The start of 2014 for the small and mid-cap biopharma group has been torrid. Positive exciting catalysts delivering greater-than-expected (or even in-line) results have rapidly pushed selected names higher. The magnitude of these one-day moves is astonishing, and more than the biotechnology team at Piper Jaffray is accustomed to seeing. While they do not believe these are necessarily pushing stocks into “overvalued” territory, the rate at which these moves are occurring is noteworthy, and to them a little unsettling. Investors are questioning how long this “hot” tape can continue and whether a pullback is in order.

After three years of total outperformance in the big cap biotechnology arena, investors are holding those top stocks, but looking for smaller names that have binary events and trial data that can shoot these red-hot names higher. We recently wrote about biotech stock trading under $10 that had huge upside potential.

The team at Piper Jaffray also has a select group of top names that could bring big gains for investors. They prefer high-conviction near-term binary events and lower conviction catalysts with negligible downside. Catalysts that in prior markets might have been too obvious for investors to drive meaningful upside may now generate attractive one-day returns.

Here are some of the top biotechnology names at Piper Jaffray.

Exelixis Inc. (NASDAQ: EXEL) is a Buy-rated stock at Piper Jaffray. The company is engaged in the development of small molecule therapies for treating cancer. It has an FDA-approved product, Cometriq, in the market for the treatment of progressive metastatic medullary thyroid carcinoma. The company is also trying to find new applications of Cometriq, and a number of clinical trials are underway to assess it for other indications. The Thomson/First Call price target for the stock is $7.08. The stock closed Thursday at $7.19.

Endocyte Inc. (NASDAQ: ECYT) is a biopharmaceutical company and leader in developing targeted small molecule drug conjugates (SMDCs) and companion imaging agents for personalized therapy in cancer and other serious diseases. It announced in December preclinical data suggesting the company’s folate receptor-targeted SMDCs may provide a possible new treatment alternative for folate receptor expressing triple negative breast cancer patients. The consensus price target for the stock is $20.89. Endocyte closed Thursday at $10.90. A move to the target would represent a 90% gain

Insmed Inc. (NASDAQ: INSM) was upgraded to Buy on Thursday at JMP Securities. The company focuses on developing and commercializing targeted inhalation therapies for patients battling serious lung diseases. Its lead candidate ARIKACE is engineered to deliver a proven and potent anti-infective directly to the site of serious lung infections to improve the treatment for two identified patient populations. They are targeting patients suffering from cystic fibrosis and other serious lung infections. The consensus price target for the stock is $24.71. Insmed closed Thursday at $19.58.

MannKind Corp. (NASDAQ: MNKD) announced Thursday that the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee will review its new drug application (NDA) for its inhalation powder to treat type 1 and 2 diabetes. This has been an ongoing biotech story for years and it may finally come to fruition. The consensus price objective is $7.68. The stock closed Thursday at $7.08.

Nektar Therapeutics (NASDAQ: NKTR) may be one of the top names to buy. The company’s clinical pipeline and list of big pharma partners are impressive to say the least. Despite having a whopping eight late-stage candidates, Nektar’s market cap is a paltry $1.3 billion. Its top drug Naloxegol is being developed as a once-daily oral tablet for the treatment of opioid-induced constipation, and it is licensed out to AstraZeneca. Cutting to the chase, if the drug is approved next year, Nektar will receive up to $245 million in milestone payments — some of which have already been triggered by the filing of the NDA. The consensus price target for the stock is $14. Nektar closed Thursday at $12.40.

Xoma Corp. (NASDAQ: XOMA) is shepherding its lead clinical candidate gevokizumab through a number of clinical trials for an impressive array of conditions, and it keeps producing good news for investors. Also, the company had a recent secondary offering that helped to refill the company coffers. The consensus price target for the stock is $8.39. Xoma closed Thursday at $8.17.

We caution our readers that although many names may be on the path to success, biotech investing always entails a great deal of risk. For conservative accounts, most of these stocks are not suitable. For those accounts that do have the risk tolerance for these names, there may very well be some solid portfolio gains while this hot rally lasts.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.