Penny stocks are thought of negatively by many investors because
of the potential for fraud and manipulation. Because most penny
stocks trade on pink sheets, oversight and disclosure tends to be
elusive at best. These sorts of penny stocks are to be avoided at
That said, penny stocks should not be avoided entirely. Many
penny stocks are legitimate companies that trade on legitimate
exchanges. For whatever reason, these stocks trade below $5 per
share, making them penny stocks according to the Securities and
In the biotech space, very real companies with exciting
prospects fail to attract investors. The reasons are simply that
these biotech penny stocks are losing money on an operating basis.
The research-and-development nature of these companies dictate that
profits come later. In an unforgiving market, these biotech penny
stocks trade below $5 until they can prove beyond a shadow of a
doubt that they can be profitable.
The time to buy these stocks is before that happens. Here are
four biotech penny stocks to consider for your portfolio:
) has a market capitalization of $170 million, and the volume of
shares traded daily is strong. Those are positive attributes that
indicate there might be more to this biotech penny stock than meets
the eye. The company is a late-stage drug development company that
is focused on the cancer treatment market.
Shares are up this year even after multiple days of selling in
the market. AEterna has gained 3.5% so far this year. As one might
expect, the company is losing money, but the losses are expected to
be smaller in the coming year. Given the promise of its drugs and
the proximity to actually coming to market, the risk/reward is
strong. I would buy this biotech penny stock.
Stem-cell research might be controversial from a political
standpoint, but the promise of treatments using stem cells is
) is primarily focused on developing stem-cell, patient-specific
therapy for the treatment of critical limb ischemia. Currently in
phase II testing with mixed results, the company is negotiating
with the FDA with respect to phase III trials.
Drug companies are roller coasters. Making it through the ride
and bringing a drug to market can result in huge returns for
investors. With Aastrom currently depressed, buying today
represents a good entry point for new investors. The stock is down
nearly 4% year-to-date, holding up better than many other small-cap
stocks this year. It might take some time for the test phase to be
complete, but should the company prove successful in its treatment,
the stock is an easy double from here.
) is in the business of biodefense. The company specializes in
developing vaccines to combat biological and chemical weapons. As a
partner of the Department of Defense, this biotech penny stock is
very much for real. It also is critical given where defense
spending is likely to be headed. Big, old-line defense contractors
might see cuts because of budgetary constraints, but biodefense
should be unscathed.
The stock has been hammered this year, but that is after a big
run-up in price at the end of 2010. Shares are down 46% in 2011.
With the U.S. government relationship acting as a natural floor for
this stock, I would use the discount as an opportunity to buy
shares on the cheap. Analysts expect the company to get close to
break-even in 2012. Buy before the market catches on.
) is an interesting biotech penny stock with a unique twist to the
drug and treatment market. Instead of developing new drugs, the
company takes existing drugs and makes tweaks to decrease the risks
of the drugs without negatively impacting efficacy. This lower-cost
model works well if the company can prove the concept. If not,
there is no research and development that will save the day for
Currently, AdventRX has one drug that it hopes to bring to
market in the near future. With some $47 million in cash on hand at
the end of the first quarter, there should be enough money there to
see where this drug goes in the market. Success there opens the
door to other drugs that also could be tweaked. This company is an
example of making the market more efficient. I like this biotech
penny stock for that reason alone. It is worth taking the risk to
see if it can prove the model.