2 Small-Cap Stocks With Large-Cap Potential

According to the legendary investor Peter Lynch of Fidelity fame, if investing were a baseball game, you'd want to buy stocks in the second inning of a company's lifetime, and sell them in the seventh inning -- or at least sometime before the tail end of the ninth, when everyone in the stadium is usually standing up and walking out. 

For many purposes, that bit of wisdom often means buying shares in businesses with a market cap of less than $2 billion that have the chance of growing to be worth upward of $10 billion after experiencing a few reasonable catalysts. There are a plethora of companies that could fit the bill, so let's look at a pair of contenders in biotech to start. 

1. Veru

With a market cap of just over $1 billion, Veru (VERU 4.96%) is a biotech with a lot of potential growth ahead. Its lead candidate is an antiviral and anti-inflammatory drug called sabizabulin, which is being investigated in treating severe COVID-19 as well as certain breast cancers and treatment-resistant prostate cancer in a handful of late-stage clinical trials.

After publishing the overwhelmingly positive finalized phase 3 results from the medicine's trial for COVID on July 6, the company is now waiting for regulators to consider its request for an Emergency Use Authorization (EUA) in the U.S.

But sabizabulin wouldn't be the company's only source of revenue. It's currently preparing Entadfi for market, a recently approved treatment for benign prostate hyperplasia, and it makes all revenue from the FC2 female condom. While income from those products isn't enough to make the company profitable, it has enabled revenue to grow by 343% over the last five years, reaching $60.4 million in the latest 12-month period. So it already has some of the manufacturing capabilities, commercial infrastructure, and regulatory know-how that it'll need to make a lot of money from commercializing sabizabulin, assuming it is approved.

Management predicts that sabizabulin could be used to treat around 48,500 patients per month after approval. Given the ongoing need for more therapies to treat COVID, it's possible that sabizabulin alone could bring in billions over the next few years if it's approved for sale, and that's not even considering any of the other indications it's being tested for, or any of Veru's other pipeline programs.

Considering all of the above, there's plenty of reason to believe that Veru could become a large-cap stock as a result.

2. Supernus Pharmaceuticals

Supernus Pharmaceuticals (SUPN 2.59%) is a biotech with a market cap of nearly $1.6 billion -- and it already has a few products approved for sale. This includes treatments for attention deficit hyperactivity disorder (ADHD), epilepsy, and Parkinson's disease.

At the end of this May, the company launched its latest drug, Qelbree, which treats ADHD in adults, and revenue from the launch will start to drive top-line growth as soon as its next earnings update. Qelbree was already approved for adolescents, so management is expecting significant growth in the number of prescriptions (and revenue) over the next year.

Supernus' pipeline features a pair of late-stage programs and a smattering of others in pre-clinical testing or early clinical trials. And given its ability to get its drugs commercialized, it's likely that it'll have more successes on the way. In particular, it is expected hear back from regulators about one of its drugs for Parkinson's disease in October of this year. 

Currently, the biotech is profitable, and over the past decade its net income increased by just over 49% to reach more than $73 million. Management expects to bring in between $640 million and $680 million in revenue, which is a significant step up from 2021's total of roughly $580 million.

With more projects and expanded indications in progress, Supernus should keep adding steadily to its base of revenue. So it wouldn't be too surprising if the company cleared the $10 billion level at some point in the next five years to become a large-cap stock.

And with a portfolio of products already on the market, failure in any of its clinical trials probably won't dent its stock much, either, which for traditionally risky biotech stocks is icing on the cake.