There is no doubt that Biotech’s importance in the future is massive, but that doesn’t mean betting the farm on a couple securities. Nevertheless, having some exposure to promising small cap and blue chip Biotech companies is definitely meanwhile for any risk-taking value investor.
As we can see the Biotech sector has had a rough past year, with a 52 week high and low of 4165 and 2552, as shown by the yellow dots. Last year, lots of hype had pushed many biotech securities to very high and usually unjustified P/E values. A sell-off starting ~10 months ago makes sense.
In the aftermath however, there are great deals to find at very low valuations. Take Gilead for example. Trading with a market cap of 119.27B at a very low 7.4 P/E, the value is there.
Look deeper, and you will see the reason is the slow pipeline Gilead has going for it. There is good news though. The stock is undervalued with great potential, given the size of the company and all the great acquisition targets a blue chip Biotech firm has out there. That would be my “less risky” biotech value play. A much riskier play with higher upside is Palatin Technologies. It’s primary drug it is working on is Bremelanotide (Phase 3 Preliminary Results coming on Q3 2016). You may have heard of it as the “female viagra”. A recent study in part funded by Palatin Technologies cleared concerns that Bremelanotide interacted severely enough with ethanol, which news outlets reported that people taking this drug wouldn’t be allowed any alcohol. What many people don’t know is that this new study showed no clinically significant relationship. It is indeed safe to ingest ethanol while on this drug. This study I believe will definitely help Bremelanotide get its thumbs up from the FDA (Deadline for Phase 3 top-line data is 9/30/2016). Palatin Technologies has 23 million in investments and cash, and is burning 11 million per year, giving them enough time to get this drug to market. Definitely a stock to keep on your radar.
Thank you for reading my blog, don’t hesitate to leave feedback :). Tomorrow I will talk about REIT’s, the cheap way to own a piece of “liquid” real estate.