BioDelivery Sciences (NASDAQ:BDSI) issued a pre-market press release on Tuesday morning announcing a registered direct offering with institutional investors that would raise $10 million for the company.
According to the PR, BioDelivery will sell nearly three million shares of its common stock for $3.54 per share and will also issue warrants to acquire an aggregate of nearly 1.5 million additional shares at $4.67/share.
BioDelivery will use the cash infusion to fund the continuation of the BEMA pipeline, for general corporate purposes and to maintain a solid cash position as the company negotiates potential partnerships during the course of the year.
As a result of the announcement, BDSI shares took a 15% haircut on Tuesday, trading as low as $3.51 at one point during the AM hours.
As is the norm immediately following news such as this, many longs will question their investment in the company and some will even sell into the panicked frenzy that becomes the stock and finance message boards, which - for a short time - are inundated with riff-raff doing all they can to get the weak hands to sell their shares.
It's always good to emphasize a couple of things when events such as this take place; for one, the biotech sector is a largely volatile one and most of the companies that belong to this sector are still developing, meaning that the possibility of a cash-raising or dilutive event is always on the table.
I'm not a big fan of making assumptions, but there are some assumptions that need to be made at times, and one is that when trading in the biotech sector it's safe to assume that the company you invest in may have to use dilution to raise cash at some point.
That's where DD and entry and exit strategies come into play. Good DD will tell you just how likely a particular company is to need financing over the short, mid or long term, and a solid entry / exit strategy will keep you sticking to your plan and from making emotion-based trades, like selling into a panic very likely created by short-sellers who need your shares to cover.
For instance, some will maintain an exit strategy that says wait on the sideline and buy if a stock drops, some will accumulate on dips, some will accumulate on dips and then sell some 'trading shares' into any spikes. Then there are those that will short; it's up for each investor to devise his or her own entry / exit strategy and stick with it.
Don't get me wrong, there are most definitely those times when one should bail on a stock, but it's been my own personal experience that selling in a panic comes back to bite you in the rear end more often than riding the storm and accumulating the dips. Patience is key, but that is just my own style and my own opinion.
In the case of Tuesday's BioDelivery news, nothing has changed with the potential of the company and its stock. The BEMA drug delivery technology, which delivers drugs through the inner lining of the cheek, could prove to be highly lucrative over the next couple of years. Three Phase III studies for BEMA-based products are planned for 2011.
The flagship product, Onsolis - a treatment for breakthrough pain in cancer patients - is already approved and on sale in the United States and a partnership with Meda is in place to market and distribute the product.
The commencement of Onsolis sales in Europe will net BioDelivery another milestone payment, according to the most recently filed 10k.
Tuesday's news should not lead to any investor panic, in my opinion. The drop is not even as significant as the one seen in February of this year (of course it's possible that the price could get there) and the cash infusion puts the company in a stronger position to both negotiate with potential partners and to develop the BEMA pipeline.
As with any investment, we've also got to consider the downside - it's possible that Onsolis sales are not as strong as predicted by Meda and BioDelivery, and it's possible that the product may never rake in any real revenue. It's also possible that the pipeline won't develop as expected. That's the risk of a biotech investment.
This stock has been trading in the low-three to low-four dollar range for some time now, and it could continue to do so until we get some Onsolis sales figures.
Regardless of the immediate price action, it's my opinion that BDSI continues to be a nice mid to long term growth story with the added benefit of having some short term potential.
This is one of my 'accumulate the dips' plays.
Disclosure: Long BDSI.