Per business filings, Metabasis Therapeutics is a biopharmaceutical company that has established a broad pipeline of product candidates and advanced discovery programs targeting large markets with significant unmet needs. The company’s product pipeline includes clinical-stage product candidates and advanced discovery programs for the treatment of metabolic diseases such as diabetes and hyperlipidemia, as well as product candidates and advanced discovery programs for the treatment of liver diseases such as hepatitis and primary liver cancer.
Although the description of the company sounds pretty dynamic, they have recently fell upon some very difficult times financially. Currently, they are facing a severe cash crunch and are bordering on bankruptcy. A couple of weeks ago, they instituted a corporate restructuring that reduced their staff by 85% as a means of conserving cash. Also, they are seeking all strategic options to somehow increase their capital. Things don't look bright.
News:
On Friday 6-5-09 after hours, Metabasis Therapeutics announced receipt of a $2 million payment from Roche in recognition of advances made on their research collaboration, which is focused on applying Metabasis’ HepDirect® liver-targeting technology to Roche’s proprietary lead nucleosides in order to develop new treatments for hepatitis C viral (HCV) infection. In addition, Metabasis announced that Roche has formally accepted MB11362 as a clinical candidate for development. Although $2 million is not nearly enough to rid MBRX if all their financial woes, the infusion of cash does afford them a little more time to seek other resolutions. However, I think the most critical news is Roche's formal acceptance of MB11362. This news implies that there is indeed value with the company (at least more than the $12 million market cap they are currently sporting) and should aid them in their quest to be acquired or obtain additional financial backing. The market seemed to like it as shares practically doubled during after hours.
Technicals:
Check out the chart of MBRX below:
The stock reached an all time low several days ago at $0.21/share and has responded well with a "V" shaped bounce on increased volume. Because of the volume, particularly on Friday, it looks like the news may have leaked. The intra-day volume for a stock this cheap still hasn't been over a million shares so despite the runup of the past three or four days, there still appears to be plenty of upside. There's only 35 million shares outstanding with the float being about half that (Google Finance says 60% institutional ownership but I deducted some more due to the recent activity I've seen on http://www.mffais.com/mbrx). Such a tight share structure is perfect for a quick runup.
Momentum:
Other small cap biotech/pharma stocks like MBRX's have been on fire as of late. Individual names have bounced off their 52 weeks lows and surpassed their 52 week highs in less than a week. HEB, AGEN, and SOMX are just a few names that have seen unprecedented leaps in the their share price in a very short time frame. However, the best example of the craziness in this sector was what happened with Xtent (XTNT) just this past Thursday. Ironically, the makeup of XTNT is very similar to MBRX. Both are biotechs on the brink of a collapse with similar floats. XTNT too was struggling around its 52 lows when it released in my opinion a relatively unimpressive press release by industry standards. It stated that the company had conditional approval from the FDA for an Investigational Device Exemption (IDE) authorizing it to begin its clinical program. On this news alone, the share of XTNT jumped from $0.30 to $2.69 in two days. When investors/traders see this kind of action in a sector, they definitely take note and stay on the lookout for the next best thing.
Insider Trading:
Part of the reason why this stock has taken a beating is because mutual funds and institutions have recently been dumping the stock at a high rate. However, in spite of the company's slide over the last year, there has been no insider within the organization that has sold. As a matter of fact, the CEO began accumulating shares back during Nov. 08 between $0.49 and $0.75.
Conclusion:
Moves in this sector have been explosive and I expect MBRX to follow a similar pattern. I believe the after hours trading Friday was just a precursor for things to come Monday. Usually, a massive move in the premarket is a bad sign for someone trying to chase as stock; however, XTNT also doubled in the premarket before its run. Had you bought during the open after the aggressive premarket buying, you still could have made 4 times your investment. Right now, MBRX sits at $0.36/share. As far as a trading strategy, I would think that anything under $0.70/share would be a decent entry point. Be on the look out for a quick spike during the first 10 minutes of trading followed by a possible drop as some take quick profits. If this happens, an ideal place to buy would be after that first big dip. This was an $8 stock less than two year ago and has a 52 week high of over $2.00 share. So, the upside is huge. It could hit at least $1.50/share Monday if things go well, but nothing is a guarantee. All you can do as an investor/trader is put yourself in the best position to let the market work for you. I wouldn't hold this long term due to fears of dilution, but I'd take what I could get on Monday. Because of news, sector precedence, and a favorable share structure, Metabasis Therapeutics (MBRX) has the goods to be the next perfect stock.
