There do seem to be a lot of attractive small-cap growth prospects out there these days — and even ace investor Neil Woodford has a few tucked away, including some biotech and pharmaceuticals prospects.
I’m taking a look at two here, both of which released first-half results Friday, and neither of which is in profit yet.
The first is Motif Bio (LSE: MTFB), which is in the business of developing novel antibiotics — and you don’t need me to tell you of the possible profit potential in that field, with our existing range of antibiotics falling one-by-one to the rapid onset of bacterial resistance.
Financially, Motif Bio is still in its net investment phase and has not recorded any profits yet, and there are none on the cards for at least the next two years.
A placement in June 2017 raised $23.7m, leaving the company with net cash at 30 June of $29.7m, so there’s cash there for now at least. But the company did record a net loss for the six months of $29.7m (following on from $14.2m in the same period last year). So cash burn is significant and at that rate it seems there’ll surely need to be further cash calls before profit is reached — investors today need to be aware of that possible dilution.
The good news is that the firm’s current key drug focus, iclaprim, which is intended to treat acute bacterial skin and skin structure infections, made it successfully through its REVIVE-1 Phase 3 clinical trial. The drug appears to be of similar effectiveness as vancomycin, which is today often seen as the antibiotic of last resort — but there are already bugs out there with vancomycin resistance.
Phase 3 success is really big news, and approval from the FDA is what’s needed now — there have already been some positive steps toward that event.
My second pick is Tiziana Life Sciences (LSE: TILS), a company researching in the fields of oncology (cancer) and immune diseases.
On the financial front, the company recorded a loss of £3.87m in the half, which left it with £2m in cash at at 30 June (after the raising of £0.57m through the conversion of warrants in March). So again, with losses forecast to widen for the full year and for next year, it looks like Tiziana is also going to need significantly more cash to keep itself going.
The firm’s key prospects aren’t as far developed as Motif’s, with a phase 2 clinical trial protocol of milciclib, a treatment for a kind of hepatocellular carcinoma in patients who do not respond to existing treatments, having been approved in Israel with protocol submissions also made in Italy, Turkey and Greece.
The monoclonal antibody foralumab, aimed at inflammatory diseases such as non-alcoholic steatohepatitis (NASH), is set for its first study regarding efficacy and safety in patients with NASH and type 2 diabetes.
Tiziana has also acquired an exclusive worldwide license from Novimmune, for another monoclonal antibody with the snappy name of NI-1201.
There’s sizeable risk with both of these, though I do see Motif as the less risky of the two right now. But if this is your kind of investment, I reckon smaller investments in several candidates is a better approach than a big commitment to just one.
Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.