BioSante: A Serendipitous Moment?

|
 |  About: ANI Pharmaceuticals, Inc. (ANIP)
by: James Stocklasar Thomas Jr.

I am puzzled if not perplexed by BioSante's (BPAX) pps. Here's why:

On 11 May 2011, BioSante's share price closed at $2.33. But by 25 May, two weeks later, it shot up to $2.92:

  1. While the stock market began its May-June descent...
  2. On the heels of reporting a huge loss in Q1...
  3. And on no news.

Scouring the news including SEC filings, these events stand-out:

  • 10 May BioSante reported "BioSante 1Q loss widens on costs". The company reported losing $17.3M or 20 cents per share and zero revenue. Yet other than a 4-star EPS rating by Roth Capital Partners LLC and an announcement that the company would be presenting at two investor conferences, the share price climbed from $2.33 to $2.92 by 25 May. The question is, Why? You would think a small biotech losing 20 cents per share would decline, especially in light of negative overall market conditions.
  • So was it "The Street's" Adam Feurstein's article days before, on 20 May? While Feuerstein states his opinion, that he thinks Libigel will pass safety issues and achieve efficacy, he warns that Libigel's approval is not a "slam dunk" (Ibid). He also stated the company would need a "big-time marketing partner (Ibid). Interestingly, on the day of Feuerstein's article, 20 May, a Friday, 3,930,100 shares traded, but on Monday, 23 May, 8,360,800 shares traded and the stock's share price raced over $3/share by 31 May.
  • The timing of Feuerstein's article seems to have been serendipitous. But on what substantial news? Because there wasn't any, only that the company had burned through $17.3M in Q1 2011. Yet Feuerstein's nod seems to have at least brought investors into the stock.
  • As a caveat, on 27 May, BioSante issued an 8-K reporting shareholders' votes but there were hardly any surprises or pps moving news.

Of course, with the start of 31 May, real and speculative news began to roll in, wave after wave. How these things are orchestrated I don't know, but it certainly played out as a very positive press release campaign. Observe:

  • 31 May, BioSante "announced completion of enrollment in its ongoing LibiGel (testosterone gel) Phase III cardiovascular and breast cancer safety study." That same day Seeking Alpha published my own report that included BioSante among 6 Prime Biotechs for Short- And Long-Term Gains (For the record, my article was submitted the day before. I had no idea what BioSante was about to announce.)
  • 1 June "Ahead of the Bell: BioSante Pharmaceuticals": "The Lincolnshire, Ill., company said Tuesday it determined enrollment was complete after an independent committee evaluated data from the study. The study will continue for another year. BioSante is developing LibiGel as a treatment for sexual dysfunction in women. It is studying the drug's link to heart problems and breast cancer, and is conducting separate studies to evaluate its effectiveness. BioSante plans to file for approval of LibiGel in 2012."
  • 3 June a Seeking Alpha article named BioSante among 7 Dirt-Cheap Takover Targets in Biotech.
  • 6 June "BioSante plans trial for prostate cancer vaccine": "BioSante Pharmaceuticals Inc. said Monday that the Food and Drug Administration has lifted a clinical hold on its potential prostate cancer vaccine, and planning is under way for a mid-stage clinical trial." Weighing in, ME Garza offered his own Seeking Alpha report and made a key point: "While it is not immediately clear what the impact of the news will be to investors given the fact that GVAX has had a rocky history, the traction for higher valuation of the company may not stick until there is actual clinical data and further regulatory progress for GVAX."
  • 8 June "Biotech Q&A: BioSante Announces Completion of Enrollment in LibiGel Safety Study With a Minimum of 90 Percent Predictive Probability of Success of the Safety Study".

But here's a real oddity. Following the good news on 31 May, the share price closed at $3.13, but then descended to $2.50/share by 20 June. Now, that's odd. The stock price ran up over $3/share on a 20 cent/share loss, but then when shareholders received affirmative news, the share price retraced. What in the world was going on?

Throughout the rest of June and into July, positive news commentaries continued even though no news came from BioSante. And by 8 July, the share price had climbed to $3.60/share, but again, on what news? Because there was none.

Then, on 11 July, an article reported that BioSante was: "in talks to partner on its sex gel to raise female libido or sell the company, according to Chief Executive Officer Stephen Simes." How utterly convenient! The same day 9,262,000 shares traded and the stock closed at $3.81/share (12 July). As of Tuesday, 19 July, the share price closed at $3.71/share.

But wait! What is going on here?

The stock price rocketed in May on negative news, and then has since slowly inched higher on the speculation of Libigel's success, all to conveniently fall into the lap of the CEO who goes beyond saying he's looking to partner Libigel, but is entertaining the possibility of selling out the company.

So here's what I'm wondering: Is BioSante using its recent good tide of news events and affirmative commentaries to drive its price to a point where the CEO will negotiate a buy-out? And if so, what might that buy-out target be? But then again, what if the hot-air of the press release band-wagon suddenly turns negative? The share price could easily fall well below $3/share.

It strikes me that BioSante is a real conundrum. Whether serendipity, partnership or buy-out, the risk versus reward suggests to me that whether SHORT or LONG, investors could make a quick gain though how much of this current share price is full of hot-air has me a tad bit skeptical. Nevertheless, should BioSante be sold for $6/share, I doubt any SHORTs will complain; committed LONGs, however, may. I guess I just wonder why you would sell a company that is on the verge of a billion dollar drug. Why not wait until the FDA approves Libigel? The company's share price would rocket.

Yes, why not wait until approval before you partner or sell-out the company? Unless, of course, the CEO isn't as confident as he's been touting. BioSante was down 3% at the time of writing.

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in BPAX over the next 72 hours.

Additional disclosure: I may initiate a short or long position at any time.