Every week I run a customized scan for stocks that meet a strict set of technical and fundamental criteria. The point of the exercise isn't to give me a bazillion trading ideas (most of which I couldn't act on even if I wanted to), but to highlight some budding ideas that I wouldn't have come across anyway. One of this week's most compelling - and admittedly obscure - ideas is biopharma name Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP).
Never heard of it? Don't worry... neither have I. That's the point of the scan. Either way, SCMP is indeed an interesting addition to a portfolio for most aggressive investors.
Sucampo Pharmaceuticals is developing what are called prostones, or compounds that occur (or should occur) naturally in a human body. These prostones activate certain cellular ion channels, which improves cell protection as well as revitalizes a cell's barrier function. Activating a cell's ion channels can have a wide range of therapeutic outcomes, including gastrointestinal, ophthalmic, vascular and respiratory diseases, and others.
Admittedly, when a small cap biotech touts a new idea or new approach to a therapy, the market usually dismisses it, though knowing a few "crazies" will throw some money at it to keep the money afloat for a while. In the case of SCMP, though, there's actually quite a bit of merit to the idea.
Nothing points to that merit better than the fact that Sucampo already has a couple of products approved for sale in the United States - Amitiza, for constipation, and Rescula, for IOP (intraocular pressure). Amitiza should also be selling in Europe and Japan before 2013 comes to a close. Yet, Amitiza is already yielding big bucks for the company. SCMP has been garnering an average of $15 million worth of sales royalties on the drug since 2010 in the U.S. alone; the figure could double once the U.K. and Japanese markets are tapped. Rescula is also a newly-approved drug in the United States, and should provide immediate accretive revenue once it goes into full production.
Oh, and Sucampo Pharmaceuticals offers something also most small cap biopharma names don't - it's profitable. Last year, SCMP earned $4.8 million on $81.5 million in sales. Granted, about $15 million of that revenue from Sucampo was the result of a one-time payment from its Japanese partner. But, even before that one-time reward, the company was flirting with profits. Point being, just a little more revenue could go a long way, making the company self-sustaining. Rescula and the opening up of the UK and Japanese market to Amitiza is that "little more" revenue.
All of that being said, what's really compelling here isn't the fact that Sucampo has two marketable products now, but that it's got five more in the pipeline, with one of them in phase 3 trials. With the first two approvals under its belt, it wouldn't be a stretch to think at least a couple more of the five are destined for approval too. They are, after all, based on the same underlying prostone technology.
Bottom line? Shares of SCMP were jolted out of a slumber and into an uptrend this week, and for good reason. The stock's trading at 25 times its forward-looking earnings, and at 3.1 times its trailing revenue. That valuation is almost on par with established and long-tenured large cap companies. Not bad for a $240 million company that nobody knows about... yet.
If you want more great trading ideas, then you want to become a subscriber to the SmallCap Network Elite Opportunity service.