Rally On, Traders!

The joy of monitoring the biotech industry is how fast a tiny company can grow into a truly world-changing enterprise. Stocks like Q BioMed Inc. (NASDAQ:QBIO) usually start with a little science . . . some medical challenge that nobody has been able to fix . . . and then add brainpower, ambition, leadership and plenty of sweat to turn it into the next new FDA-approved drug.

On paper, it's as simple as Phase 1-2-3. Investors put a little money in at the beginning and the billion-dollar blockbusters happen at the other end. Pure innovation.

But the process can take years. On average, a hopeful baby biotech might burn $2.6 BILLION getting to the approval stage, and even then the vast majority of programs fizzle out on the road. 

And in the meantime, most baby biotech stocks really run on hope and hype. That's one thing that makes QBIO stand out from literally HUNDREDS of its "peers" on Wall Street today . . . 

QBIO has already made it through the FDA process. They've already gotten their first drug approved, patients in the real world are taking it and a trickle of revenue has started coming in!

We'll talk about the drug and what else QBIO has in the pipeline in a few minutes. But for now, the important thing is that it's past the FDA. All the pain, risk and cost of running clinical trials is OVER. Now it's time for the fun part: filling prescriptions and getting paid!

It's a once-in-a-lifetime moment for every baby biotech on the go. But at this stage, things can move with lightning speed . . . so keep the company's news page handy and maybe refresh it once or twice a day.

Here's the chart:



QBIO has come a long way in the last year, even though not a lot of the recent headlines have made much dent in a market obsessed with pandemic, politics and other noise. That's actually a good thing for people just finding out about the company today.

After all, if the big boys on Wall Street had already woken up to this little stock, there wouldn't be much green field upside left for the rest of us, would there? That's how markets work.

But a few niche analysts have started coming around. Let's start there. A firm called Litchfield Hills did the math and believes little QBIO is worth at least $5 a share. I found the initial report. You can peek at it HERE.



The executive summary: QBIO's drug Strontium89 fights the pain associated with bone cancer. Management thinks they can book about $25-$50 million a year in sales, and then if they prove it actually fights the cancer as well as the pain, this could be a $250 million franchise.

That's not me. That's just the Litchfield Hills guys. And the thing is, these are staggering numbers in baby biotech country, especially when you consider just how small a stock QBIO still is down here below $2 per share.

Say purely hypothetically that QBIO management is on track and sales hit around $37 million, roughly the middle of that guidance zone. I see $35 million market cap right now, so that's a price per sales ratio of 1X.

That ratio puts QBIO in the top fraction of all biotech stocks on Wall Street. Check my screen: only 7 biotech companies score better. 

And that's just the middle of guidance, which is why we're talking about QBIO instead of those other stocks today. Maybe the high end happens faster than management hope. And maybe the Litchfield guys are right and the coming numbers blow guidance away.

The point is that the biggest biotechs go for at least 4X revenue and sometimes when the froth whips up the right way we see numbers well above 400X revenue. Dollar for dollar, which would a traditional fundamental-driven investor want to see? 

The market hates an imbalance. When everything else is equal, valuation discounts tend to even out in the long run. That's key to that Litchfield target: compared to giants and babies alike, the market just isn't taking QBIO seriously enough. 

But let's say for the sake of due diligence that management is wildly optimistic and QBIO only manages to squeeze $1.5 million out of its drug this year. After all, it's a pandemic world, right? We need to test all scenarios.

Even if QBIO only fills that many prescriptions, 6% of the LOW end of guidance, it's still got a lower sales multiple than almost 400 of the 547 biotech stocks on the market.

It beats 2 out of 3 names in the group . . . including giants like Seattle Genetics ($30 billion), Moderna ($25 billion), Alnyam ($18 billion), etc.



And don't forget the 218 publicly traded biotech stocks with effectively NO material revenue prospects on the horizon at ALL. Maybe they squeeze a little cash from partnerships and license deals, but they don't have anything like a commercial drug on the market. Wall Street loves them for their long-term potential and that's as far as it goes. 

QBIO is more than potential. It's not a gamble on the FDA giving them the green light years down the road. That's normally worth something. 

After all, the Litchfield guys say something interesting. They think QBIO will be able to break even sometime in 2021, which is at most 18 months away. Only a handful of all biotech stocks can even dream in those terms. Once again, if you're attracted to just about any other biotech (big to baby) on the market, what does it have that QBIO doesn't?

It's not the medical targets. Bone cancer can be extremely painful and it's a frequent complication from prostate or breast cancer . . . some of the most common forms of the disease. About 2 million people feel the pain. It's very difficult to treat without simply opiating the patient into oblivion.

But QBIO had its eyes open and picked up a drug that had already made it past the FDA (and 21 other regulators), only to get shelved. GE owned one version and BioNucleonics had another. QBIO bought both out and then found a distribution partner to get their version into pharmacies.



So that's how this tiny company leapfrogged hundreds of other biotech hopefuls. QBIO management is alert . . . agile . . . ambitious. All systems GO! (VIDEO)

And a team like that knows you don't want to be a one-trick pony. Maybe Strontium89 fights other kinds of pain. Pain is a huge market and with opioids under such scrutiny, traditional treatments are vulnerable to big disruption. A little company like QBIO can become a king.

Maybe Strontium89 actually fights the cancer itself. That's for the future, but if you're fretting about extension prospects, you can fret no more.

Meanwhile QBIO is in the clinic with novel autism therapies. New liver cancer targets. Glaucoma. 

What's this? A potentially wide-ranging treatment for "vascular diseases, including the new coronavirus which originated in Wuhan, China." There are hints it can treat severe flu and the vascular damage it causes.

It isn't a vaccine. QBIO was too smart to get into the vaccine wars when we all knew there would only be a few winners out of the crowded field. 

But this new disease is still arguably the biggest and most prestigious target on the planet. QBIO is working as fast as it can. Go go go! (VIDEO)

So I'll just leave you with that. Even if the numbers aren't compelling . . . even if the prospect of a new kind of painkiller for millions of people isn't enough . . . even if the sight of a tiny company building what a lot of giants have yet to achieve doesn't tickle your fancy.

QBIO might just be able to cure millions of people who catch the disease of the year before a vaccine is even tested. That's a big deal. If you're looking for stocks in that field, this one is in play.


Happy, Happy, Happy Trading!