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Biozone: A Little Biotech Setting Up for Big Gains

Revenue at MusclePharm are visibly accelerating which could bode well for Biozone. For 2012, MusclePharm revenue came in at $67 million. But in 2013, revenue for the first six months was already $48 million. This is up from just $17 million in 2011.

Revenue for Biozone increased from $12 million to $17 million in 2012, well before the MusclePharm deal. Given the difference in size, a small amount of business from Opko and MusclePharm will have a disproportionate impact on Biozone.

Biozone's stock has recently suffered a minor overhang as the result of a lawsuit that was dismissed in September after a $1 million settlement. Following its resolution, former VP Daniel Fisher exited his stake in the company, selling his 6.6 million shares to various third-party investors. Over the past week, we have seen a surge in selling as it appears that these shares are finally hitting the market. But each time there is a break in the selling, the stock immediately surges. Last week the stock briefly surged by over 30% within two hours before settling back down.

The stock also saw some weakness due to a misread of two recent sec filings. Frost and Opko recently registered some of the previously acquired stock on form 144. This is a totally standard process, but some investors have clearly misread the filings and believe that Frost has actually sold shares of Biozone. This is not the case. There has been no sale whatsoever; filing on form 144 does not even indicate the intention to sell.

For those looking to buy and hold, the recent selling has created an incredible buying opportunity which may be gone within the next day or two. As soon as the last of those 6 million shares are sold, the overhang will be gone and the stock is likely to surge again. The volume indicates that much of this selling may already be complete. Those who simply flip the stock for gains of 10 cents to 15 cents a share will likely find themselves feeling very foolish by year-end.

When the overhang is cleared, we will likely see a move up of at least 20%. But the catalyst for the much bigger moves will come from the first QuSomes announcement. As soon as that happens, the stock can be expected to make a permanent move to a much higher level.

Looking back at the other Frost plays above, some of these were practically no-brainers earlier this year. This is much more than just banking on a savvy investment by Frost and mimicking it. When Frost plays dealmaker with companies such as Opko and MusclePharm, he is effectively steering revenue toward Biozone. This is a tremendous advantage that other small companies just do not possess.

As with the recent string of Frost doubles and triples, Biozone is very likely to look like a no-brainer by year-end.

At the time of publication the author was long Biozone.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Rick Pearson is a private investor focusing on U.S.-listed China small-cap stocks. Until 2005, Pearson was a director at Deutsche Bank, spending nine years in equity capital markets in New York, Hong Kong and London. Previously, he spent time working in venture capital in Beijing. Mr. Pearson graduated magna cum laude with a degree in finance from the University of Southern California and studied Mandarin for six years. He has frequently lived, worked and traveled in China since 1992.
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