Small-cap names tend to have a terrible reputation. However, the possibility of discovering a diamond in the rough pulls traders back in the game over and over.

Fortunately, applying a bit of critical thinking in sifting through the seemingly endless lists of small-cap companies can yield a handful of names worth consideration.

In the biotechnology and healthcare sector, one name that holds the potential is BioDelivery Sciences International (BDSI).

While it’s understandable if you’ve never even heard of BDSI, this company has actually been making waves in the field of severe pain management.

To date, it has three drugs out in the market and holds the patent for a slow-release biofilm technology used to administer these medications. Simply, BDSI is proving to be a profitable and fast-growing company.

The company’s main product is Belbuca, an opioid medication targeting chronic severe pain.

The competitive edge of Belbuca against other drugs is that it’s not an oral pill. Instead, it’s a tiny film that patients keep in their cheeks. This film then slowly dissolves, offering more potent pain relief over time.

Moreover, Belbuca is more difficult to abuse, making it a more attractive option for physicians to prescribe.

At the moment, Belbuca has a 4.7% market share of the long-acting opioid treatment segment.

While that sounds like an unimpressive number, this achievement becomes more pronounced when you find out that Belbuca only held 0.5% of the market when it launched in the fourth quarter of 2017.

By the first quarter of 2021, its market share expanded by 25% year over year, indicating that segment penetration is moving forward swimmingly despite the pandemic.

In fact, Belbuca’s revenues increased by over 95% in the last 3 years.

It also reported that its trailing-12-month earnings since the first quarter of 2020 have skyrocketed to a jaw-dropping 233%.

More excitingly, BDSI successfully defended its patent exclusivity against competitors.

Recently, it managed to ward off attempts from more prominent names like Teva Pharmaceuticals (TEVA), which hoped to gain access to BDSI’s slow-release biofilm technology.

Bolstering its hold on the pain management market, BDSI has also been successful in marketing Symproic.

This prescription medication, which targets opioid-induced constipation therapies, has seen a steady rise in market share over the past 2 years.

By the first quarter of 2021, Symproic has managed to take hold of 12.6% market share, making it a promising partner to the company’s major growth driver, Belbuca.

Highly aware of the growing competition in the opioid market, BDSI has decided to venture into other segments as well.

In September 2021, the company acquired the rights to acute migraine pain medication Elyxyb for $15 million.

Elyxyb is the first-ever FDA-approved, ready-to-use oral drug aimed to treat acute migraine. In terms of peak sales, BDSI is projected to rake in $350 million to $400 million from this acquisition.

BDSI plans to launch its own take on Elyxyb by the first quarter of 2022, with the goal of adding another catalyst in its growth story and a new revenue stream.

Looking at its history and trajectory, it’s evident that things are heading towards a bright future with BDSI.

This small-cap company managed to sustain the expansion of its market share and boost its sales growth despite the pandemic and the patent challenges from bigger rivals.

Moreover, its balance sheet looks solid. Its margins and cash flow have been exhibiting notable improvements as well.

Simply, there remains no identifiable business concern that might cause it to tumble in the future.

Overall, BDSI’s long-term risk-reward outlook still appears to be attractive regardless of the market’s less-than-stellar reaction to the stock in 2021.

Needless to say, BDSI’s remarkable performance hasn’t been convincing enough for investors to believe that the stock is worth their money.

That turns this promising $315.16 million market cap biotechnology company into an exciting opportunity for deep-value investors searching for diamonds in the rough and an astoundingly cheap growth play.

 

Inflation is one of the primary concerns of investors these days, and rightly so.

Just last month, the consumer price index (CPI) climbed at an astonishing 6.8% year over year — the highest increase ever recorded in almost four decades.

In response, many investors have decided to focus their attention on stocks that protect their portfolios from inflationary pressures.

While some are looking at cryptocurrencies and, of course, gold as their preferred hedges against inflation, I don’t think it’s wise to ignore dividend stocks.

History dictates that stocks that offer above-average dividend yields have been known to surpass expectations during the difficult periods of high inflation.

An excellent example of this is Bristol Myers Squibb (BMY).

