A Tier 3 biotech stock denotes a company that has approved products and recurring revenues but is not yet profitable. They are less risky than Tier 4 developmental concerns. This space is where you see a lot of buyouts happen as well.

Wealth stays with us a little moment if at all: My regular Seeking Alpha followers know that I break down biotech stocks into four clear risk categories, which I detailed in " Five Golden Rules of Better Biotech Investing. These are small-cap biotech concerns that have approved products and recurring revenues, but are not yet profitable.

They are less risky than Tier 4 concerns, which are strictly developmental and not yet to the commercialization stage. Tier 3 is also where you see a lot of buyouts in the sector occurring.

A perfect example of this happened earlier this month when Takeda bought out Ariad Pharmaceuticals NASDAQ: I get asked a lot about what are some favorite Tier 3 stocks, especially at the beginning of a new year. Progenics has one product "relistor" already on the market that is marketed and distributed by Valeant Pharmaceuticals NYSE: Valeant also recently announced it is boosting its sales force in this area which should provide an additional marginal lift to relistor sales.

In addition, the company's wholly owned drug Azedra has key Phase III trial readouts that should hit by the end of the quarter.

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The compound targets two rare adrenal cancers. The company also has another compound "" progressing nicely in develop.

This is a cancer imaging agent for prostate cancer and may be more valuable in long run than relistor or Azedra. Progenics was one of my top picks coming into Aratana had a banner developmental year in from its veterinary drug pipeline. It saw its first three drugs approved by the FDA during the year. These included Galliprant for the treatment of osteoahritis in canines, Nocita for post-op pain and Entyce for appetite stimulation.

Aratana also signed a substantial collaboration deal with Elanco to market and distribute Galliprant. This is the year the company moves from strictly a developmental firm to one that has commercialized products as well as a developmental pipeline more than a half dozen compounds in development.

Finally, Aratana is one of few pure veterinary drug plays in the market. Invitae gives an investor exposure to the rapidly expanding genetic testing market. While not technically a biotech concern, it is in an adjacent space. Until recently Invitae was what I dub a "Busted IPO" - which is why I never invest in a stock until it has been public for months. The shares have started to move up recently - and with good reason. Invitae aims to drive down the costs of testing for inherited genetic conditions by aggregated genetic testing.

It has consistently driven down the cost per test on a quarterly basis and met its year end goal in by the third quarter.

Invitae now tests for over different conditions. Invitae starting out as an oncology testing concern but has expanded into offering tests in cardiovascular, neurology and other disease areas. The noted healthcare investor the Baker Bros. Based on Invitae's recent run rates, I expect the company's revenues to be at the top end of that range and quite possibly slightly exceed it.

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Invitae should be cash flow positive by end of this year or early Given cash on hand I see no need for additional capital raises at this time. If the firm continues to grow at this pace, I would not be surprised if attracts some interest from a larger firm that want entry into the fast-growing genetic testing market. To get these types of articles on attractive biotech and pharma stocks as well as my instablogs as soon as they are published, just click on my profile and hit the big orange "Follow" button and choose the real-time alerts option.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Seeking Alpha.

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I have no business relationship with any company whose stock is mentioned in this article. Long Ideas Short Ideas Cramer's Picks IPOs Quick Picks Sectors Editor's Picks. Specializing in biotech stocks, Small Caps, managing optimized portfolios. Summary A Tier 3 biotech stock denotes a company that has approved products and recurring revenues but is not yet profitable. Want to share your opinion on this article?

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