In 2002, Tom Jacobs took a look at the Biotech Bargain Bin -- fallen biotechnology stocks with interesting research and lots of cash. One of those companies was $4.19-a-share Maxim Pharmaceuticals
Maxim looked interesting because the company was burning through $33 million of cash yearly to fund its research. Doing simple math, the company could survive 3.3 years before new funding would be required -- and, maybe, new funding would never be needed.
Was there pixie dust in the air? Were Polo Ralph Lauren
The company is reporting today that Ceplene, its drug in phase 3 trials for the treatment of advanced malignant melanoma in patients with liver metastases, has failed to meet its primary endpoint. The news sent the stock down more than 50% to $3.19 a share -- a new 52-week low and less than its 2002 bargain bin price.
Today's failed test focused on promising data from a previous Ceplene test that did not win FDA approval and sent the stock to the bargain basement. With more than $2 in cash per share, Maxim is not dead financially -- although it bit the dust today. It's just mired in the bargain bin because failed drug tests are as appealing as out-of-fashion apparel.
Did the four "bargains" with the longest survival terms fare better? The stocks of Celera
The risk in biotechnology start-ups is extremely high. They are sent to the bargain bin for a reason -- and trying to screen the best of the bargains by looking at cash does not produce encouraging results.
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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.