Big Game Hunt, continued

And -- ah ha!-- this is where the BioTime story smelled bad. Remember, I don't know how big Hextend can be. But in the course of my research looking at clips about the company and press releases, I stumble upon an interview BioTime's president gave with Business Week in August of 1999, in of all places, Gene Marcial's column (Inside Wall Street).

I have been adamant in my columns that Marcial's format, three hot ideas each Friday, generates virtually nothing that's investable. I know Business Week has done its studies of the worth of the column, but so have I, and the column's best way to be used is to be long the stock going into the column and then blow it out into the hype of Marcial. So, I get very cynical when I see a small-cap surface in that column.

Sure enough, there's the smoking gun. BioTime's president bragged to Marcial that Hextend sales in 2000 would be $40 million rising to $70 million in 2001. Yet, when I go through the available documents for 2000, I don't see much of any revenue for Hextend. The company makes it clear that it hadn't received anything so far in 2000 -- the last quarter wasn't covered, but I severely doubt that it pulled down $40 million in that last quarter. When I look at public pronouncements, I like to see underpromising and overdelivering in the actual sales. BioTime's disparity between what it said it would do and what it actually did (not to mention how much they could ultimately do, given that this is a $110 million market capitalization company) bothers me immensely.

In BioTime's case this lack of sales could prove devastating. The most recent public documents show that BioTime only has $2 million in cash in the bank. If they don't start realizing sales, they could run out of capital.

At this point, I decide, without a doubt, that it is too risky as a long, because they don't seem to have the wherewithal and they have overpromised and underdelivered so far. Sales should have kicked in already if this synthetic product is so big and so valuable. We should have seen some sort of breakout by now and we haven't. But does that mean it makes for a good short?

Ahh, here's where the mechanics of the process get involved. If you want to be able to short a stock you have to find out if you can get a borrow on it. You have to call the stock loan department of your brokerage firm, or have your broker call, and ask if you can borrow the stock so you can sell it short. You don't own it, so you can't sell it, but firms will let you borrow it to sell it with the idea of buying it back, or covering, at a lower price than where you sold it. You pocket the difference.

As I am currently not trading, I don't want to do this step right now. You don't call brokers and ask them if you can borrow a stock unless you mean to. You don't go fishing for short squeezes. It isn't polite. But my hunch is that this stock is overly shorted, because the short interest figures available (you can get them on Yahoo! Finance) show more than a million shares short. That's 10% percent of the outstanding shares -- way too many for my taste. That percentage makes BioTime vulnerable to a short squeeze where it could fly up as short-sellers scramble to find the physical shares that they sold when the buyers want to take delivery.

I have to admit that I would be sorely tempted to short BioTime if I were trading at my old hedge fund. It has been hyped three times already by journalists and yet, from the records, I can find nothing that makes me feel that this is a company that: 1) has been able to deliver a big product in the last few years, and, 2) has enough money to stick around without a cash infusion from somewhere.

The Takedown

Ultimately, if I were to play BioTime, I would short it betting solely that it would give back the hype of the Magic 25. It seems "extended" based on that hype. But I rarely did this kind of trade in the last few years because I have discovered a truism that has kept me sane and profitable. BioTime smacks of a "gang-tackle" short, where the bears are prowling and handing it off to journalists to knock it down. In the meantime, I look at the tape, the action of the market and I think to myself, "Hmmm, this is one of the most forgiving tapes I can ever recall." One press release, inflated or not, from BioTime right now about the success of its other compounds, and this stock shoots up enough that they can configure a hasty secondary that would give them the cash they need to survive. And my goose would be cooked.

So, I would pass, but it was tempting -- given the cash position and the overhyped promise of Hextend -- to sell this stock at $10 with the hope that it runs out of money. Not my kind of bet, but one I totally recognize someone could make in a heartbeat.