Starpharma Holdings (SPL) is dangerously close to the edge of a cliff as the stock is retesting January’s three and half year low during lunch time trade.
The biotech is currently flat at 67.5 cents after trading on both sides of breakeven; and technical analysts, who use charts to predict price movements, would be worried about the stock’s near-term prospects as a break below this level will leave Starpharma vulnerable to a 25% correction to its next support point at around 50 cents.
A support level refers to a point where bargain hunters are likely to buy the stock, and there aren’t many reasons for investors to buy the stock at this juncture after management failed to conclusively prove that its VivaGel product can treat recurrent bacterial vaginosis (BV).
On the other hand, VivaGel has been proven to stop the spread of sexually transmitted diseases and Starpharma has signed deals with condom makers to coat their product with VivaGel.
But this isn’t providing much support because of the delays in getting regulatory approval to sell these condoms.
The good news is that Starpharma is not a one-trick pony as VivaGel is not the only product it has up its sleeve. Starpharma also owns a library of dendrimers, which is a nanoparticle that can change the chemical characteristics of drugs.
The potential earnings from the dendrimer library is large, but the technology is not expected to contribute to Starpharma’s bottom line for years.
Indeed, shareholders may have to wait until 2016-17 to see the company deliver a maiden profit, and few have that much patience.
However, I believe Starpharma is a good stock to have in a portfolio for patient investors as the company has the hallmarks of a great Australian biotech – multiple product and market opportunities, strong international institutional support, a healthy balance sheet and capable management.
The stock has shed 41% over the past 12-months when the ASX All Ordinaries Index is up 7%. You can read more about Starpharma here.