Biospherics' stock soars on D-Tagatose

No firm on Wall Street has an analyst who follows it. Only one firm anyone outside Wall Street junkies ever heard of even trades it. Legg Mason and T. Rowe Price, two of Baltimore's leading securities firms, say they don't own it.

So how has Biospherics Inc. of Beltsville seen its roughly 4 million shares gain $75 million of value in the past week, propelling the tiny biotechnology company that made 5 cents a share in the first half of this year to a stock price more than 231 times its earnings, a ratio three times as high as Microsoft's and way more than 10 times the market's?


More pointedly, how long is it likely to last?

The burst happened because the company made two initially overlooked announcements last week about D-Tagatose, an artificial sweetener it has been researching since 1987 that is made from whey, a byproduct of making cheese, Biospherics Chief Executive Gilbert V. Levin said yesterday.


Biospherics is so small its shares are hard to find, and a surge in demand like the one this week can -- and did -- have a freakishly exaggerated effect on the price.

"I'm not ever going to evaluate the market," Mr. Levin said, late in a trading day in which Biospherics shares leaped $6.50 to close at $25.50 on volume of 723,300 shares. "I can call attention to the fact that there are only 4 million shares, and half of those are socked away," owned by Levin family members who aren't selling.

First, the company said it had won a patent to use D-Tagatose as a possible treatment for diabetes, although U.S. marketing approval for any medicinal use of the compound could be a decade of clinical trials away.

Then the company announced it had made a deal with a Danish food company to manufacture D-Tagatose, which will let Biospherics put the sweetener on the market in Australia and Asia by the end of this year.

"The product, except for production in commercial quantities, has been a finished product," said Mr. Levin, who founded Biospherics in 1967 and took it public two years later. But, he added, "we had a lot of trouble getting someone to make it."

D-Tagatose will compete head-on with the Monsanto Co.'s NutraSweet sweetener -- known as Equal -- which, along with different brands of saccharin, dominates the world market for artificial sweeteners. Its edge: Because D-Tagatose is just as bulky as sugar, while NutraSweet is much more concentrated, it is easier to use for baking.

To bake with NutraSweet, Mr. Levin said, cooks must add fillers to take up the space that the sugar or D-Tagatose would. The fillers add calories. NutraSweet also begins to break down chemically when it is exposed to sustained heat.

But NutraSweet executives insist that Biospherics' edge is eroding before the company even gets its product on the market in Asia, let alone in the United States.


Here, the U.S. Food and Drug Administration has not yet been asked to decide whether D-Tagatose should be regulated as a food additive, a process that could mean the product won't reach grocery shelves in key U.S. and European markets for another two or three years. That uncertainty is one reason why Biospherics is not predicting that the company's patent and foreign market news will translate into big profits soon.

"You're not going to get a projection out of me," Mr. Levin said. "I did that once and I got hurt."

NutraSweet says it has made big strides in learning how to bake with the product and says Biospherics could even run into big trouble in the Asian sweetener market.

"They'd better be planning to sell it cheap," said Jim Mitchel, a spokesman for the NutraSweet Group, a Monsanto unit based in suburban Chicago. "In general, you can bake with NutraSweet. The problems come with applications that have high heat for a long period of time. But with many applications, you can work around it."

Muffins and pies are fairly easy to make with NutraSweet, Mr. Mitchel said, although he concedes that the fillers do add calories. Indeed, Giant supermarkets locally sell pies made with NutraSweet. Cakes are more difficult to make with NutraSweet because they often cook longer or at higher heat, he added, but the company has introduced a form of NutraSweet that is encapsulated in a coating that shields it from heat.

Mr. Levin said Biospherics has been slow to bring D-Tagatose to market because it has been unwilling to sell a bigger share of the company to public investors in order to raise capital, which is the way most small biotech companies finance their research. Instead, the company has paid for research from the profits from its other businesses.


That reluctance is the reason why the move in the stock price has been so extreme. Yesterday's trading equaled about 18 percent of the company's shares trading in one day, precisely because there are so few shares available. For a thinly traded stock such as Biospherics, such a spurt in interest means investors have to pay up.

By comparison, Microsoft has 584 million shares outstanding. To trade 18 percent of Microsoft in a day would mean a trading volume of 105 million shares, about 24 times yesterday's actual Microsoft trading.

But for now, the decision to hold on to 46 percent of Biospherics' shares makes Mr. Levin and his wife, Karen Levin, a former Newsweek medical and science reporter who is Biospherics' vice president for communications, rich and richer. Their combined shares are worth an extra $34 million or so on paper after this week's rise.