I Don’t Understand Investing in Small Cap Pharmaceutical and Biotech Companies

Home/Investments/I Don’t Understand Investing in Small Cap Pharmaceutical and Biotech Companies

I Don’t Understand Investing in Small Cap Pharmaceutical and Biotech Companies

One of the places I check for ideas/inspiration to sell puts for income is the Yahoo Finance page’s “Losers” for the day.  It provides a snapshot of companies that have taken an unusually large hit for that day.  I use this page to scout out any names that look familiar to me (i.e. if Nike takes a few percentage hit, I know Nike will be around in a few months so that is where I start my research for selling puts).  What does this have to do with Pharmaceutical and Biotech Companies? Everyday, day in and day out, they make up the majority of the list.

Extreme Volatility

Example of Daily Stock Losers List

Today’s List:

SymbolLast PriceChange% ChangeVolumeAvg Vol (3 month)Market Cap
ADHD0.94-0.96-50.66%6.16M391,14325.836M
Alcobra Ltd.391,143
ETRM8.9-4.8-35.04%5.04M11.945M24.355M
EnteroMedics Inc.11.945M
GLBS4.85-2.39-33.01%1.38M711,59812.744M
Globus Maritime Limited711,598
CBK1.42-0.68-32.38%3.35M279,05153.11M
Christopher & Banks Corporation279,051
APOP3.61-0.74-17.01%134.82k134,16620.654M
Cellect Biotechnology Ltd.134,166
PFNX7.62-1.4-15.52%159.93k67,008178.446M
Pfenex Inc.67,008
PRGS27.63-4.62-14.33%1.38M200,6481.343B
Progress Software Corporation200,648
ARTW3.15-0.52-14.26%17.71k8,88212.944M
Art’s-Way Manufacturing Co., Inc.8,882
CNCE9.01-1.46-13.94%186.73k142,264200.691M
Concert Pharmaceuticals, Inc.142,264
DRYS1.6-0.25-14.44%28.982M9.893M54.09M
DryShips Inc.9.893M
EVC5.6-0.85-13.18%1.64M289,200449.835M
Entravision Communications Corporation289,200
BAC-WTB0.91-0.13-12.84%850.15k
Bank of America Corporation Cla
BIOC1.83-0.26-12.44%6.01M1.884M32.024M
Biocept, Inc.1.884M
KODK-WT3.1648-0.4452-12.33%10.32k
Eastman Kodak Company Warrant (
SSH7.18-1.01-12.33%141.62k1.852M5.574M
Sunshine Heart, Inc.1.852M
ANET88.23-12.04-12.01%4.58M709,7386.195B
Arista Networks, Inc.709,738
STI-WTB12.15-1.65-11.96%1.83k
SunTrust Banks, Inc. Class B Wa
BOLD15.77-2.12-11.85%50.39k62,517342.606M
Audentes Therapeutics, Inc.62,517
BBGI6-0.8-11.76%30.94k7,596172.649M
Beasley Broadcast Group, Inc.7,596
TDW2.27-0.29-11.33%2.96M2.445M106.845M
Tidewater Inc.2.445M
CMA-WT36.03-4.57-11.26%6.85k
Comerica Incorporated Warrant e
PLG1.58-0.2-11.24%1.79M517,483143.292M
Platinum Group Metals Ltd.517,483
XNCR23.31-2.85-10.89%457.22k302,7741.066B
Xencor, Inc.302,774
HOLI17.18-2-10.43%1.52M287,8111.028B
HollySys Automation Technologies, Ltd.287,811
DMRC26.35-2.95-10.07%199.53k58,225265.687M
Digimarc Corporation58,225
IDXG4.86-0.52-9.67%306.93k5.046M10.577M
Interpace Diagnostics Group, Inc.5.046M
EGLT5.34-0.56-9.49%1.15M832,935131.444M
Egalet Corporation832,935
ZAIS1.55-0.16-9.36%19.63k79,37232.396M
ZAIS Group Holdings, Inc.79,372
FFKT39.85-4-9.12%86.79k43,306299.177M
Farmers Capital Bank Corporation43,306
AIII1.1-0.11-9.09%53.41k28,35423.384M
ACRE Realty Investors Inc.28,354

Of the 30 stocks listed a good third are involved in the medical space. I understand that I am only presenting one day’s data, but it is consistently the same.  It wouldn’t make me feel better to know the opposite picture (day’s gainers) had the same percentage in small (or micro) cap pharma or biotech companies.  In fact, it would make me feel worse! That is some tremendous volatility.

You are Investing Based on Someone’s Hearsay

I have a hard time believing that most people jumping into a $25,000,000 company found that company through a credible stock screen.  It is more likely they heard from a guy who heard it from a guy who heard it from a 3rd guy that the government is going to approve some new drug or some huge contract is going to come through.  It gets worse when you find yourself on some message board since everyone there is likely to be a cheerleader.

You not only have to Get the Market Right You Need to Get the Medicine Right

The Federal Drug Administration is one hell of a formidable speed bump if you are bringing a drug or medical device to market.  I, as a consumer, for the most part is comfortable making it extremely hard to bring something to market.  Does this prevent some drugs from coming to market that probably should? I would assume so, but this isn’t the place to debate the issue.  Rather, the point is that not only do you have to get the market for the drug correct (i.e. there is a demand), you have to get it through multiple stages of the FDA.

These companies are so tiny that even the slightest hiccup crashes the stock!

People Can Make Money but it Won’t be Me!

Without insider information, of which I am not willing to participate, I can’t imagine how I could make money investing in these tiny pharma and biotech stocks.  Even if I read their 10-K report there is zero chance that I would understand anything that is going on.  Where do I even begin understanding that drug xyz alters your chromosomal makeup to suppress your need to eat absolute garbage? Let’s assume that I could, somehow, understand it – do you think a retail investor is really going to receive the information to truly know whether the tests are going good with the FDA? I think not.

Ever get lucky on one of these types of companies?

 

By | 2017-01-17T23:57:53+00:00 January 18th, 2017|Investments|4 Comments

About the Author:

Evan is the owner of My Journey to Millions which was started to track his journey from a broke debt ridden law school graduate to building a positive balance. Need more Evan? Follow him on Twitter, Contact him or get new posts directly to your email

4 Comments

  1. Buy, Hold Long January 18, 2017 at 6:55 am - Reply

    A lot of the time they are just money pits and the CEO is getting paid something ridiculous. I try to stay clear of any new companies unless I completely understand their business model.

    • Evan February 15, 2017 at 2:03 pm - Reply

      There is a lot of money to be made in space but you and I won’t be a part of it! AND THAT’S OKAY!

  2. DividendMonkey January 23, 2017 at 6:54 pm - Reply

    I like well know dividend companies myself. I understand how they are making money and paying me. With all the stocks in the world, I cannot possibly know them all. Do they pay a dividend makes a nice filter for me.

    • Evan February 15, 2017 at 2:04 pm - Reply

      I like the idea of a growing dividend as my benchmark…so I turn to the dividend champion and dividend contender list.

Leave A Comment