By Sven Olson
After the Dow Jones posting a loss of nearly 400 points last week, this upcoming week is setting up to be crucial to the market’s near-term performance. We have seen all sectors trade lower and some of the market’s biggest names such as Apple Inc.(NASDAQ:AAPL), McDonald’s Corporation (NYSE:MCD), and The Walt Disney Company (NYSE:DIS), have lead the market with losses. In this piece I am looking at four under-the-radar biotechnology stocks that could provide gains next week, for both technical and fundamental reasons. None are your typical “stocks-to-watch” companies, yet sometimes upside can be found in unusual places.
Allow me to start with what may be the most surprising, a small biotechnology company developing a technology in electroporation, OncoSec Medical Inc. (OTC:ONCS). This is a company that has created a device that can be used with virtually any chemotherapy or immunotherapy to increase the uptake of an agent, decrease the side effects, and reduce the overall costs. All early data has shown these benefits to be correct, and next week, the company will announce very crucial data on its second Phase II program.
In the last three months the stock has increased in value by 63%, and all of this upside came after the company announced data presentations for two trials, MCC and metastatic melanoma. The first was a Phase II study on Merkel cell carcinoma (MCC) that met the company’s primary goal of demonstrating expression of IL-12 in tumor after the treatment, and also showed no safety concerns. However, the stock has since fallen lower, by 30%, and is now preparing for another, much more important, announcement of data for the treatment of metastatic melanoma. So far there have been no signs of trouble for this platform, in fact the company recently received authorization to CE mark its proprietary gene and drug delivery platform. With that being said, the company will announce this important, and most likely positive data, at the end of this week, and don’t be surprised if the stock trades with significant gains in anticipation, or following the data, due to the results not being priced into the stock.
Omeros Corporation (NASDAQ:OMER) fell by 13% last week in preparation of the company’s data for its first pivotal Phase III clinical trial evaluating OMS302 at the American Academy of Ophthalmology (AAO) Annual Meeting. OMS302 is designed to maintain intraoperative mydriasis (pupil dilation) and reduce postoperative pain and irritation resulting from cataract and other lens replacement surgery. Obviously, investors are not expecting much from the company’s trial later this week, but it may provide a pleasant surprise.
Up until June, Omeros was one of the best performing stocks in the market, with a gain of more than 230%. Yet despite the fact that it’s still trading with a 110% YTD gain, the stock has lost a significant amount of its momentum following a public offering. In addition, the company is also dealing with a messy settlement with its former CFO, which has scared some investors. However, with all these problems, it is possible that data could become a bright spot. The company’s initial rally in 2012 was due to OMS302 achieving both Primary and Secondary endpoints in its Phase III trial, therefore we already know the product is effective to some degree. With that being said, I am not sure what we will learn when the company announces data at the AAO, but it could be enough to excite investors and produce gains.
Keryx Biopharmaceuticals (NASDAQ:KERX) is another of Wall Street’s fallen biotech stocks, after dropping from $5 to under $1.50 back in March following news that its lead candidate, perifosine, did not meet its primary endpoint. However, the company does have another late-stage product, and it has begun to recover in the last few months. In a conference call, last Thursday, the company spoke about its product, Zerenex, and updated investors on its financial status. According to several analysts who cover the company, Zerenex has a great chance for success, and according to the company, data could come any day.
The company is planning to announce Phase III top-line data by the end of the year, which is less than seven weeks away. The company’s stock rallied near 9% on Friday following the company’s “quarterly update”, and it’s very possible that the oversold stock continues to rally in preparation of the data. However, this could go either way. I am basing my rally prediction on the fact that it rallied on Friday after the announcement, but as the end of the year approaches, it is possible that investors will become fearful as a result of the company’s past failure. Therefore, if the stock is going to rally, I believe it will continue into this week.
The final stock to watch next week is NeoStem Inc. (NYSEAMEX:NBS), a leader in the cell therapy space. The company’s stock traded lower last week by 3% as a result of selling pressure on other cell therapy stocks Pluristem Therapetics Inc. (NASDAQ:PSTI) and StemCells Inc. (NASDAQ:STEM). Pluristem traded lower after a bearish article from Bloomberg, in which the company disputed details of death of two patients on its clinical trials, and StemCells traded lower after missing both top and bottom line expectations. However, with the company announcing earnings next week and the final sale of its Chinese subsidiary around the corner, and stock already being oversold due to poor market conditions in the last four weeks, expect large gains from the stock in the coming weeks.
NeoStem (NBS) is sitting on support near $0.61 and didn’t trade significantly lower last week because of its strong support. The company has announced data for both of its clinical products and is expected to see significant revenue growth from its manufacturing business, due to advanced trials from three late stage candidates from other developers — Baxter International Inc. (NYSE:BAX), Sotio, and ImmunoCellular Therapeutics Ltd. (NYSEAMEX:IMUC). The company did a great job during its most recent quarter at growing revenue by more than 50% while cutting its operating expenses/income. The company is in the process of closing its sale of its Chinese generic pharmacy, which will add nearly $13 million in cash and eliminate $33 million in debt. In addition, the company will also receive more than 1% of its shares from the divesture, and also just announced the redemption of Series E Preferred Stock. When you add these developments together, you have a company that is growing, operating more efficiently, and significantly strengthening its balance sheet with more cash and less debt. Expect large buying pressure when the company announces earnings, and even more upside if the company updates investors on the sale of its generic pharmacy.
Disclosure: Long KERX, NBS