Imagine this: A paralyzed man is suddenly able to move a computer cursor, open
his e-mail and even control a robotic device simply by thinking about
doing it.
Science fiction? Last summer, scientists testing a new brain sensor reported
this big success in an ongoing clinical trial. Their BrainGate sensor offers new
hope to people with spinal cord injuries, stroke or motor neuron disease. It
also opens up new dimensions to how human interface with information
technologies.
Cyberkinetics Neurotechnology Systems Inc. (CYKN – OTC BB) scientists
implanted a small silicon chip, studded with 100 electrodes, into the motor
cortex, the area of the brain responsible for movement. There, it recorded the
synaptic activity of the cells relaying the information to a computer, which
translated the commands to move and control external devices.
Even before the published results, BrainGate had won accolades. Wired News
ranked it as one of the top five scientific and technical discoveries of 2005.
The company has a whole line of devices that integrate neuroscience and
informatics to treat debilitating disorders of the nervous system. Their
products use a patient’s “thoughts” to operate basic computer functions.
According to Neurotechnology Industry’s 2006 report, neurotech applications
created revenues of $110 billion in 2005, with a 10% growth rate over 2004. Over
100,000 Americans are currently using neurotechnology devices. CYKN has four
substantial product platforms in its Neuroport, BrainGate, Andara OFS and Andara
OFS Plus. It has two products in clinical trials, one cleared to market and one
in preclinical trials. With the Neuroport, the company has an FDA-approved
medical device with a potential $150 million market. If HDE approval is granted,
CYKN could start marketing as early as 2007.
CYKN has 29.5 million shares outstanding and a market capitalization of only $36
million. Analysts estimate that the company’s capitalization could grow from
$250-$300 million by 2008, depending on the outcome of clinical trials.
Of course, CYKN is a mirocap. There are two kinds of microcaps. Those with
solid, innovative technologies, great management, and the outlook to make it big
in the market once their product starts generating sales, revenues and, way down
the line, profits. Typically, these companies plod along without much fanfare
until one day they get sold, file for bankruptcy, or simply disappear.
Then, there are microcaps with a story. These add a priceless intangible:
Excitement. Interest. Entertainment. It’s the story, not the revenues that
captures attention. The more sequels there are to the story, the more often it
can be worked up by the media. Investors can make money on the resulting
media-inspired volume and price increases.
CYKN has a doozy of a story: A technological breakthrough that will not only
redefine the interaction between humans and computers but also alleviate a host
of diseases in the process. The technology alone will spark a dozen media-heavy
publicity opportunities in the next 12 months, each of which has the potential
to cause another spike of 15%, 20%, maybe even 50%.
Now, remember: Microcaps are volatile. Any uptick in volume can
disproportionately affect the stock price, both to the upside and the downside.
Don’t buy this one thinking you can lock it away in your portfolio and forget
about it: This very recommendation may trigger an uptick in volume that pushes
prices out the ballpark. It is important that you don’t chase this stock.
But what constitutes volatility and risk in the eyes of the mainstream spells
opportunity to us. The implications of the company’s technology far outweigh the
real, down-toearth fundamentals of its business financials. Before CYKN posts
positive earnings for the first time, there will have been a dozen incidents
when media buzz pushed up the stock price 10%, 20%, maybe even 50% within days.
CYKN has been trading in a 52-week range of $1.17–$2.65. We place its
medium-term upside at between $3.50–$4 per share.
Like all “story” stocks, this is a speculative investment that involves higher
risk. Add it to your speculative portfolio and observe a trailing stop that fits
your risk tolerance.
Buy Cyberkinetics Neurotechnology Systems, Inc. (CYKN - OTC BB) below $2 per
share and use bursts of media-generated buying binges as profit-taking
opportunities. Convert pullbacks to buy back your original position.
