Pharmaceutical stocks are big business these days. Everyone is waiting with bated breath for someone, anyone, to come up with a vaccine for the coronavirus. As a result, many people have become interested in pharma penny stocks.
Look at the story of Novavax ($NVAX). The stock was trading below $5 at the start of 2020. But following the news that the company was beginning clinical trials for a coronavirus vaccine, the stock price surged. And then Novavax received a $1.6 billion investment from the government through Operation Warp Speed.
Now, Novavax is trading within the realm of much more established pharma companies like AbbVie and Novartis. It was a windfall for those already investing in the firm.
The turmoil caused by the pandemic along with an aging population is likely to lead the FDA to approve more novel drugs. As a result, prescription drug sales will likely increase.
Interestingly, as of 2014, eight out of nine of the most successful penny stocks were companies in the medical and biotech industries.
So it’s no wonder that investors are pouring over pharmaceutical companies’ penny stocks in order to find the next great investment.
Digging Through The Details
Novavax wasn’t the only pharmaceutical’s penny stocks to see a boost from COVID-related news.
Opka Health’s ($OPK) stock price more than doubled after it announced its antibody test. iBio’s ($IBIO) stock shot up more than 633 percent on news that its vaccine had been fast-tracked. Perhaps the biggest winner was Co-Diagnostics ($COSDX), whose COVID-19 testing kits helped catapult the firm’s shares up more than 1,850 percent.
But trying to suss out the next company with a big Coronavirus breakthrough is a pointless endeavor. There are simply too many factors to consider and more reliable metrics. Positive press releases do not represent a solid business foundation.
So, what should you be looking for when evaluating penny pharmaceutical stocks?
To begin with, look for a company with a lot of cash on hand. If a pharmaceutical business doesn’t have a lot of cash, it’s likely that they will try to sell more shares in order to fund future clinical trials.
If the company floods the market with shares, that will usually cause the price to fall.
So, if a company already has enough money on hand to cover operating costs and future trials, it will be less likely to need to dilute its share price by selling new ones.
Check to make sure that the firm’s potential treatments are diversified. A company with just a treatment or two in its pipeline can make for a risky investment.
But if a company has a number of different projects on the go it can point to a potentially better investment. If one treatment doesn’t make it, they have other drugs to dedicate their attention to. If any of those is successful, it can help to raise the share price.
In short, do your homework. Picking a pharmaceutical penny stock may seem as easy as clicking on a ticker on a screen, but you’ll have a lot more success if you know the in’s and out’s of the business before laying down your money.
So, without further ado, here are our picks for the best pharmaceutical penny stocks available right now.
1. Midatech Pharma ($MTP)
Midatech Pharma may be one of the greatest examples of market volatility in the sector.
In the last six months alone, MTP has skyrocketed at least twice before pulling back almost immediately. As recently as July 21, shares of the nano-cap company were up 165 percent after the company announced it entered into a research collaboration agreement with a European affiliate of a global pharmaceutical company over the Q-Sphera platform. However, within a few days, it was trading back down around its current levels.
The UK-based Midatech has developed three in-house technology platforms designed to improve the deliverability of medications to disease sites. The company sells its products Stateside through its US subsidiary, Midatech Pharma US.
Many of its core drugs are centered around various types of cancer and diabetes treatments. Midatech has several patented technologies that make use of nanotechnology solutions.
2. CymaBay Therapeutics ($CBAY)
This California-based small-cap company provides therapies for liver and other chronic diseases. Fortunately for investors, CymaBay has millions of dollars in cash in order to help see its therapies through its pipeline to the clinical trial stage.
A number of analysts have given CBAY an “Outperform” rating and institutional investors have begun taking an interest in the company.
Cymabay is working on a treatment for a particularly destructive autoimmune disease called biliary cholangitis. An independent panel of experts ruled unanimously that the drug caused no livery damage in the second phase of its NASH study. The company said it plans to move forward for FDA approval as soon as possible.