BMY is one of the biggest names in the healthcare sector, with a market capitalization of over $125 billion.

Unfortunately, BMY’s shares have experienced a 9% fall in 2021 to date.

The company has also been underperforming compared to the broad market, which went up by more than 20% during the same period.

While this is unfavorable for investors who bought BMY in 2020, the current situation offers an attractive entry point for those looking to inject new money here.

Looking at the reasons for BMY’s relatively weak performance, one key point to consider is that the company is a major player in an industry that is not particularly sought after at the moment.

This year, most investors poured money on stocks that would benefit firsthand from the reopening efforts of the economy.

Consequently, the dependable, non-cyclical healthcare and biotechnology sectors have been generally disregarded—barring the COVID-19 vaccine stocks like Pfizer (PFE), BioNTech (BNTX), and Moderna (MRNA).

Apart from that, some company-specific issues plagued BMY as it faces impending patent expirations on a few key products in the following years.

Oral cancer drug Revlimid, which generated $12.1 billion in 2020, is expected to face patent loss by 2025.

Meanwhile, blood clot treatment Eliquis, which raked in $9.2 billion last year, will be dealing with the same issue by 2027.

This will be followed by lung cancer medication Opdivo, which recorded $7 billion in sales, in 2028.

Taken together, these key drugs generate roughly $28 billion in annual revenue, which comprises more than half of the company’s $46 billion revenue per year.

While this can be a cause of concern, it doesn’t necessarily mean that these products will generate zero revenues for the company when their patents expire.

In fact, a previous study revealed that top-selling drugs typically lose about 50% of their sales in the 5 years after their patent expiration.

That means that BMY can still expect well above $10 billion each year from these three key drugs through the 2020s.

Moreover, worries over the patent expirations appear to be overblown, considering that these will happen several years from now. Considering that BMY has an extensive list of growth assets and a robust pipeline, I think this situation has been more than accounted for.

The fear of patent expirations is well-founded, though. If companies fail to navigate a patent cliff, it can have serious ramifications for a company

However, a company that’s well-diversified and wisely invests in lucrative growth assets in advance of these impending patent expirations—even the losses of exclusivity of top-selling drugs—can handle the situation easily.

So far, BMY has shown three clear ways in terms of handling patent losses. One is expanding the indications of their newer drugs. Another is launching new products to the market. The third is acquiring new assets through beneficial deals.

The first cluster of drugs that BMY has brought to market and is growing rapidly includes anemia medication Reblozyl, which recorded an impressive 67% increase in its revenue in the third quarter of 2021

This translated to $160 million, or over $600 million in annual sales.

Recently, the FDA has accepted BMY’s collaboration with Merck (MRK) to use Reblozyl as part of the treatment for beta-thalassemia. The approval for this work is anticipated to be released by the second quarter of 2022.

Following this growth rate, it wouldn’t be a surprise to discover in the future that Reblozyl has transformed into a blockbuster drug with yearly sales reaching over $1 billion.

Another potential blockbuster is multiple sclerosis treatment Zeposia, which has boosted its sales 20x since 2020.

While it started from a low base of $2 million, this drug has the ability to reach peak sales of $5 billion annually.

Aside from these, BMY has a deep pipeline filled with drugs holding blockbuster potential in the coming years.

Meanwhile, BMY just hiked its dividend by 10%, pushing its dividend yield to 3.5%—easily doubling what investors can receive from the broad market, with the S&P yielding 1.3%.

In terms of its acquisitions, BMY has been on a buying spree lately. The most massive deal following its $75 billion acquisition of Cologne is its $13 billion deal with MyoKardia.

Simply put, BMY is cheap. At current prices, this healthcare company is trading at only 7.5x this year’s earnings, while the estimates for 2022 look to be even lower.

However, BMY is an impressive company with a remarkable portfolio of assets.

Moreover, the impending patent losses of its top-performing drugs have already been dealt with thanks to the company's solid revenue replacement strategy.

Hence, this issue should no longer sound any alarm bells.

Overall, BMY is an attractive option for the long-term and buy-and-hold type of investors, particularly those aiming for a sizable and steadily growing dividend stream.