I had my first 10-bagger at Investing Whisperer this week with Capricor Therapeutics (CAPR – NASDAQ).
I wrote up Capricor for subscribers on March 18th when the stock was trading at $1.
Fast forward to April 29—the stock got up to as high as $11!
A 10-bagger in a little over a month. Almost all of that gain came in one day, when it soared from $2.50 – $11 on the back of some positive COVID data for its lead drug, CAP-1002.
But that was only one of the reasons I bought the stock—and actually, it was the least important to me. I considered its COVID optionality as a bit of a long shot.
I bought the stock because
- it was trading at or below cash value,
- there was only 6 million shares out
- some key technical data is coming out this summer
- another company in its space, Sarepta (SRPT-NASD) was a 10 bagger when its data in this same space was positive.
That’s the kind of stock I’m looking for — companies with big upsides that have little of that upside priced in.
I want a big upside and catalysts.
That is EXACTLY what I found with Capricor. There was not just one but four potential catalysts for the stock.
One of those catalysts hit and the stock moved significantly.
While not every stock is going to “work”, those that do can be HUGE winners – just like Capricor.
My next junior biotech pick is coming out in days—and it’s very similar set-up, but better.
This stock also has
- Less than 10 million shares out,
- But has the added benefit of $20 million in the treasury, and
- It’s most important factor…its technology is already producing revenue! IT WORKS. It’s commercial!
- It can potentially be used as a platform technology to treat different kinds of cancers
This new biotech has the only effective treatment for a devastating illness that gives patients a very short life span.
It is the best good news story I see in junior biotech—and it’s cashed up, has a tight share float (giving it
explosive share price potential!), and is already commercial.
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HOW CAPRICOR PLAYED OUT
When I bought Capricor in March the Market had essentially washed its hands of the company.
The market capitalization of the stock was actually less than the cash it held.
Now, microcap biotech stocks can trade at negative enterprise values.
They do not generate revenue, which means they will eat through their cash over time. At times the market will anticipate this.
But usually the companies that trade below cash have already seen a failed trial and have poor prospects.
But Capricor is not an early, pre-clinical stage company. They are proving up another treatment for Duchenne Muscular Dystrophy, or DMD (think Jerry Lewis Telethon!)
Their drug target for this, CAP-1002, has already received orphan drug designation. Phase 1 results were released in late 2017 showed a good safety profile and efficacy.
Capricor gave us 6-month results on the Phase 2 trial last year. The stock briefly popped on those results but subsequently gave up those gains, and the Market is now awaiting 12-month results.
The comps on Capricor suggested a big disconnect in valuation. One larger name that has had some success in the DMD space is Sarepta Therapeutics (SRPT – NASDAQ).
As we pointed out in our alert, there was a big disconnect between how the market valued Capricor and how it had valued Sarepta when it was at a similar stage of development:
Consider that in 2016, when Sarepta Therapeutics was in Phase IIB trials for EXONDYS 51 (also targeting DMD), the stock fluctuated between a capitalization of $600 million to $900 million – and was even well over $1 billion at various times. After subtracting Sarepta’s cash balance at the time of ~$400 million, that still leaves a valuation in the hundreds of millions.
Capricor, on the other hand, had a ZERO Enterprise Value. The optionality is HUGE here. Zero to $400 million or more on a stock with only 6 million shares out then (they now have about 10 or 11 million).
But the story got even better!! You see, CAP-1002 had received a rare pediatric disease designation (RPDD).
RPDD is a designation achieved after a company shows positive clinical data in a rare disease.
If CAP-1002 becomes approved for DMD, the RPDD grants vouchers (called a rare pediatric vouchers) to Capricor.
These vouchers are unique and valuable. They can be redeemed to receive a priority review for subsequent products.
What is more – the vouchers can be sold to other companies.
As we pointed out in our recommendation:
Sarepta sold one of their vouchers for $125 million in 2017, and a second for $111 million a few weeks ago.
The potential for a voucher award was (and is) another huge catalyst for the stock.
Finally, we recognized the COVID-19 angle. As we wrote in our list of catalysts back in March:
Then just yesterday they announce a COVID19 angle to their pre-clinical product, with a (seemingly) highly qualified person to run it and they say they are going after gov’t grants like crazy to help fund it.
The COVID-19 trials turned out to be the biggest catalyst of all – at least in the short term.
On April 3rd Capricor announced that they had initiated their compassionate use program for severe COVID-19 patients. This would be using their CAP-1002 cell therapy.
Then on April 29, Capricor reported data on that program, announcing a 100 percent survival rate in 6 patients tested after a 1-month course of treatment. Four of the six patients had been discharged.
I Follow My Nose
I’m not strictly a biotech investor. We do not limit ourselves to a single sector. Instead, I am opportunistic when I see mispricing in whatever sector it may occur.
I follow my nose.
With Capricor I hit the jackpot. I’ve sold enough stock to be riding for free now, and hopefully the DMD data comes in strong and the stock turns into a 100-bagger for me.
MY NEXT STOCK PICK
I’m excited about my next biotech junior stock pick. It is already extending the life-spans of patients—giving them high quality years with their loved ones. As this technology gets more and more approvals by countries around the world, I think the stock has incredible potential.
I expect new sell side research coverage, country approvals and further technical data to be great catalysts for the stock in the future.
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