If you're in the mood for another reason why you should always be cautious about your biopharma investments, look no further than Galena Biopharma (GALE to its many clueless fans). I've been following this story over the last couple of weeks, and what a mess it is. Galena is a small company in Oregon with a few assets, including a cancer vaccine candidate. Its stock hovers in the low single digits, as is appropriate. But in December and January, it began to trade up, and up. From $2/share to $4. Then to $6, and then higher. And this on no particular news or change in the company's prospects, which for a stock like this is often a sign of "momentum" players getting involved. "Momentum" investing is a fancy name for "I'm buying this because it's going up", and the people who do this sort of thing are understandably anxious for you to buy some, too. They're also very, very unwilling to hear about anything that might cause the stock to go back down, because the proper direction for stocks, we must remember, is up. They only go down because of evil short bashers; everyone knows this.
Adam Feuerstein of TheStreet.com delivered a great big dose of that evil stuff (known to the rest of us as "reality") on February 12 with this article, which showed why the stock had been rising. The company was paying a PR firm to beat the drums for it, said drum-beating going as far as having people post multiple supposedly-independent articles on sites like Seeking Alpha under a list of pseudonyms.
An outfit called the "DreamTeam Group" was hired for the promotion. They run a stable of stock-touting web sites, full of wonderful tales about the companies that are paying them to say these wonderful things. And they spread the word on other sites (as above), and on Twitter, by e-mail and whatever means come to hand. If carrier pigeons come back into fashion, you can count on one fluttering down with a hot stock tip for you. And if you're greedy and stupid, you could see all this hype and convince yourself that a Great Opportunity is spawning right in front of you - why, all these people are buzzing about this hot little company, and money is right there for the taking. The only reason not to get in on a deal like this would be a lack of vision.
Galena's insiders do not lack vision. Indeed, they have proven beyond any doubt that money was in fact there for the taking. GALE peaked at nearly $8/share, but its directors and officers were unloading millions of dollars worth of shares into that market. And who could blame them? These are legal financial transactions between consenting adults, and if one set of those adults know what's going on and the other set doesn't, well, it's that kind of world, isn't it? A look at any jungle will show the larger predators eating the smaller ones, and God knows the Street isn't any different.
Yesterday GALE closed at about $4, and many of its "investors" are hopping mad about that, as a look at Feuerstein's mailbag will show. But here are some cynical people who figure that the company is actually worth about seventy-two cents a share. Reasonable observers can disagree about that figure. But if you want to argue that the company is cruelly undervalued at $4, you are probably not a reasonable observer. Or you bought at $7. Same thing.
Update: if you'd like to know why people are so skeptical of the prospects for Galena's vaccine, look no further than this comment. It's right on target.