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TheStreet Open House

Speculative Biotech Stock Offers Opportunity Amid Controversy

 DELAFIELD, Wis. (Stockpickr) -- The recent selloff in the biotechnology complex is creating golden opportunities throughout the sector for potential rebound plays.

Some of these plays have massive upside potential, with huge short interest and beaten-down charts. The sentiment on some of these stocks is extremely negative. Many of these biotech stocks also have upcoming catalyst events that could be a major driver for higher share prices. From my viewpoint, now is the time to start digging into these beaten-down names -- especially in the small-cap segment of the biotechnology world.

>>3 Biotech Stocks Rising on Unusual Volume

One speculative biotechnology stock that's catching my eye here is CytRx (CYTR), which operates as a biopharmaceutical research and development company specializing in oncology. This company's oncology pipeline is focused on the clinical development of aldoxorubicin (formerly known as INNO-206), its improved version of the widely used chemotherapeutic agent doxorubicin. CytRx is initiating a phase III pivotal trial under a special protocol assessment with aldoxorubicin as a therapy for patients with soft tissue sarcomas whose tumors have progressed following treatment with chemotherapy.

This stock has taken it on the chin during the recent biotechnology sector correction, with shares plunging lower by 44% so far in 2014. That's one heck of a drop, and unfortunately for CytRx, it's a drop that might have been somewhat self-inflicted.

CytRx is no stranger to controversy; the company has been accused of being a part of a stock promotion scheme by the investor relations firm the Dream Team Group. On March 13, an article published on Seekingalpha.com alleged that a CytRx-paid promoter used multiple aliases on third-party Web sites to tout the stock. As a result, multiple lawsuits have been filed against CytRx, which the company says are without merit.

>>5 Hated Earnings Stocks You Should Love

The recent negative press on CYTR has weighed down the stock heavily, but the bigger picture for this company is the potential of its under-development cancer drugs, which could be major blockbusters if approved by the FDA. In my opinion, the bearish sentiment around CYTR over the alleged stock promotion scheme does not warrant this stock trading as though it has nothing of significance in its cancer drug pipeline.

This company recently raised $86 million and said during its latest earnings report that it's well-funded to execute on its corporate objectives for the foreseeable future. During 2013, this company reported positive top-line results for aldoxorubicin from its phase IIa clinical trial for STS, and it initiated two phase II clinical trials in glioblastoma and Kaposi's sarcoma. The company's CEO recently said that CytRx is well-positioned to commence its global phase III trial of aldoxorubicin and that it has a number of major milestones on tap for 2014.

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