BioDelivery Systems (BDSI) is one of those 'Mom & Pop' companies of 15-30 employees that is among the high risk category of biotech stocks. On 6 January 2012 the share price had a dramatic pop from $0.84/share to $1.85/share. Since then the company's share price has doubled to over $2.72/share. This is a substantial rise and has drawn a lot of attention.
Congratulations to any who have profited.
However, this kind of rise can often be short-lived. Honest, hard-working retailers can be drawn into these low-flyers like the old story of the 'spider and the fly'. Granted, BioDelivery signed a promising deal with Endo Pharma, but just in time since the company's cash position was anemic.
My worry is the technical chart.
- The RSI is about to lose strength and there seems to be more buying around articles getting published then the company achieving newsworthy milestones. This always worries me. When I see these remarkable runs, I can just about count on a substantial retrace.
- There is a monstrous gap between the $0.80/share range and $1.70/share. These gaps always trouble me. High risk biotechs have a habit of revisiting these gaps without warning. I see a lot of risk here.
- Tuesday's move shows the candlestick already retracing. This could be the market movers who are already taking profits and will begin to walk the share price down. With that sizeable gap, a lackluster Q1 2012 report could be the exit sign for day-traders.
After all, BioDelivery signed away a good portion of potential revenue when it signed with Endo. While figures of $180M look impressive, over the long-term it means BioDelivery has given up the opportunity to build real corporate value. Somewhere along the line, a great company must move away from licensing deals and go it alone; I highlight Antares Pharma (AIS) and Zalicus (ZLCS) as two great companies forging a future where they are not signing away years of intellectual property. In fact, Zalicus appears to be on verge on some very notable news items:
- The clinical results of pain-reliever Z-944
- The company's ongoing cHTS-Chalice collaborations
- The wrap-up of the Synavive phase 2B clinical trial
Likewise, trading volume in Zalicus has been at a recent high and the share price appears to be moving up to a new 'higher-low' as the bulls are slowly pushing out the bears.
Perhaps BioDelivery will go higher, but on what? Good feelings? Or a generic article pointing to the number of shares the company has in the market? This is wishful thinking and the kind of thinking I'd warn retailers not to become enamored with as dreams disappear as fast as the market movers who in one day sell without warning.
Looking at the pipeline, I guess I just don't see much for five to ten years out. Of course, the early buyer may prefer this kind of high risk. Nevertheless, when the market runs up a stock, you can just about count on a fall.
Sentiment: Strong sell. My reason? Investors who got in early should ring the register rather than risk being a pig who may get slaughtered. If I were to buy here, then I'd wait until the share price drops below $2/share. This company has enjoyed a great run, but there's nothing in the pipeline to merit this company holding above $2/share.
Disclosure: I am long ZLCS.
Additional disclosure: Investors buy and/or sell at their own risk. I may take a position in Antares Pharma at any time.