Avoid This Drug Stock

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Editor's note: This article is a stock pitch made by a member on CAPS, The Motley Fool's free investing community. The pitch is published UNEDITED and is the opinion of the CAPS member whose pitch it is, in this case:zzlangerhans.

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CompanySomaxon Pharmaceuticals (NAS: SOMX)
Submitted By:zzlangerhans
Member Rating:99.56
Submitted On:1/6/2012
Stock Price At Underperform Recommendation:$0.51


Somaxon Pharmaceuticals Profile

CAPS Star Rating (out of 5)

***

Headquarters

San Diego, California

Market Cap

$33.6 million

Sources: S&P Capital IQ, Yahoo! Finance, and Motley Fool CAPS

This Week's Pitch:

A couple of months ago I wrote that if upcoming earnings didn't build on a prior uptick in Silenor revenues as I expected, the stock would get flushed. Surely enough, revenues dropped nearly 50% on a quarter-to-quarter basis and the stock now finds itself teetering on the CAPS threshold. Quarterly burn was back up over 17M, and the company was dependent on a 15M debt financing to maintain cash neutrality. The next step is dilution through a 30M ATM agreement with Citadel.

The company is now in the strategic alternatives (death spiral) stage of their existence. I'd be surprised if they were able to effect a sale of the company, given that their sole asset is their superfluous and unwieldy sleeping pill. And their share count will bulk up this quarter due to the ATM agreement, making them less desirable to anyone.

I need another 60 points on Somaxon to zero it out on CAPS, although it will remain a blot on my accuracy due to two attempts at green thumbs. Therefore I'll likely be holding this red thumb through liquidation.

Foolish bottom line
While this CAPS All-star thinks you should avoid Somaxon, for a stock you don't have to avoid check out our brand new free report on a medical device company Motley Fool analysts believe will be "The Next Rule-Breaking Multibagger."

At the time this article was published The Motley Fool is investors writing for investors.Dan Dzombakdid not have a position in any of the companies mentioned in this article. Pitches must be compelling, made in the past 30 days, and be at least 400 words.Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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