Dumb Money Biotech

Written By Jason Stutman

Posted December 6, 2013

Investors are getting excited – maybe a little too excited.

Innovus Pharmaceuticals (OTC: INNV) exploded 40% during intra-day trading today after receiving product license approval for the over-the-counter premature ejaculation cream EjectDelay.

It’s a firm boost for the micro-cap biotech company, but not nearly enough to justify such an enormous jerk in valuation.

Perhaps if this were a revolutionary product, I would take this a bit more seriously, but male desensitizers have been on the market for years and EjectDelay offers nothing new – besides an incredibly embarrassing trademark.

EjectDelay offers maximum strength Benzocaine at 7.5%, but so do a slew of other products out there with far less conspicuous branding.

If you suffer from premature ejaculation and you’re picking up an over-the-counter remedy, are you going to choose a product called Pleasure Balm, Detane, or EjectDelay?

Premature ejaculation is traditionally mocked in our society, and no one wants to bring any additional attention to that sort of medical problem. We can be quite certain that EjectDelay won’t be flying off the shelves any time soon, and even if it does, that won’t be enough to save this dying company.

Innovus has an absolutely terrifying 1:3 asset to liability ratio and has been burning through cash at a rate even more embarrassing than the conditions its products are intended treat.

The company saw a net loss of $3.2 million for the nine months ended September 30 – more than 15 times the amount lost during the same period in 2012. Even more alarming, according to the company’s most recent 10-Q, current financing is only expected to keep operations running through Oct 1, 2014.

That potentially gives investors less than 10 months before their shares become utterly worthless. At best, shares will be diluted further than than they aready are…

When I first shared this story with one of my colleagues, his response to the 40% jump was simply, “I don’t want to live on this planet anymore.”

It’s a common sentiment towards an irrational market, but my feelings on the matter are quite the contrary – if dumb money like this didn’t exist, it would be much more difficult to beat the market.

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