Biotechnology stocks have produced big gains in recent years. The iShares Nasdaq Biotechnology ETF (IBB) is up 35% since last January. Many of these biotech stocks have a small market capitalization, so there is the potential for big gains. SciClone Pharmaceuticals is one such small cap biotech that is poised for big gains. The one year target estimate is 9.13, which represents a 90% gain from current levels. According to the company’s website SciClone is a,
US-based, China-focused specialty pharmaceutical company with a substantial revenue-generating and profitable commercial business and a broad, marketed product portfolio of differentiated therapies for oncology, infectious diseases and cardiovascular, urological, respiratory, and central nervous system disorders.”
As stated in the above quotation, SciClone is a U.S. based company that is China centric. The company has huge growth potential because of China’s large population. The company has a substantial international business and it has a diversified portfolio of products. SciClone is also a revenue generating company. Zadaxin, a SciClone product, is in over 30 countries and it can used to treat hepatitis B (HBV), hepatitis C (HCV), and certain caners. Zadaxin is the SciClone’s lead prodcut grew 12% from Q3 2011 to Q3 2012. SciClone has nearly 20 products in China besides Zadaxin. The company executives are also very experienced and the CEO has worked in the biotech industry for decades.
The stock has solid fundamentals and it is undervalued. It’s P/E is 15 and the forward P/E ratio is 7. Despite the company’s small market capitalization, the stock really isn’t that risky. 80% of their revenues come from Zadaxin, which is expected to grow at a rate of 15% or more. The company has also increased in its free cash flow to 19 million and the free cash flow was only 9 million at the start of 2012.The debt to equity ratio for this stock is currently 0. As shown in the graph below, revenue is at 10 year highs. However, one downside to the stock is the lack of dividends.
Chinese stocks are poised to boom in 2013. Uncertainty due to a once in decade leadership transition held back many China related stocks in 2012. However, many China related stocks have soared since the leadership transition and the Chinese economy is still booming. SciClone’s stock is in a good position to double in 2013 because it has a high growth rate and because it has numerous products in China.