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3 Under-the-Radar Biotech Stocks You Need to Watch in 2014

By Dan Carroll – Feb 23, 2014 at 4:52PM

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Nektar Therapeutics, Omeros, and Spectrum Pharmaceuticals all face off with regulators in key decision dates for their developmental drugs later this year

No industry embraces the boom-or-bust potential of the stock market like the biotech industry. Under-the-radar stocks can produce huge returns for investors from successful drug approvals, milestone achievements, and other events. But which stocks could be sliding below your attention that face stock-shaking dates in 2014?

Look no further than Nektar Therapeutics (NKTR -2.02%), Omeros (OMER 0.49%), and Spectrum Pharmaceuticals (SPPI -0.82%). All three biotechs face FDA decision dates on drugs later this year that could be a boon -- or a bust -- for investors. Let's check in on the details for all three companies and see what you need to know heading into the rest of the year.

Nektar teams up with AstraZeneca on naloxegol
Let's kick off our list with Nektar, a company that has watched its stock climb more than 17% since 2014 kicked off. Nektar isn't a profitable biotech firm just yet, but the company's partnership with big pharma AstraZeneca (AZN 0.20%) has yielded opioid-induced constipation (OID) therapy naloxegol, a drug that nailed its top-line results in a phase 3 trial data released by AstraZeneca back in late 2012. Now it's up for FDA approval for both companies, with a PDUFA date scheduled for September 16.

What's Nektar's stake? While AstraZeneca is commanding the long-term future of naloxegol, Nektar is entitled not only to nearly $100 million in regulatory approval payouts for the U.S. and Europe alongside a potential $375 million in milestones for the drug's sales, but also royalties in double-digit percentages for the drug. For a company as small as Nektar -- it has a market cap of only around $1.5 billion -- that's a tantalizing boost for investors who have already seen strong gains from this stock. Peak sales estimates vary widely from the low hundred-million-dollar range to more than $1 billion, but while the drug doesn't look likely to be a blockbuster for AstraZeneca, it's still on course to earn a victory for Nektar.

However, naloxegol is only the opening salvo of Nektar's future potential. Naloxegol looks like a good bet to be approved by regulators later this year considering clinical trials didn't reveal any serious safety concerns. Nektar is also moving forward with a phase 3 trial for its pain management therapy NKTR-181, and while this drug is nowhere near as close to facing regulators as naloxegol is, treating pain is a huge business in the U.S. -- and Nektar's promising drug could be set to follow up on a victory for naloxegol down the road.

Will OMS302 be Omeros' first big hit?
Nektar is not the only under-the-radar biotech facing off with regulators in 2014. Omeros is less than a third the size of Nektar by market cap, but its stock has exploded for a gain of more than 167% in the past six months -- and all eyes are on June 1, when regulators will decide on Omeros's developmental ocular inflammation drug OMS-302.

If approved, OMS302 would be Omeros's first therapy to reach the market. The potential here isn't huge: Analysts peg peak sales of the drug at nearly $500 million, so it is not expected to reach blockbuster status. Still, analysts have been bullish on the drug's potential to carve out a niche of the ophthalmology market, and like Nektar's naloxegol, approval looks likely   for Omeros's flagship drug. The company has other, more promising therapies still under development, including the potential blockbuster schizophrenia-fighting drug OMS824, but it'll be OMS302 that squares off with regulators in a critical key first battle for this small upstart company and its eager investors.

Spectrum looks to shake its slumber
Rounding out our list, keep your eyes down the road on Spectrum Pharmaceuticals, which has its own date with regulators on Aug. 9 in its decision date for promising pan-histone deacetylase inhibitor Beleodaq, which Spectrum intends to use in combating specific types of T-cell lymphoma. Unlike our first two companies on this list, Spectrum's stock has struggled lately, gaining just 15% over the past six months -- though that's an upgrade over the nearly 34% that Spectrum's shares have slid over the past two years.

Can Beleodaq turn around this sluggish stock's slide? Spectrum did earn a priority review from the FDA over the drug, which is an encouraging sign for its approval -- and for an improvement in Spectrum's fate as of late. However, as fellow Fool George Budwell notes, similar drugs to Beleodaq face stiff competition in the lymphoma market from chemotherapy and other treatment options. Even if Beleodaq gains approval, its impact looks limited by a similar lymphoma-fighting drug already in the company's portfolio in Folotyn -- and its ability to cure Spectrum's stock woes seems far from likely.

Decision time at the FDA
Spectrum might be facing more uncertainty heading forward, but for investors in Nektar and Omeros, upcoming PDUFA dates for naloxegal and OMS-302, respectively, could be big boosts to these young biotech companies' fortunes. While neither drug looks like a home-run blockbuster ready to shake the biotech world's foundations, even a base hit on the market after clearing regulatory hurdles can do wonders for developing firms of small market caps and big dreams. Keep an eye on these three going forward, Fools: The FDA will have the next say on their futures.

Dan Carroll has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Spectrum Pharmaceuticals Stock Quote
Spectrum Pharmaceuticals
$0.46 (-0.82%) $0.00
Nektar Therapeutics Stock Quote
Nektar Therapeutics
$2.91 (-2.02%) $0.06
Omeros Stock Quote
$2.04 (0.49%) $0.01
AstraZeneca Plc Stock Quote
AstraZeneca Plc
$68.56 (0.20%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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