They say it's darkest just before dawn. If that's true for stocks - and it usually is - the now may be the time to wade into CytRx Corporation (NASDAQ:CYTR).
If you're reading this, then odds are you're already aware that CYTR has been on a roller coaster ride over the past six months, from a low of $2.19 in December to a high of $8.35 in January back to a low of $2.78 by April. You may also know the reason... CytRx Corporation went into high-gear in December with its publicity efforts, perhaps crossing the proverbial line into stock-pumping territory. As is the case with most pumps, it's a great ride while it lasts, but it never lasts forever. Sure enough, CYTR gave up most of its December/January gain of 300% between February and April, as shareholders took advantage of the high price to lock in profits while they could.
As one might imagine, however, some of those profit-takers were CYTR insiders and managers. And as one might imagine, the investing public didn't like the appearance of impropriety, perceived or real. The lawyers came out of the woodwork, the class action suits materialized, and that's where we are today.
So what are newcomers supposed to think about CytRx? Any company that's facing litigation should be put through a little more scrutiny before buying it. Then again, what's been lost in all the hoopla is the fact that, pumped or not, CYTR has a pretty impressive drug pipeline, and that's going to make or break the company regardless of the stock's price.
As of the latest look, CytRx Corporation has seven trials underway, with one of them - its second-line soft tissue sarcoma drug - in phase 3 right now. The same drug as a first-line treatment is in phase 2b. Both of those trials, along with the other five, are promising. That is to say, somewhere in its pipeline, the company has at least one likely drug that's on path to an approval and bearing revenue. At this point, that's the only concern new shareholders need to have; the pump-induced ride is history now that the stock's basically back to where it started.
But what about the lawsuit? Couldn't that damage - perhaps even crush - the company? Maybe, but to what end?
As angry as investors who feel duped may have a right to be, at this point, what is there to sue for? Damages? In a best case scenario, investors could sue CytRx Corporation's top managers who may have scored some ill-gotten gains by selling shares they were telling everyone else to buy, but that's a long-shot case. And, even if a judge and jury allow a case to be volleyed against individuals, it's unlikely there's enough money available to fully compensate anyone who suffered a loss on their trade.
The more likely argument is going to be case brought against the company, but then again, so what? Assuming the cash is available to compensate CYTR shareholders, that cash is going to come out of the company's coffers, which may end up doing more damage to the stock than is fiscally worth to current owners.
The bottom line is, right or wrong, the only winners of any lawsuit now are going to be the lawyers. From here, the focus should be put solely back on the drug pipeline. And in that light, it looks like CytRx shares are poised to bounce back from the lawsuit-driven selloff and fight their way back to a price that reflects the drugs' prospects.
And for what it's worth, most investor class-action lawsuits aren't successful, for a variety of reasons.
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