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Editors' Note: This article covers a stock trading with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

At the end of every year tax loss selling and Hedge Funds facelifts push some stocks down too far. Investors are looking to bite the bullet and take losses on stocks to offset gains on other stocks for tax purposes. Portfolio managers are looking to sell their mistakes before they have to report their positions on December 31 to give the appearance they didn't make any unwise judgments.

The selling barrage from investors and managers halts in January after the close of the year because it is too late to hide losses or reduce 2013 taxes. These stocks often rise significantly as few are left who are willing to sell at the grossly discounted prices. The selling pressure last until December 31 and sometimes buying pressure begins early to move the stocks up before December 31 in anticipation of the January Effect.

Biodel Inc

Biodel Inc (NASDAQ:BIOD) is developing novel forms of insulin and other peptide hormones for use in treating diabetes and its complications, including hyperglycemia, hypoglycemia, cardiovascular complications and weight control.

BIOD-123

On September 13/12, Biodel initiated a Phase II trial for BIOD-123, an ultra-rapid-acting formulation of recombinant human insulin (RHI), this is the main focus for investors moving forward. None of the currently marketed meal-time insulin products adequately mimic the first-phase insulin release. The natural spike of the first-phase insulin release in a person without diabetes occurs within several minutes of glucose's entry into the bloodstream after a meal. By contrast, injected human insulin enters the bloodstream slowly, with peak insulin levels occurring within 120 to 180 minutes following the injection. One of the key improvements in insulin treatments was the introduction of rapid-acting insulin analogs, such as Humalog®, Novolog® and Apidra®. However, even with the rapid-acting insulin analogs, peak insulin levels typically occur within 50 to 70 minutes following the injection. The failure of currently marketed insulin products to adequately mimic the first-phase insulin release results in deficient insulin levels at the beginning of a meal and excessive insulin levels between meals. This time lag in insulin delivery can result in excessive glucose levels shortly after eating, leading to hyperglycemia and then, two to three hours later, inadequate glucose levels between meals, which may lead to hypoglycemia. These swings between excessive and inadequate levels of insulin are highly deleterious to the health of people with diabetes.

On September 8, 2013, Biodel announced preliminary results from Study 3-201, a Phase 2 clinical study of BIOD-123, an investigational ultra-rapid-acting mealtime insulin, in patients with type 1 diabetes. BIOD-123 achieved the primary endpoint of the study. Compared to Humalog, BIOD-123 demonstrated non-inferiority in change from baseline HbA1c.

BIOD-123 also achieved comparable weight gain, mean hypoglycemia event rates and postprandial glucose excursions over the entire treatment period with some notable trends in favor of BIOD-123 in weight gain during the stable dosing period, median hypoglycemia event rates and postprandial glucose excursions to a liquid meal challenge test.

BIOD-123 also had a comparable safety and adverse event profile, with the exception of an increased frequency of injection site pain associated with BIOD-123, although it which appeared to be clinically minor, was short-lived and did not result in patient dropouts.

"The establishment of non-inferiority in HbA1c of BIOD-123 versus Humalog in this study gives us a high level of confidence that BIOD-123 could achieve this primary endpoint for FDA approval in larger pivotal studies," Errol De Souza, Ph.D, Biodel's president and chief executive officer stated. "We look forward to completing the full analysis of the results, sharing the data with experts and potential partners to obtain feedback and preparing for an end of Phase 2 meeting with the FDA to define the path forward."

BIOD has a very promising pipeline in the works which already has big pharma taking notice and talking partnership (according to the May 8th earnings call at the 21:45 mark).

Pipeline

Analog-Based Ultra-Rapid-Acting Insulin

Our insulin analog-based program involves developing proprietary formulations of injectable insulin analogs designed to be more rapid-acting than the "rapid-acting" mealtime insulin analogs currently used to treat patients with Type 1 and Type 2 diabetes. We, therefore, refer to these formulations as our "ultra-rapid-acting" insulin analog-based formulations.

Concentrated Ultra-Rapid-Acting Insulin

Our concentrated insulin formulations have a unique time-action profile to address the growing population of severely insulin resistant type 2 diabetes patients and the existing population of patients currently using premixed insulins to manage both prandial and basal glucose control requirements with a single injection.

