In Search of Healthcare Diamonds in the Rough (OSUR, rated BUY)
In Search of Healthcare Diamonds in the Rough While we are not even halfway through January, the healthcare sector is already active with deal-making, ranging from the rumored $95 buyout of biotech giant Genetech (DNA) by Roche (RHHBY) to Endo's (ENDP) purchase of small-cap, specialty pharma Indevus (IDEV) to Sequenom's (SQNM) $41M offer for emerging diagnostic company EXACT Sciences (EXAS) – which was promptly rebuffed by EXACT's board after the market close on Monday on the promise of a better deal in the works for shareholders. Larger bio-pharma and diagnostic companies are opportunistically looking to expand their product offerings, pipeline prospects, patent portfolios, and drug discovery technology platforms given the huge declines in the stock prices of small/micro-cap stocks in the healthcare sector. With that in mind, I sorted through the ETF Innovators indexes for a list of a dozen stocks with market caps below $300M which lost at least 60% of their market value in the past year as a starting point for more research on potential buyout plays that would likely come in at a big premium to current valuations based on recent deals for companies of this size. The stocks are listed below with their market cap and 52-week stock price changes and the list excludes all stocks trading below $1 per share – click on the company names for links to all of my previous articles for those I have mentioned previously: 1.) OraSure Technologies (OSUR): $145M, -64% OSUR is a leading developer of oral fluid-based diagnostic screening tests with a FDA application filed for approval of a test for hepatitis C and a HIV test designed for over-the-counter sale in development. 2.) Caraco Pharma (CPD): $206M, -65% CPD is a value-priced generic drug company with a major shareholder and business partner that is India's largest generic drug maker by market cap, Sun Pharma. 3.) Javelin Pharma (JAV): $85M, -61% JAV reported positive Phase 3 results late last year for Dyloject to support an application for FDA approval in 2H09. Dyloject is already on the market in Europe and the Company is engaged in partnership discussions for the product, along with another late-stage pipeline candidate Ereska. 4.) Nanosphere (NSPH): $109M, -64% NSPH is an Emerging Diagnostic company that recently filed 510(k) applications with the FDA for two new products, including a cystic fibrosis assay and an infectious disease panel for respiratory viruses (influenza + respiratory syncytial virus or RSV). 5.) Akorn (AKRX): $197M, -70% AKRX offers a mix of proprietary drugs such as Akten eye gel as well as generic injectable drugs in partnership with Strides Arcolab of India. 6.) Human Genome Sciences (HGSI): $256M, -83% HGSI is a biotech developer of protein and antibody-based therapeutics with a robust pipeline that includes a pair of late stage, Phase 3 compounds, Albuferon and LympoStat-B. 7.) Obagi Medical Products (OMPI): $163M, -60% OMPI is a specialty pharma which is focused on skin care products. 8.) Cynosure (CYNO): $104M, -67% CYNO is a provider of cosmetic medicine laser systems, which trades very close to its cash hoard with negligible debt. 9.) TranS1 (TSON): $125M, -61% TSON is a spinal implant maker focused on the treatment of degenerative disc disease which trades at less than 2X cash with zero debt. 10.) RTI Biologics (RTIX): $158M, -63% RTIX is a regenerative medicine company for surgical products and tissue processing. 11.) Achillion Pharma (ACHN): $32M, -71% ACHN is an early stage developer of drugs for hepatitis C. 12.) BioSante Pharma (BPAX): $41M, -63% BPAX is developing LibiGel as the female Viagra and the compound is being evaluated in three separate Phase 3 studies.