On Thursday Discovery Laboratories received another in a long line of rejections from the FDA and its stock price paid dearly, dropping 54% on Thursday. Was the drop warranted or is there more to DSCO than the bad news says?
With the business media and analysts all jumping on the same bandwagon and declaring the company dead there is opportunity for the beaten down biotech trader. If one actually reads through the DSCO press release you can see that DSCO looking to refocus on other late stage drugs, chief among them a different indication of their drug Surfaxin that was just trounced by the FDA. There is also an additional three Phase 3 drug trial underway as well as some promising clinical trials.
As of March 30, 2009 DSCO had $19m in cash and based on its last year’s cash flow statement they are burning on average $4m per quarter or $16m a year. In May DSCO was able to raise an additional $11m financing giving the company a nice cash cushion of approximately $30m, which based on its average cash burn, is enough to fund it through the next two years.
Trader should also remember the FDA saga Dendreon went through and their eventual FDA approval. Despite the bashings of traders and analysts alike there are many reasons to believe DSCO is a BUY down here at 50c and not a sell. Also, if we look to the trading action of DSCO after the first FDA rejection in April you will see the stock turned in these performances over the course of the last three months.
71c to $1.05 for a 48% gain
81c to $1.25 for a 54% gain
88c to $1.47 for a 67% gain
95c to $1.17 for a 23% gain
These were just the trading gains in DSCO over the last three months! Biotech stocks are made from hope and hype and DSCO has all those ingredients. The next news event to expect from DSCO, from its Wednesday press release is a reply to the FDA, which if past stock action is any indication, will lead to a nice pop in DSCO and make for some easy gains for the patient trader!
“With respect to ongoing regulatory activities for Surfaxin, Discovery Labs has submitted proposed corrections and additions to the formal FDA minutes. Following finalization of the meeting minutes, Discovery Labs will determine its next course of action, which may entail further interaction with the FDA to assess whether Surfaxin approval can be gained without additional clinical trials”
Disclosure: Long DSCO