By Grant Bailey, Equity Analyst 

The biotech industry appears to be inexplicably undervalued at the moment; several companies in this industry actually have as much cash available as their market capitalization. At times, this could imply that the company’s intellectual property is essentially valued at zero, which would present a huge buying opportunity. 

While these companies are often losing cash each and every quarter, the products in their pipelines continue to develop, and their cash position will usually remain strong. So, with so many small-cap biotech stocks trading at discounts, which discounts are the most appealing?

Artiva Biotherapeutics is an early-stage cell therapy company with a current market value of ~$72 million. The biggest selling point for this company is its huge runway: Artiva has over $140 million in cash and cash equivalents, which, according to its most recent financial report, should last through the second quarter of 2027.

Of course, this is an early-stage company, so the products in their pipeline are quite far from commercialization. Their AlloNK program currently has 2 indications either entering or about to enter phase 2, with the other 2 indications listed in phase 1. Artiva also has a partner program, but that project is even earlier in development compared to their primary program.  However, Artiva is playing in a very hot area of the scientific world….while cell therapy for cancer is well established, it currently relies on highly customized cell therapies that are expensive and time consuming. Artiva is working with “allogenic” stem cells, which would lead to mass produced, highly efficient treatments for cancer and immune related diseases. As these disease states offer a Total Addressable Market (TAM) well into the billions, any company currently valued at just $70 million could offer vast upside potential. 

Yes, this pick is high-risk, but the risk is considerably alleviated by Artiva’s massive cash runway. It is often difficult to justify a company’s market capitalization being worth just half of its cash available.

Edesa Biotech is a small, clinical-stage Canadian biotech company with a market capitalization of just ~$17 million. Edesa has slightly over $12 million in cash on hand, which suggests the actual intellectual property of Edesa is valued at only around $5 million at the moment. 

Edesa is much further along in the development process compared to Artiva: Edesa has 2 programs in phase 3 and 3 programs in phase 2. Because of their healthy cash position, EDSA has well over a year in cash runway. This should be enough time to get at least something approved and ready to be commercialized. 

With several programs in later developmental stages, Edesa could potentially have multiple diversified revenue streams as a result of positive trials. If the trials turn out successful, the biggest risk becomes not having enough money for marketing. 

Fortunately, there is a solution: buyouts. Edesa would prove to be a great buyout candidate if they could successfully get any of their pipeline products approved, as big pharma is often in search of more diversified revenue streams. For a Big Pharma company like Pfizer or Eli Lilly to pay $100 million for an already proven molecule is a tiny risk for a company with hundreds of billions in assets. But a $100 million buyout price could represent a 500% return for Edesa shareholders. 

This kind of basic arithmetic could be compelling for investors willing to take a little risk…..

Fortress Biotech is a biopharmaceutical company based primarily in Florida. Its market capitalization lies between ARTV and EDSA, with the company valued at roughly $68 million. While FBIO’s cash on hand is significantly less than that of ARTV, they still have about $75 million available, which is obviously beyond their company market value at the moment.

Surprisingly, FBIO seemed to have lost around ~$30 million in the second quarter of this year, mostly due to the company’s overall increased operations/business activities. This would imply that the company has less than a year of runway remaining, which is significantly less than the other companies mentioned in this article. However, surface appearances can be deceiving….according to the company’s most recent financial report, cash on hand actually increased by $20 million over the last six months. That number should increase once again, this time by a whopping $30 million; as the company is just closing on a successful deal to sell one of it’s subsidiaries. This “buy, build, sell” approach is what sets the Fortress business model apart from most young biotechs. It’s very possible that, right now, the stock market simply doesn’t understand this new way of doing business.

As a mere broker of innovation,  FBIO is further along than anyone else; the company has an extremely diversified and well-developed pipeline. They already have an FDA-approved drug, 2 products past phase 3 awaiting FDA approval, another product in phase 3, a product in phase 2, 5 products in phase 1, and another 5 preclinical products. Fortress is a “wheeler dealer” of innovative molecules, and may represent a unique opportunity in the world of small biotech investment.

When all is said and done, each of these three picks is in a uniquely different situation, and each provides considerable upside. If I had to pick one that I like the most, I’d probably side primarily towards Edesa, considering they have such a long runway while already having multiple products in either phase 2 or 3. 

Fortress Biotech’s biggest risk is having less than a year of financial runway, but they should be able to manage it properly, since they have so many different products that could reach the market in the near future. 

Artiva’s biggest risk would probably be its pipeline, with it being so early-stage. However, Artiva also boasts a cash runway that extends all the way into Q2 of 2027, so even if their pipeline fails to materialize properly, they should still have ample time and cash to rebound effectively. 

In a media landscape obsessed with “Magnificent 7” mega tech stocks, there is plenty of room for promising young companies to get lost in the noise.  The best investor always strives to identify the opportunities that others failed to notice…..

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