Why Small-Cap Biotech Stocks are a Speculator’s Best Friend (INMD, ATRX, DVAX, SAVA, ICPT, IMGN, IBB)

Bloomberg reports this week that the VIX (the CBOE Volatility Index) is rallying with the S&P 500 in a rare way over the past few weeks. And recent analysis from Susquehanna suggests that this is not because people are bidding up put option contract prices out of valuation jitters but bidding up the price of call option contracts on fast-advancing momentum stocks out of greed.

It’s a very rare dynamic and it presents a conundrum for investors moving forward – where to deploy new capital? 

Such a market is likely not looking ahead at big gains yet to come. The exuberance is already in the equation, and the best that market participants can hope for around the corner is small upside and periods of sideways action.

Small-cap biotech stocks offer an interesting opportunity because they traditionally have very little correlation with the major indices – they are as close as you can get to an uncorrelated asset because they are lotto tickets with fates entirely chained to truly fundamental company-level catalysts like drug trials and FDA decisions.

You can see this dynamic showing up to some extent in the iShares Biotechnology ETF (Nasdaq:IBB). However, because of their strong index membership, IBB large-cap biotech stocks can suffer with index drawdowns more than small caps.

All of this suggests that investors worried about how to continue to deploy capital to equities may find their portfolios benefit most from carrying exposure to a diversified basket of small-cap biotech stocks with promising pipelines and upcoming catalysts.

With that in mind, we take a look here at some of the most compelling opportunities in the space.

InMode Ltd. (Nasdaq:INMD) bills itself as a leading global provider of innovative medical technologies. InMode develops, manufactures, and markets devices harnessing novel radio frequency technology. InMode strives to enable new emerging surgical procedures as well as improve existing treatments. 

InMode has leveraged its medically accepted minimally invasive RF technologies to offer a comprehensive line of products across several categories for plastic surgery, gynecology, dermatology, otolaryngology, and ophthalmology. 

InMode Ltd. (Nasdaq:INMD) recently announced its consolidated financial results for the third quarter ended September 30, 2021, including news of record quarterly revenues of $94.2 million, an increase of 58% compared to the third quarter of 2020: InMode’s proprietary surgical technology platforms engaged in minimally invasive and subdermal ablative treatments represented 73% of quarterly revenues, while 18% came from InMode’s hands-free platforms and 9% from InMode’s traditional laser and non-invasive RF platforms.

“We are very pleased to announce another quarter of record results, solid growth and success with our latest product launches,” said Moshe Mizrahy, CEO of InMode. “InMode is continuing its global expansion and is examining establishing a new subsidiary in another major European country. During what is normally a slower summer quarter, sales of hands-free devices very nearly matched the prior quarter. And our advancement into the women’s health space was off to a promising start with its inaugural roll-out in the U.S.”

While this is a clear factor, it has been incorporated into a trading tape characterized by a pretty dominant offer, which hasn’t been the type of action INMB shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -20% on above average trading volume. All in all, not a particularly friendly tape, but one that may ultimately present some new opportunities. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -13%. 

InMode Ltd. (Nasdaq:INMD) has a strong balance sheet, with cash levels exceeding current liabilities ($387M against $3.5M).

Adhera Therapeutics, Inc. (OTC US:ATRX) may be one of the most underappreciated names in the space given its recent moves to license potentially game-changing IP for rapid development of new solutions in critically underserved markets, including the $6 billion Parkinson’s market, the $100-plus billion diabetes market, and the $30-plus billion non-alcoholic steatohepatitis, or “NASH”, market. 

Together, that presents a lot of juice in terms of potential future value of the pipeline. That juice has been playing out well for its investors over the past few months, with shares of ATRX ramping over 300% higher since June. But this is still a $0.20 stock, so that could just be the tip of the iceberg in terms of upside potential.

Adhera Therapeutics, Inc. (OTC US:ATRX) most recently announced the appointment of Zahed Subhan, BS MS PhD MBA LLB, to the Company’s Board of Directors.

