STOCK TRADE: Buy RNN at market price (approx. $1.35), good for the day. Place a protective stop-loss at $0.85 and a pre-determined sell at $3.00.
by Ian Harvey
March 02, 2014
Biotech stocks present the most exciting and potentially lucrative opportunities within the stock market. The reason being is that most of these small companies have no revenue or profits whatsoever. Investors are betting on the future value of the drug pipeline and products produced by these small biotech firms. This makes every news story, clinical trial and report from the company result in volatility in the stock price. It is this volatility that attracts investors seeking short-term gains.
As you probably can guess, the best bets in the biotech market are companies that have multiple products in the pipeline. This fact makes them more likely to attract buyout interest or create a profitable product. Using this as a guideline to locate a potentially lucrative biotech investment led me to Rexahn Pharmaceuticals (NYSE: RNN).
Rexahn Pharmaceuticals is a clinical stage biopharmaceutical company that is focused on creating advanced cancer therapeutics. The company's drugs have demonstrated the ability to directly target cancer cells while bypassing healthy ones.
RNN is also working on biomarkers that determine which patients will be most responsive to its treatments. And its nanotechnology-based pharmaceutical delivery system has been proven to make chemotherapy drugs more effective.
|Current P/E Ratio (ttm)||-|
|Relative P/E vs. SPX||-|
|Earnings Per Share (USD) (ttm)||-0.0600|
|Est. EPS (USD) (12/2013)||-0.0850|
|Est. PEG Ratio||-|
|Market Cap (M USD)||223.78|
|Shares Outstanding (M)||165.77|
|30 Day Average Volume||11,231,388|
|Dividend Indicated Gross Yield||-%|
|5 Year Dividend Growth||-|
|Next Earnings Announcement||03/21/2014|
Reasons for Price Increase
• Diverse Drug Developments
Although none of its current compounds are in Phase III trials, it has several that are in or about to begin Phase I trials. I like some diversification in the pipeline as an investor is not dependent on one success or failure making it through the arduous approval process.
1. The drug delivery system is the first reason to be very bullish on RNN. Called the Nano-Polymer-Drug Conjugate System, this system combines FDA approved chemo drugs with a proprietary polymer carrier, resulting in the drug traveling directly into the cancerous tumor while bypassing healthy cells.
This system helps solve the age-old dilemma of cancer treatments causing damage to surrounding healthy cells. Not to mention, the system also minimizes the amount of extra drug in the bloodstream, thus minimizing treatment side effects.
This technology opens up the possibility of a large pharma company making a move to acquire the system or the company itself. The potential is so great that such news could result in a bidding war, enriching investors and RNN.
2. Secondly, RNN is expecting results from three oncology trials this year. These trials were launched in 2013 from the company's highly effective discovery platform. Positive results from one or more of these trials could easily double the price of shares from the current depressed levels.
3. Thirdly, and perhaps most critical for the short-term performance of the stock, the company will likely enter into a corporate partnership for one of its drugs by the second quarter of 2014. The drug known as RX-3117 has just initiated a Phase 1b for cancer tumors. This compound has indicated value in treating cancer that has shown resistance to gemcitabine, a popular chemotherapy substance. Studies have estimated that 25% of cancer patients receiving chemo quickly develop resistance to gemcitabine. If this partnership is carried out, it will likely ramp up the profits of RNN, thus lifting the share price.
4. Finally, RNN's drug Supinoxin has had an Investigational New Drug (IND) application filed with the FDA and is undergoing a Phase 1 clinical trial in cancer patients. So far, the drug has revealed efficacy against the most difficult-to-treat cancers.
• Insiders & Balance Sheet
Insiders hold a ~10% stake in the company and have held onto their shares even as the shares have more than tripled in the last few months. I take this as a strong vote of confidence in the company's long term prospects.
In addition, the company's balance sheet is strong after recently doing a secondary offering. The company should have more than $30mm on its balance sheet after the offering which is several years of funding at its current burn rate.
As one would expect from the company with less than a $200mm balance sheet, Rexahn gets little analyst coverage. Roth Capital did recently initiate the shares as a "Buy" with a $3 price target. However, Roth Capital Markets analyst Joe Pantiginis started coverage of Rexahn with a "Buy" rating and a price target of $3 per share. He applauded the company's decision to focus on cancer drugs and said that after a couple of years in transition, Rexahn is at the start of an important year when it could report key data on several drug candidates.
It appears that only two other firms cover the shares currently. The median price target of those three analysts currently is $2.50 a share.
Rexahn is purely a speculative play, but one with numerous attractive attributes. It has a solid pipeline, committed insiders and a good balance sheet. There is always a possibility it could be an acquisition target at some point in the future as well.
Therefore, based on the facts above the following stock trade is recommended…..
**STOCK TRADE: Buy RNN at market price (approx. $1.35), good for the day. Place a protective stop-loss at $0.85 and a pre-determined sell at $3.00.