I don't recommend chasing after companies that have just experienced huge one-day advances, but there's no denying that these big moves draw investors' attention. So when biotechnology company Boston Life Sciences (Nasdaq: BLSI ) shot up by 82% on Monday, I have to admit I was intrigued.
Here's a company that looks pretty tasty at first glance. It has an advanced product, Altropane, with a successful phase 3 trial under its belt and another in process, yet has a market cap of less than $30 million. (Just last week, it had a market cap of around $20 million.) Altropane is an imaging agent that the company hopes will be approved as an objective diagnostic for Parkinson's disease and attention deficit hyperactivity disorder (for which it is in phase 2 trials). Moreover, management claims that with a $1,000 price tag, Altropane could represent $75 million in annual revenues in the Parkinson's indication and $400 million to $500 million in the ADHD market. At face value, that makes a $40 million market cap look like a screaming bargain.
But a cursory look under the hood shows why the company trades at such a low valuation. For one thing, it had cash and marketable securities of less than $5 million at the end of the first quarter -- after having successfully completed a $5 million private placement during that same period. That's serious hand-to-mouth living.
In fact, Boston Life Sciences is already past the point at which it said it in its last 10-K that it would likely run out of money. The company desperately needs cash to continue clinical trials of Altropane. Although Altropane met its endpoints -- successfully differentiating Parkinson's syndrome movement disorders from those not Parkinson's syndrome-related -- in one phase 3 study several years ago, the Food and Drug Administration wanted to see more information. At the FDA's urging, the company decided in 2003 to delay a new drug application until it conducted a new study in essential tremor -- a shaking of the hands of unknown origin. The first trial did not do enough to prove that Altropane could differentiate such tremors from Parkinson's syndromes.
Monday's boost came from the company's successful renegotiation of a special protocol assessment (SPA) agreement with the FDA that should allow for the approval of Altropane on the basis of two smaller studies that will include all patients enrolled today. The agreement will also require less restrictive endpoints.
It doesn't change the bottom line, however, that Boston Life Sciences is teetering on the brink of insolvency right now -- not a situation I would want to invest in. The company needs to raise cash any way it can, and current shareholders, who already suffered through a reverse one-to-five stock split at the beginning of the year, may have to endure some heavily dilutive financing or some other draconian measures. The fact that it has yet to sign on a partner for Altropane, despite plugging away at the product for more than a decade, doesn't do anything to add to my comfort level.
But now Boston Life Sciences has a new light at the end of its tunnel. While an imaging-based diagnostic such as Altropane might conceivably be supplanted someday by a simpler gene-based test (such as one based on a gene linked to essential tremor, a discovery from earlier this year), that type of event looks to be a long way off. Altropane goes after Parkinson's syndrome precisely because Parkinson's disease appears to really be a cluster of related disorders, probably involving multiple genes. A product that differentiates Parkinson's from non-Parkinson's tremors would save patients currently misdiagnosed with Parkinson's a lot of grief and unnecessary medication (and perhaps some gambling losses, too, if charges about some strange compulsion-related side effects of Pfizer's (NYSE: PFE ) Parkinson's drug Mirapex are true). Likewise, a product that could add some objectivity to the ever-rising number of cases of ADHD being diagnosed across the country would be a godsend to many physicians and parents.
Myriad Genetics (Nasdaq: MYGN ) has made a nice business out of its diagnostic tests, particularly its BRCA gene mutation tests for breast cancer (for which the company charges more than $1,000, incidentally). Women with a family history of breast cancer take the test, even though there isn't a clear course of action following a positive test, apart from more vigilant screening. An objective Parkinson's test, on the other hand, could quickly lead the right patients to drugs like Mirapex, Valeant Pharmaceuticals' (NYSE: VRX ) Tasmar, or other therapies.
Enthusiastic retail investors drove this week's huge move on the market, and those are the only folks who will be moving the stock for some time to come. At Boston Life Sciences' current levels, institutions won't touch the stock. Even the short sellers have largely forgotten about the stock, which a few years ago traded at a split-adjusted $75 per share. That could make for a very volatile ride, but it also probably means there is time to sit back and see whether this company can gets its financial house in order. If it looks as though the company can continue to move forward, there should still be plenty of time for interested investors to take a bite.
BLSI certainly won't get my investment dollars in its current financial shape, but this is a ticker I will be checking on more often.
Pfizer is aMotley Fool Income Investorrecommendation.
Karl Thieldoes not own stock in any of the companies mentioned in this article.