According to the company’s release, Dr. Subhan is an international pharmaceutical and biotechnology executive with more than 30 years’ experience in the United States, United Kingdom, European Union, and Asia. He is highly proficient in all phases of drug development with expertise in neurology, psychiatry, oncology, cardiovascular, urology and metabolic disease therapeutic areas. Amongst other positions during his career, Dr. Subhan was CEO, NuEvolution A/S, Copenhagen, Denmark (Acquired by Amgen); Chief Business Officer, Gemini Genomics Inc, UK/USA (Acquired by Sequenom Inc.); Head of Business Development and Marketing and European Marketing Director, DuPont Pharmaceuticals (Acquired by Bristol Myers Squibb); Product Manager and New Products Manager, GlaxoSmithKline; and Clinical Research Manager, Sanofi-Aventis.

“We welcome Dr. Subhan to our Board of Directors and greatly look forward to him contributing his decades of experience across the drug development, business development and capital markets as we advance our experimental drugs through the clinical process,” commented Andrew Kucharchuk, Chief Executive Officer at Adhera Therapeutics. “We believe attracting a person of his caliber speaks volumes to the quality of our drug candidates. His credentials are impeccable, his international experience invaluable, and he has intimate experience with MLR-1023, knowledge that will be instrumental in structuring and conducting our planned Phase 2b clinical trial for Type 1 diabetes.”

Adhera Therapeutics, Inc. (OTC US:ATRX) could pick up extra institutional interest by building out the credibility of its board with someone of Subhan’s caliber. Don’t discount this kind of catalyst for a small-cap biotech. This is especially true given the size of the markets this company is targeting with its late-stage pre-commercial drug pipeline. Subhan has a ton of experience helping companies at that stage take the next step with regulators, marketing, and distribution. He also has a history of being involved in making deals and landing exits by acquisition in the biotechnology marketplace.

Dynavax Technologies Corp. (Nasdaq:DVAX) operates as a biopharmaceutical company that engages in the discovery, development, and commercialization of novel vaccines and immuno-oncology therapeutics. 

The company’s product includes HEPLISAV-B, which prevents infection caused by all known subtypes of hepatitis B virus in adults 18 years of age and older. 

Dynavax Technologies Corp. (Nasdaq:DVAX) recently reported financial results for the third quarter ended September 30, 2021, including revenues of $108.3 million, and news of HEPLISAV-B net product revenue of $22.7 million, CpG 1018 adjuvant product revenue of $84.3 million, and an increase in 2021 full-year CpG 1018 revenue guidance to between $375 and $425 million.

“This quarter we continued to make strong progress with both our lead commercial vaccine, HEPLISAV-B, and our CpG 1018 vaccine adjuvant platform,” commented Ryan Spencer, Chief Executive Officer of Dynavax. “Our belief in the significant value of both assets is reinforced by the continued growth in market share and revenue for HEPLISAV-B along with multiple positive data readouts for adjuvanted COVID-19 vaccine candidates demonstrating the capabilities of CpG 1018 to help drive efficacy and high levels of antibodies while maintaining a favorable tolerability profile. Strong execution on a thoughtful, timely strategy has resulted in $244 million in year-to-date total revenue and $215 million in cash flow from operations, generating approximately $414 million in cash and equivalents at the end of this quarter which further enables our ability to continue to make investments which we believe will drive long-term value.”

The stock has suffered a bit of late, with shares of DVAX taking a hit in recent action, down about -22% over the past week. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -8%. 

Dynavax Technologies Corp. (Nasdaq:DVAX) managed to rope in revenues totaling $52.8M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 1877.8%, as compared to year-ago data in comparable terms. In addition, the company has a strong balance sheet, with cash levels exceeding current liabilities ($345.8M against $204.6M).

Other interesting opportunities in the small-cap biotech stock space include Cassava Sciences Inc. (Nasdaq:SAVA), Intercept Pharmaceuticals Inc. (Nasdaq:ICPT), and Immunogen Inc. (Nasdaq:IMGN).