The biotechnology sector has gotten battered over the past 12 months amid heated political rhetoric that takes companies to task for alleged price gouging. Accountaing scandals have not helped either.
But now, biotech appears poised for a turnaround as the newly established Trump administration puts in place agency heads and regulators who will adopt a laissez-faire attitude toward the biopharmaceutical industry.
Favorable demographic trends should also fuel biotech in 2017 and beyond, as populations around the world get older and sicker and require ever-greater levels of health and drug care. At the same time, small-cap stocks have been on an upward trajectory in recent months as Trump proposes tax and regulatory policies designed to benefit the “small fry.”
All of which brings us to a promising small-cap biotech: OpGen Inc.Ă‚ (OPGN, Financial), a biopharmaceutical company that develops treatments to combat life-threatening infectious diseases, especially infections caused by multidrug-resistant microorganisms.
Maryland-based OpGen boasts an expanding portfolio of diagnostic products and clinical laboratory services. The company’s QuickFISH products are a suite of Food and Drug Administration-cleared diagnostics used to pinpoint pathogens in blood cultures. The company also provides its Acuitas MDRO gene test to identify antibiotic-resistant genes for high-risk patients. The company’s Acuitas Lighthouse MDRO management system offers epidemiological tests for infection control.
With a market cap of $24.5 million, OpGen offers a high-risk, high-reward scenario for aggressive investors. The stock spiked nearly 3% on Tuesday in the wake of its announcement that the company can more rapidly predict bacterial antibiotic susceptibility using “resistance gene” profiles.
OpGen presented the data at the Advances in Genome Biology and Technology meeting on Feb. 14 in Hollywood Beach, Florida. The results are part of OpGen’s program to create new infection prevention products for health care providers.
The results show OpGen can predict antibiotic resistance in a matter of hours instead of the conventional time frame of days.
Biotechnology companies are scrambling to come up with solutions to infectious diseases as the overuse of antibiotics robs traditional therapies of their old punch. Infection control is an increasingly acute problem in health care, with the proliferation of antibiotic-resistant pathogens in hospitals and other health care settings.
The average analyst expectation is that OpGen’s earnings growth will reach 51.4% next year on a year-over-year basis, making the company an alluring prospect for market-beating growth.
Small and research-intensive biotech companies are known to run out of cash as they pursue new treatments, but OpGen appears sufficiently funded with $4.26 million in cash on hand in the most recent quarter (MRQ).
Debt also seems under control. The company's total debt-to-equity ratio is 45.5 (MRQ), compared to 63.8 for its industry. Another source of stability for OpGen is its strategic partnership with Japan-based Hitachi High-Technologies Corp.Ă‚ (HICTF, Financial) for the assembly and analysis of human DNA.
Investors seeking outsized gains who are able to shoulder the inherent risk of a small-cap biotech should consider the promising scenario presented by OpGen.
Disclosure: The author is an independent contributor who at the time of publication owned none of the stocks mentioned in this article.
Start a free 7-day trial of Premium Membership to GuruFocus.
