One consistent feature of my GBMB stocks has been that I’m not afraid to go into the red on the pick since I feel there’s a high probability the company will eventually be successful. Lately I’ve been mulling the wisdom of adding some stocks which I believe have a good chance of eventually going to zero. Legitimate bioetchs are often undervalued, but not to the extent where they’re likely to become multibaggers. So at the risk of endangering my credibility, I’ve decided to do some dumpster diving and select a few depressed stinkerinos which are most likely to become multibaggers before they eventually vaporize. Needless to say, I’m prepared to see my entire investment vanish without a trace if my analysis or timing is off with these stocks.
Adeona Pharmaceuticals (AEN) – market cap 28M, share price 0.85. Cash 9M, debt 0, quarterly burn 1-2M. Adeona was a baby biotech star last winter, rising from lows of 0.71 to a high of 2.13 (that’s a three-bagger) on anticipation of the CopperProof-2 trial of ReaZin in Alzheimer’s before slumping to current low levels after the trial failure. The share price bounced off 0.8 last week on the cliché of a post-hoc subgroup analysis from CopperProof-2, but it doesn’t seem that move will be sustained. The catalyst that I think is likely to induce a sustained upward run in Adeona is the phase II trial of Trimesta in relapsing MS in women, which has reached 133/150 enrollment at the beginning of May and has been accruing patients steadily. Enrollment should be complete later this year, although clinicaltrials.gov lists a primary completion date of 6/13. Is it still too early for Adeona? Considering Adeona’s failure with ReaZin, I wouldn’t count on a Trimesta success to bail you out of a losing position. So let this one percolate for now until there is a little more clarity on the timing of Trimesta catalysts. I would also await clear signs of price stabilization below 0.8 before risking hard cash on a run-up, and dump the stock before the data.
Rexahn Pharmaceuticals (RNN) – market cap 123M, share price 1.29. Cash 23M, debt 0, quarterly burn 2-3M. I’ve been very harsh on Rexahn, the Macbeth of baby biotechs. But remember, we’re out for vicarious thrills here. Take a look at the two-year chart and you’ll see a structure that looks like the Burj Khalifa on the Dubai skyline. That was the spike created when BioMedReports frothed up the phase II data for Serdaxin in depression, and subsequently the CEO’s selective editing of lukewarm data was revealed. But in baby biotech it seems all sins are forgiven, and now the stock seems primed for a rebound in advance of phase IIb data for Serdaxin towards the end of 2011. Aside from Serdaxin, phase II data for kinase inhibitor Archexin is expected in H1 2012 and a phase IIb trial of Zoraxel in erectile dysfunction is planned for H2 2011. The share price has floated up from recent lows of 1.07, and I wouldn’t touch this above 1.1 before the phase II data.
StemCells (STEM) - market cap 123M, share price 0.66. Cash 22M, debt 1M, quarterly burn 5-7M. Check out the full share price history, going back to 1992. How many times has this stock been a multi-bagger? And a 90% loser? Incredible. This company has a knack of rescuing themselves from the brink of disaster, and then diving head-first back into the chasm. Of course, each successive peak has been smaller. So am I finally seeing potential here when its last vestiges have actually disappeared? Possibly. But the company now has early stage trials of their CNS stem cells in Pelizaeus-Merlbacher disease and spinal cord injury in progress, with data expected from the PMD trial in early 2012. Has the latest downward spiral ended, or is there more to go? There’s still too much opportunity out there to risk cash on Stemcells right now. Let’s wait a few more months and see if the company can preserve enough cash to make it to the PMD results without more dilution. I’d come sniffing around this stock again with price stabilization below 0.55.
Talon Therapeutics (TLON.OB) - market cap 21M, share price 0.97. Cash 16M, debt 23M, quarterly burn 5-10M. Sadly, I’ve been holding a chunk of Talon shares for years, prior to the 4:1 reverse split and name change from Hana Biosciences. Hana/Talon taught me to never underestimate the decay factor in a one-trick pony biotech running a pivotal cancer trial. I thought had done a nice job of bottom fishing in 2008 when I picked up my shares at 3 (split-adjusted) after they had been trading in the 30’s two years earlier. A combination of dilution, debt financing, lack of catalysts, and broad market weakness led the stock to trade as low as 0.36 in 2009, and the share price barely twitched last June when the company reported respectable numbers from the pivotal rALLy trial of Marqibo in treatment-resistant ALL. The stock then hovered around 0.5 for months before making a wild run north of 1.5 on the announcement that an NDA for Marqibo would be submitted in the first half of 2011. The price has now dropped back below 1 although the company recently reaffirmed their intention to submit the Marqibo NDA by the end of this month. Once that happens and Talon gets on the FDA calendar, especially after the NDA is accepted in August, I see a high probability of the share price heading sharply north. Needless to say, if the FDA returns a CRL on Marqibo the survival of this company is highly questionable. Do not forget to mark your calendars with the PDUFA.
If you’re toying with the idea of buying into any of these companies, remember three things.
1. These are not investments. These are trades. Unless you’re prepared to put these stocks on a watchlist and read every news story and blog post, every SEC filing and PR, and look at the price action every day your margin of error will shrink to zero very quickly.
2. Never buy a low priced, low float stock using a market order. You will get a nasty surprise.
3. I don’t want to know how much money you lost on one of these stinkers.