Biotech Dividend Arrived Early

Sometimes stocks trade at the wrong price. Sometimes this is a debatable, subjective matter: You have done a careful analysis of the company’s future cash flows, and you have determined that the current market price is much lower (or higher) than the value of those cash flows, so you buy (or sell) the stock, chuckle to yourself “all these other people have no idea what the fundamental value of this company is,” and eventually turn out to be right or wrong. More rarely, though, it is a simple objective mistake: You can buy a dollar, a real dollar, for 25 cents. Or you can sell 25 cents for a dollar. If you spot opportunities like that, you should probably seize them. But you should also, you know, triple-check to make sure that you’re right. If a stock price looks like a mistake, you have to be sure exactly what the mistake is and who is making it.

ESSA Pharma Inc. is a small Canadian biotechnology company listed on the Nasdaq; its market capitalization last September was about $300 million. Its mission was to find a treatment for prostate cancer, but last October it announced a failed clinical trial and gave up. The stock price, naturally, collapsed, but Essa wasn’t worthless: It had raised money for its research, and when it terminated that research it had money left over. It decided to wind up the company and give that money back to shareholders.