Small Cap Receptos Inc (RCPT): Are Investors Jumping the Gun? IBB & XBI

Small cap  biopharmaceutical stock Receptos Inc (NASDAQ: RCPT) was one of the many hot biotech IPOs of last year and its also up 72.4% since the start of this year alone, meaning its time to take a closer look at this small cap stock with potential treatments for Relapsing Multiple Sclerosis (RMS) and Inflammatory Bowel Disease (IBD) along with the performance of biotech ETF benchmarks like the iShares NASDAQ Biotechnology Index ETF (NASDAQ: IBB) and SPDR S&P Biotech ETF (NYSEARCA: XBI).

What is Receptos Inc?

Receptos Inc is a small cap biopharmaceutical company focused on discovering, developing and commercializing innovative therapeutics in immune disease. The company's lead asset, RPC1063, is being developed as an oral therapy for Relapsing Multiple Sclerosis (RMS) and Inflammatory Bowel Disease (IBD) with the goal of demonstrating clinically meaningful differentiation versus other available treatments, including a favorable safety profile. Receptos Inc is also developing RPC4046, an anti-interleukin-13 (IL-13) antibody for an allergic/immune-mediated orphan disease, eosinophilic esophagitis (EoE).

As for biotech performance benchmarks, the iShares NASDAQ Biotechnology Index ETF tracks the Nasdaq Biotechnology Index through 123 stocks and has a 78.59% weight in "biotechnology" and a 21.48% weight in Pharma while the SPDR S&P Biotech ETF tracks the S&P Biotechnology Select Industry Index with a 100% allocation in 69 biotechnology stocks.

What You Need to Know or Be Warned About Receptos Inc

Last May, Receptos Inc priced an initial public offering of 5.2 million shares at $14 to raise $72.8 million which was actually at the low end of its proposed $14 to $16 range. However, the company boosted the number of shares from 4.7 million to 5.2 million. In addition and in mid-January, Receptos Inc closed another underwritten public offering of 3,320,000 shares of its common stock at a price of $30.75 per share plus granted to the underwriters a right to purchase an aggregate of 498,000 additional shares of common stock. Approximately, $117.4 million was raised.

Last Wednesday, Receptos Inc reported that total revenues for the fourth quarter were $773,000 verses $3.8 million for the fourth quarter of 2012 with this revenue consisting primarily of amortization of up-front fees and milestone payments (which are being recognized over the estimated period of performance) and research and development funding received from our collaborative arrangements. The fourth quarter net loss was $15.2 million verses a net loss of $4.5 million. For the whole year, total revenues for 2013 were $4.6 million verses $8.6 million for 2012 while the net loss for the year came in at $50.4 million verses a net loss of $17.7 million. Apparently, the net losses met expectations after three straight quarters of losses that were much wider than expectations – helping to send shares skyward.

Keep in mind that when analysts initiated coverage on Receptos Inc back in June, Wedbush analyst Liana Moussatos said that RPC 1063 could be the best multiple sclerosis treatment of its type and the first of its type for inflammatory bowel disease. She also noted that company management has a strong track record, including experience with MS drugs, and she estimated that RPC 1063 could reach the market in 2018 or 2019. Then it could have 9 or 10 years of patent protection after that. BMO Capital Markets analyst Jim Birchenough added that sales of MS drugs like Novartis AG's Gilenya and Biogen Idec Inc.'s Tecfidera have been strong meaning there could be significant interest when the company reports more clinical data around the middle of this year. However, both analysts believe that Receptos Inc won't become profitable until 2019 with Moussatos setting a price target of $23 per share and Birchenough setting a target of $22 per share – price targets the stock has long sense blown past.

Small Performance: Receptos Inc vs. IBB & XBI

On Tuesday, small cap Receptos Inc rose 6.37% to $49.57 (RCPT has a 52 week trading range of $13.00 to $51.68 a share) for a market cap of $1.10 billion plus the stock is up 72.4% since the start of the year and up 245.1% since the end of last May. Here is a look at the performance of the Receptos Inc verses the iShares NASDAQ Biotechnology Index ETF and SPDR S&P Biotech ETF:

As you can see from the above chart, Receptos Inc has been more of a lottery ticket but its not like biotech ETFs such as the iShares NASDAQ Biotechnology Index ETF and SPDR S&P Biotech ETF have been poor performers over the past year or more.

Finally, here is a closer look at the latest technical charts for all three biotech investments:

The Bottom Line. While small cap Receptos Inc could very well have a promising treatment for both RMS and IBD, it seems like investors are really jumping the gun – meaning those not already in on the party might want to keep looking for the next biotech to go parabolic.