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I only seldom venture into the biotech industry (NASDAQ:IBB) (NYSEARCA:XBI). For the most part it's too hard to guess outcomes, and when there seems to be a good chance of the product working, usually the stocks already trade as if the product will be a blockbuster, limiting upside. There are exceptions, such as Affymax (OTCQB:AFFY), where I understood what was at stake well enough to take a flyer on it even before product approval. But the rule is that I am too skeptical to invest in biotech companies.

But then, sometimes, one comes across an article such as this one over at Engadget: "Regenerative medicine pioneer continues changing lives with first successful laryngotracheal implants." Now, I took the facts described in the article at face value. I believed them, and that the operations really took place and were successful as stated and that the tissues really were generated and all. This led me to look for the company the article names: Harvard Bioscience (NASDAQ:HBIO).

For a company that far ahead in a race that will prove revolutionary over time, and will be applied to many different organs, I expected to find an incredibly speculated equity.

What I found was different.

I found a company with a rather stable business on scientific instruments, plus the emerging Regenerative Medicine Device (NYSE:RMD) segment, that's still mostly at venture stage, and was responsible for the feat described in the Engadget article. This meant that the speculative part of the company seems mostly free, given that the company as a whole is trading at a Price/Book of 1, Price/Sales of 1 and forward 2012 P/E of 14.8.

What might deter investors?

Not everything is rosy. The first tracheal implant of the type described above didn't end well, as per the latest 10-Q:

In November 2011, a second patient was given a new trachea made from a synthetic scaffold seeded with his own stem cells in a bioreactor. The patient had been suffering from late stage tracheal cancer. The patient was discharged from the hospital in January 2012. On March 5, 2012, this patient died. The official cause of death recorded on the death certificate was pneumonia secondary to tracheal cancer. We know of no evidence that either the scaffold or the bioreactor played any part in the patients death.

So, from the speculative angle this second attempt really has a lot of risk to it, because if it ends in tracheal cancer again the product will seemed doomed. One should however remember that for the patients to be receiving this kind of treatment, the risk of such outcome must already be quite high which somewhat discounts the first event.

Conclusion

HBIO seems like one of those rare occasions where one can speculatively enter a significant future medical segment at a discounted valuation that implies failure from the start. These kinds of speculations can always end badly, but the potential for incredible returns is there. I would consider this a long shot no matter what, but needless to say, I have already bought into it today.

Source: Harvard Bioscience: Developments Appear Extraordinary