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3 Speculative Biotech Companies Primed to Pop

By Keith Speights - Apr 4, 2013 at 9:48AM

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No products. No earnings. But these 3 speculative biotech companies are ready to take off. No kidding.

They don't have any products on the market. They have little or no revenue. Earnings? Nada. Many people are betting that they will fail. And yet they could present some of the best investing opportunities on the market today. Here are three speculative biotech companies that appear to be primed to pop in the coming months.

All set to accelerate
With gains of 450% over the last year, one might be inclined to think that Sarepta Therapeutics (SRPT 5.29%) has done all the popping it's going to do. I don't expect another run that large, but Sarepta still has plenty of upside potential.

The biotech company reported fantastic results in October from a phase 2 clinical study of eteplirsen in treating Duchenne muscular distrophy, or DMD. These results were so good that Sarepta is talking with the Food and Drug Administration about the possibility of moving ahead with accelerated approval. If the FDA gives early approval to eteplirsen, Sarepta's stock will be off to the races again.

It's far from a sure thing that the FDA will grant accelerated approval, though. To do so requires that the agency accept data from the phase 2 study showing eteplirsen's increased production of dystrophin as a solid surrogate endpoint in lieu of demonstrating actual clinical efficacy. The FDA could determine that this data isn't strong enough to warrant accelerated approval.

Even if Sarepta doesn't win this faster path to market, I expect that eteplirsen will ultimately gain approval regardless. The drug looks to be a game-changer for DMD patients -- and should be for Sarepta shareholders also. 

Zooming with Zerenex
Speaking of game-changers, Keryx Biopharmaceuticals (KERX) could have one for end-stage renal disease, or ESRD, patients. Keryx announced outstanding results from a phase 3 study of Zerenex in January. The drug lowered serum phosphorus levels in ESRD patients significantly and demonstrated a good safety profile to boot.

Keryx shares are up a whopping 150% so far this year but have hovered around $7 per share for the past month. Is the stock poised for more big gains? I think so.

The biotech plans to submit a New Drug Application, or NDA, to the FDA in the second quarter. It will also follow up by mid-year with filing for European regulatory approval. Zerenex seems likely to garner positive decisions on both fronts. I suspect the submissions themselves could serve as mini-catalysts for the stock as investors are reminded about the potential for the drug.

There are some concerns, though. A couple of months ago, IPD Analytics questioned whether Zerenex would be granted New Chemical Entity, or NCE, status by the FDA. NCE status gives a drug five years of exclusivity. My view is that Keryx's patent protection for Zerenex will be stout enough to protect the drug from generic rivals for quite a while even if NCE status doesn't come through. 

Ready for a giant leap
MannKind (MNKD -2.85%) stands closer than ever to taking a giant leap for its shareholders. The company expects to conclude two clinical studies in the next few months for its inhalable insulin product, Afrezza. Results from both studies will be announced in August. MannKind hopes to submit for FDA approval by October.

While the last decade proved to be a roller coaster ride for investors, 2013 is looking great for MannKind so far. Shares are up nearly 60% year-to-date in anticipation of good news from the clinical studies. I fully expect that anticipation to be rewarded. The biotech encountered plenty of bumps and bruises in past attempts to gain approval for Afrezza, but this time MannKind should prevail in its quest.

The biggest risk stems from finding a partner to commercialize Afrezza. MannKind won't be able to go it alone. However, company president and COO Hakan Edstrom said in February that discussions are under way with several interested parties. I predict the biotech will snag a partner by the time it submits the NDA for Afrezza later this year.

Speculative stocks, by definition, carry high risk in exchange for the hope of big gains. These three biotech companies certainly have risks, but I think that they all will gain regulatory approval for their lead products and ultimately achieve commercial success. Whether the timing is next week, next month, or later this year, these stocks are primed to pop.


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Stocks Mentioned

Sarepta Therapeutics, Inc. Stock Quote
Sarepta Therapeutics, Inc.
$74.65 (5.29%) $3.75
MannKind Corporation Stock Quote
MannKind Corporation
$4.44 (-2.85%) $0.13
Keryx Biopharmaceuticals, Inc. Stock Quote
Keryx Biopharmaceuticals, Inc.

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