Is Biopure Set To Rise Through The Ceiling?

08/09/07 09:43:40 AM

by Koos van der Merwe

Biopure Corp. is a leading developer and manufacturer of oxygen therapeutics, a class of pharmaceuticals that are intravenously administered to deliver oxygen to the body's tissues. Wishful thinking, or can it be achieved?

Security: BPUR
Position: Buy

Plainly speaking, Biopure Corp. (BPUR) has developed artificial blood called "Hemopure," which can be used in place of real blood for transfusions. The advantages of such a product are enormous, but — and the but is a large one — why is the product not being embraced throughout the medical world?

In January 2007, the company submitted a study protocol to the Federal Drug Administration (FDA) for the use of Hemopure in the US in certain life-threatening situations where red blood cell transfusion is not an option. This is the first step toward formalizing the compassionate use of Hemopure. To date, the FDA has approved all requests where red blood cell transfusion was not an option.

The US Navy Medical Research Center is also becoming interested in the product, and the report can be read at the website http://www.biopure.com/.

So are they getting it right? Have they developed a product that replaces human blood? We hope so, but there will assuredly be many, many tests and further research and development before a final product is manufactured. However, investors, especially those who are prepared to risk a portion of their capital, are starting to nibble at the stock price.

In May 2005, the share price had fallen to $0.30, causing the stock price to be suspended on NASDAQ. After a 6:1 consolidation, the stock was relisted, but instead of opening at $1.80 (6 x 0.30), it opened on June 28 at $1.45. This consolidation, applied retroactively, would have put the stock price at a high of $327.08 on January 31, 2000. Frightening, but it does show where the price could go should Hemopure offer all the advantages of organic human blood with none of the side effects.

FIGURE 1: BIOPURE, MONTHLY. This chart of Biopure shows its Icarus-like fall.

Graphic provided by: MetaStock.

Figure 1 is therefore a monthly chart showing the degradation of the stock price as necessary trials of Hemopure over the years never met the FDA's standards. My chart is a semilog chart, with the trendlines suggesting that the price is close to testing the resistance line. The indicator, stochastic relative strength index (RS), gave a buy signal in January 2007, but with the relative strength spread (thick white upper indicator) and the rapid RSI bullish (trending up). On that date, we could have placed the stock on our watchlist.

FIGURE 2: BIOPURE, DAILY. This chart suggests a buy signal.

Graphic provided by: MetaStock.

A daily chart shows how the stock price continued to deteriorate, with a major fall on December 15, 2006 (Figure 2).

The share price fell dramatically on December 15 on high volume to close at $0.46, but recovered on December 16 on the FDA committee's recommendation to the Navy that a prehospital Phase II study be designed to provide data in a smaller patient population than the 1,100-patient study of Biopure's oxygen therapeutic Hemopure, the prehospital treatment of hemorrhagic shock resulting from traumatic injury, as was originally proposed. Possibly the acceptance of the test on a smaller scale was extremely encouraging.

The stochastic RSI gave a buy signal on December 13, which meant that we would have been stopped out on December 15. This would have discouraged the buy signal given by the rapid RSI on December 27, but as the New Year began, the share price rose rapidly, fell back on reduced volume, then started rising once more. On February 1, the indicator known as the holy grail gave a buy signal.

The price rose rapidly to test the upper resistance line at $0.72 before falling into a cup & handle formation. The low of the pattern was 0.48 on May 1, suggesting a target should the handle be broken of $1.00 (0.74 - 0.48 = 0.26 + 0.74 = 1.00). On June 26, the price broke above the handle and rapidly rose to its target price, then retreated.

On August 6, the stochastic RSI gave a buy signal at $0.53, a signal confirmed by an oversold relative strength spread signal and a rapid RSI buy signal. Volume was not that improved, but nevertheless on August 7 the share price rose rapidly, closing at $0.92.

With a pivot point resistance at $1.00, the share is a buy on any retracement. The news coming about Hemopure looks encouraging, and with all the oscillators at oversold levels, we could take the risk. Will the stock price ever reach its previous glory? If Hemopure is as good as the company hopes it is, then that price could be considered low.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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Is Biopure Set To Rise Through The Ceiling?

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