More than half of Biospherics Inc.'s $20-per-share gain over the past week evaporated yesterday in the wake of two skeptical media reports.
Biospherics stock fell $10.25, to $15.25, in over-the-counter trading of 1.6 million shares. The stock initially rose to $27 early in the day, fell to about $18 by 11 a.m. and then collapsed after CNBC reporter Dan Dorfman quoted unnamed sources as predicting that Biospherics shares would fall to only $5.
The shares traded at $4.25 as recently as March and at about $6.50 last week.
"Some pros view the [run-up] as a total sham, completely," Mr. Dorfman said in a 12:35 p.m. broadcast. "Some see the stock going back to five bucks a share."
Mr. Dorfman's report contained no new information. The Sun reported yesterday that Biospherics' gains were caused more by the unusually small number of outstanding Biospherics shares -- only 3.9 million, with more than 1.8 million controlled by insiders -- than by optimism over the short-term prospects of D-Tagatose, an artificial sweetener that the company has been developing since 1988 to compete with aspartame-based NutraSweet and with saccharin.
Biospherics said last week it had made a deal with a Danish food company to manufacture D-Tagatose, which saved Biospherics the expense of building its own factory and could allow the company to introduce the sweetener in Asia and Australia by the end of the year. It also announced that it had received a patent on potential future use of the sweetener, which is made from whey, as a treatment for diabetes.
But Biospherics Chief Executive Gilbert Levin told The Sun Tuesday that D-Tagatose may still be two years or more from introduction in the key U.S. sweetener market because of regulatory hurdles. The article also quoted a NutraSweet Group executive who said the company believes it has solved many of the difficulties in baking with NutraSweet that Biospherics had hoped to exploit.
In addition, U.S. regulators demand clinical trials to demonstrate the safety and effectiveness of new drug therapies before those therapies can be placed on the market or generate profits. The trials often consume up to a decade.
"I don't begin to understand what makes investors tick," said Biospherics Chief Operating Officer Richard Levin, who is Gilbert Levin's nephew. "I guess it's all part of the game."
Gilbert Levin and his wife own 1.8 million shares of Biospherics, a company they founded in 1967. Yesterday's loss cost them $18 million to $20 million on paper, after their paper gain of more than $36 million as the stock price rose.