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If you’re stopping by to look at Cell Therapeutics (CTIC), move on. Reverse splits like this one benefit no one except the company trying to stay afloat on the Nasdaq. Don’t see this as a cheap stock or a quick opportunity to get in, either. It could test one buck once the big boys get done with it. A 30% loss after a reverse split is standard fare. Cell Therapeutics is prime for a loss on top of a loss. Shareholders become proverbial bag-holders.

Some say these reverse splits can benefit the shareholder. I suppose in the Twilight Zone, but rarely on the street. Instead, Cell Therapeutics is in survival mode; the shareholder is the last concern. That’s why if you’re a naïve investor, then you need to stay away. This company isn’t going to rocket to $5/share anytime soon. Its management just stepped on the faithful.

So beware, because there are other companies that may be forced to follow Cell Therapeutics. Radient Therapeutics (RPC)? I suspect Cel-Sci (CVM) may be next because the company is going to need to raise additional capital to fund its Multikine phase 3 trial. A reverse split would allow Cel-Sci to dilute its shareholders in 2012. Of course, no one wants to read that, but it’s better to know what could be coming than to bury your head in the sand. Small biotechs need money to survive. Clinical trials mount in the millions. Few survive.

Because so many new investors try to mine for gold in biotech stocks, I’m warning you to run in the opposite direction when you see a reverse stock split coming. You could see your life’s savings cut in half in one day. If you ask me, that’s what happened to many small time XOMA investors — they took a bath.

That’s why Cell Therapeutics is a lesson to dreamers. There are times to cut and run. At a buck fifty-plus, it isn’t a bargain; it’s scary. Reverse splits are like dark clouds on the horizon. Hail and lightning may follow.

Source: Cell Therapeutics' Reverse Split Isn't Good