Top 10 Penny Stocks of 2010

7. Somaxon Pharmaceuticals (SOMX) is a specialty pharmaceutical company, based in San Diego, that focuses on treatments for diseases in the central nervous system

Closing Price: $4.94 (June 16)

Total Return (YTD): 357.4%

Developments in 2010: In March, the Food and Drug Administration approved Somaxon's Silenor as a new treatment for insomnia, news that pushed the company's stock above $9 per share. Jumping at the opportunity, Somaxon offered 6.9 million shares of common stock at the end of March at $8.25 per share. The stock has been on a steady slope down since and even a shrinking first-quarter net loss (announced in May) has done little to stem the decline. CEO Richard Pascoe said Somaxon will spend the second half of 2010 seeking a U.S. commercial partnership, building a U.S. commercial presence and preparing to launch Silenor.

Valuation: Only two firms (Oppenheimer and Jefferies) cover Somaxon, and both have a buy rating on the stock. With a price target of $13, Jefferies expects a 166% return over the next year. From a book value perspective, Somaxon's price-to-book ratio of 2.96 is below the pharmaceutical and biotech sector average of 5.27, according to Bloomberg. If the company were to find a commercial partner in the U.S., it may help stop the share price from sliding further from the March highs.

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