2 small biotech firms with big potential

Innovative pharmaceutical business Acrux (ASX: ACR) recently signed a distribution deal in Brazil for its flagship testosterone deficiency drug Axiron. The drug can improve sex drive and energy levels in men, and is particularly popular in the billion-dollar U.S market.

Approval for sale in Brazil follows on from recent approval in Germany and Acrux has identified 142 countries with potential for the drug’s distribution. 2010 was Acrux’s breakthrough year, after it received approval to market Axiron from the U.S Food and Drug Administration (FDA). It recently had that patent extended until 2027.

The innovative aspect of the Acrux business is that it develops drugs that can be administered topically through the skin in simple spray or liquid form. This is an increasingly patient-preferred method, rather than less convenient methods like injection.

Acrux is also in the process of commercialising Estradiol, a spray therapy for female menopause symptoms. The company has a market cap around $420 million and shows how the biotech sector can deliver big profits for shareholders who get in early enough.

Another small-cap biotechnology company gaining publicity recently is Prana Biotechnology (ASX PBT). It’s attempting to develop treatments for some of the world’s most common diseases, in particular Alzheimer’s and Parkinson’s. Success has blockbuster potential for shareholders, with the company expected to release the results of its latest Alzheimer’s drug trials in March 2014.

In the last year, shares in the business have tripled in value then almost halved again as investors speculate on the company’s success in developing and commercialising the Alzheimer’s drugs. Eventual U.S FDA approval for any Alzheimer’s treatment is the Holy Grail, but that’s a long way off yet, with the company giving no further clues as to the status of the trials after its AGM last week. Even reported trial success is absolutely no guarantee of FDA approval to market the drugs.

Current market cap is $216 million, although investors can expect this to gyrate sharply as the results of its drug trials become clearer.

Foolish takeaway

Regulatory approval for a company’s drug treatment in the world’s largest healthcare market can be like winning the lottery for a company and its shareholders. Acrux’s recent success a modest example. Any investment in Prana is highly speculative, with the news flow now driving the share price. If investors are to try and chase the next big thing, they should be sensitive of the sometimes dubious nature of that news flow.

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Motley Fool contributor Tom Richardson owns share in Prana Biotechnology. 

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