels of nicotine.
What makes the technology behind this genetically engineered tobacco so appealing to investors? In July, the U.S. Food and Drug Administration announced plans to reduce tobacco-related disease and death. Those plans included a requirement that tobacco companies lower nicotine levels in cigarettes to non-addictive levels. 22nd Century Group, at least for now, is the only company with the capability to grow tobacco with nicotine levels low enough to be non-addictive.
If the FDA's plans are put into effect, 22nd Century Group stock should resume its huge momentum from earlier in 2017. There's also the possibility that the company could link up with one or more big tobacco companies even before any regulatory changes are enacted, which could also be a major catalyst for the stock.
Low price, high risk
The chief drawback for all of these cheap biotech stocks is that their low prices come with high risks. Insys could have to fork out a much larger amount than expected to settle with the DOJ. Subsys sales might not stabilize. Novavax could have yet another failure for its RSV F vaccine and/or for NanoFlu. The FDA could scuttle plans related to lowering nicotine levels in cigarettes.
These kinds of risks won't be suitable for many investors. For those who are willing to take the risks, though, buying small positions in these biotech stocks could be worth considering.