Clinical studies for the firm’s potential diabetes treatment are also moving forward, along with studies of its treatment for fatty liver disease. While both of these drugs are in the early stages of development, if either gets fast-tracked it could vastly improve the company’s already positive stock price.
3. Evofem Biosciences Inc. ($EVFM)
This San Diego, California-based company is focused on developing and commercializing products that are targeted toward women’s sexual and reproductive help.
Its core products include Amphora Contraceptive and two separate antimicrobial drugs that prevent sexually transmitted infections and the reoccurrence of bacterial vaginosis.
The company’s operating costs were $22.4 million compared to $11.9 million, year to year, according to MarketWatch. Research and development costs were $2.6 million, up $5.2 million from the year before, MarketWatch reported.
According to the company’s CEO, the company saw a noticeable improvement in the second quarter of the year.
“The second quarter of 2020 was marked by success across all areas of our business. With the FDA approval of Phexxi in hand, more than $130 million in gross proceeds from our two financing transactions on the books, and clear guidance from the FDA regarding the clinical path forward for EVO100, we are operating from a position of strength with a clear vision for the future,” said Saundra Pelletier, CEO of Evofem.
In September, the firm announced that it was releasing its contraceptive, Phexxi, in the United States. Alongside that, Evofem said it was launching its Phexxi Concierge Experience, a comprehensive telemedicine support system for women that would help ensure accessibility to the product.
4. Five Prime Pharmaceuticals ($FPRX)
This small-cap company has a number of cancer therapies in the pipeline and plenty of cash on hand.
The San Francisco-based Five Prime also announced a partnership with Bristol-Myers Squibb on two of its promising programs that help decrease tumor growth.
On the diversity front, Five Prime is working to develop treatments for gastric, breast, ovarian, and endometrial cancers. However, all of the firm’s current treatments are a few phases away from hitting the market. That means this stock could likely be more of a cautious play.
However, that partnership with Bristol-Myers means the firm will have enough cash to continue to moving ahead with its trials.
Institutional investors have already taken an interest in the company. These types of institutions usually measure themselves against benchmark indexes when reporting to their investors. As a result, their enthusiasm for a stock grows once it’s included in a major index. Institutional investors currently hold a good portion of Five Prime Therapeutics’ stock, which signifies that the analysts who work with these institutions have a positive outlook on the company.
All of that signifies that this is a pharmaceutical penny stock to keep an eye on.
5. EyePoint Pharmaceuticals ($EYPT)
EyePoint Pharmaceuticals’ stock has seen some pretty drastic movements in its time. Earlier this year, the stock hit a 52-week low, pulled lower by a weak second-quarter earnings report.
EyePoint’s EPS (earnings per share) were inline at $0.10, while the company actually beat on sales with $4.12 million compared with a $3.73 million estimate.
But in August, the stock saw a turnaround after EyePoint announced it was expanding its exclusive license agreements with Ocumension Therapeutics. The agreement is for the development and commercialization of YUTIQ and DEXYCU in Asian markets. As part of the agreement, Ocumension made a $9.5 million one-time payment to the company for the rights to commercialize both products under their own brand names.
EyePoint announced that it would use the payment to bolster its operations along with the ongoing clinical development of its pipeline, including its premier product EYP-1901, which works with age-related macular degeneration.
Analysts appear optimistic with at least three giving the stock a “Buy” rating and none advising investors to sell.
We’ll see what the next few weeks bring for EyePoint’s stock and whether it is able to continue the upward momentum.
As always, when investing in penny stocks, it’s important to do your due diligence. Penny stocks are known for the volatile nature, and the pharmaceutical sector is especially capricious.
If you’re interested in investing in biotech or pharmaceutical penny stocks, you’re going to need a particularly high level of risk tolerance. Those small- and mid-cap stocks can pitch and wane with the winds of the overall market more than their fundamentals might sometimes suggest.