Glucagon

We are developing room temperature stable glucagon presentations for use as a rescue treatment for diabetes patients experiencing severe hypoglycemia, or very low concentrations of blood glucose.

We expect to submit an Investigational New Drug application to the FDA and initiate a pivotal clinical study by the second half of 2014, putting us in a position to file an NDA to the FDA under the 505(b)(2) regulatory pathway in 2015. We are also developing liquid glucagon for pump use and are exploring other portability options.

On December 17th, Biodel announced it had entered a manufacturing agreement with Becton Dickinson. The deal gives Biodel exclusive rights to Becton Dickinson's BD Uniject SCF Disposable Auto-Disable Injection System for delivery of liquid glucagon to treat severe hypoglycemia. The current $125 million U.S. market could expand significantly upon the introduction of an easy-to-use presentation.

With its vast pipeline and upcoming catalysts in 2014, the company is extremely undervalued and deserves a price per share 2 to 3 times the current valuation of $2.34.

Upcoming catalysts:

  • First half of 2014: top-line data phase 1 concentrated ultra-rapid-acting insulin
  • First half of 2014: possible phase 3 trial for RHI ultra-rapid-acting insulin
  • Second half of 2014: submit IND glucagon
  • Second half of 2014: initiate pivotal clinical trial glucagon
  • 2015: submit NDA glucagon

Finances

On August 12, 2013, Biodel disclosed financial results for the third fiscal quarter ended June 30, 2013.

Biodel reported a net loss for the three months ended June 30, 2013 of $9.6 million, or $0.66 per share of common stock, compared to a net loss of $6.1 million, or $0.52 per share of common stock, for the same period in the prior year.

Research and development expenses were $3.6 million for the three months ended June 30, 2013, compared to $3.0 million for the same period in the prior year. The increase in research and development expenses was primarily attributable to expenses associated with our ongoing Phase 2 clinical trial of BIOD-123.

General and administrative expenses were $1.7 million for the three months ended June 30, 2013, compared to $1.8 million for the same period in the prior year.

Expenses for the three months ended June 30, 2013 and 2012 included costs of $0.3 million each in stock-based compensation expense related to options and restricted stock units granted to employees and our non-employee directors.

Biodel did not recognize any revenue during the three months ended June 30, 2013 or 2012.

At June 30, 2013, Biodel had cash and cash equivalents of $42.4 million and 18.9 million shares of common stock outstanding.

Potential Risks

Keep in mind, that there are inherent risks associated with owning BIOD.

1) Negative top-line data from phase 1 concentrated ultra-rapid-acting insulin and FDA advice to stop of the continuation of phase 3 trial for RHI ultra-rapid-acting insulin.

2) Dilution from a possible offering.

Cash burn rate from previous years.

2013 $20M estimated
2012 $19M
2011 $23M

Company is averaging a burn rate of $5.3M per quarter.

It has $40M cash on hand providing 7 quarters of operations from September 2013 forward. This should be sufficient and I don't expect any dilution but with biotech it is always possible.

The 2 above factors could halt a "January Effect" run. Investors do have to keep this in mind.

Conclusion

Biodel Inc. is the definition of "January Effect" in my mind. Astute investors are urged to do further due diligence on this company, as they will likely reward investors with substantial gains in the near future. Keep in mind, that there are inherent risks associated with owning BIOD. Negative top-line data from phase 1 concentrated ultra-rapid-acting insulin and FDA advice to stop of the continuation of phase 3 trial for RHI ultra-rapid-acting insulin would have a negative effect on the stock's price per share.

Institutional Ownership

Company Details

Institutional OwnershipTypeValue
Total Shares Out Standing (millions):21
Market Capitalization ($ millions):$26
Institutional Ownership:53.44%
Price (as of 09/30/2013)2.28

Ownership Summary

Ownership Analysis# of HoldersShares
Total Shares Held:5311,262,025
New Positions:111,128,722
Increased Positions:263,712,257
Decreased Positions:183,062,795
Holders With Activity:446,775,052
Sold Out Positions:11978,308
Source: Biodel Inc: Strong Biotech 'January Effect' Candidate For 2014