Yesterday the share price of FTSE Fledgling Phytopharm ended the day at around 2p having fallen over 80% on the day after reporting bad news that its clinical trials for what may be its only potential product Cogane, had no beneficial affects on patients. Today it is falling again, around 5% as of writing.
As potential blue sky stories go there are lessons here for investors and traders. Some companies are essentially one trick ponies and if the trick doesn't come off, the downside from failing can be swift and horrendous for both the company and investors. The unexpected announcement will hit a share price hard and this is especially true with the smaller companies. One time big companies, HMV springs to mind, will often have a slow, painful death once bad news sets in, but smaller companies can find themselves going under very quickly.
I quite like blue sky stories, because the potential for big gains is clearly there, but it is important to make sure that the story you are attracted to does have some merit and potential upside from a range of products or services that are attractive. Small pharma companies looking for cures that may deliver a big return if they come good, like cancer, have about as much chance as succeeding as some of the more hyped up oil or mining exploration companies. It can be a goldmine if it comes right, but total disaster when it goes wrong.
Who knows what the future holds for Phytopharm? As of yesterday they didn't seem too sure themselves. For the investor and trader, blue sky opportunities should always be a case of buyer beware and know the potential risk of what you are getting into.
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