This is the second of three blog posts covering the three stocks that almost made the cut for the September 2007 newsletter.
About six months ago a subscriber suggested a micro cap biotech company called Lipid Sciences (LIPD) that he felt had a great story and was trading for less than $1.50 per share. In his words this company should have been pre IPO but they became public through a reverse merger with an Arizona public shell company called NZ Corporation. From what I could read on the Lipid Sciences website, the story indeed seemed very interesting with the company attempting to remove “select lipids– such as cholesterol and triglycerides–from lipoproteins and lipid-coated infectious agents”. In laymen’s terms this translates into treating heart disease and highly infectious diseases like HIV or SARS by selectively removing fat soluble molecules called ”lipids“. Since my background is in technology, I could not really asses if their research had commercial potential and if the story was indeed as good as it sounded.
I convinced my friend Hatim Zariwala, who recently completed his Ph.D in Neurosciences from one of the top neuroscience institutes in this country, to take some time off from inserting electrodes into rat brains and look at Lipid Sciences. Given below are some of his thoughts about the company.
The estimated overall antiviral market in the world is roughly $16 billion (conservative projection) and that of cardiovascular care $22 billion (US only) and ever growing in the developing countries like China, India and Russia. The cardiovascular care is complementary to therapy for obesity, stroke and diabetic care.
After getting Hatim’s thoughts, I also checked with another senior scientist who has years of experience advising senior management at biotech companies and is well on his way towards developing a new drug through his own pharmaceutical company. His thoughts on Lipid Sciences were that the company is targeting an area of research that is so vast and with so much potential that it is usually done by either government funded agencies or universities. He also told me that in more than five years the company has not even reached phase 1 clinical trials and that is not very encouraging.
Management has been done a great job of keeping a lid on operating expenses and based on its current rate of cash burn of approximately $11 million per year, the company has enough cash on hand to last through the middle of 2008. I was looking at Lipid Sciences as nothing more than a call option that expires in mid 2008 but based on the feedback of the two scientists I consulted, even this call option appears to be expensive. The stock had dipped to as low as $1.03 just a couple of days ago and is dangerously close to getting a deficiency notice from the Nasdaq, which is triggered if a stock trades below $1 for 30 consecutive days.
I hope that Lipid Sciences eventually goes on to become successful and I will continue watching this company like I have done for the last six months but I would prefer to do so from the sidelines rather than have my money on the line.