Biospherics Inc., the Beltsville biotechnology company that has developed a sugar substitute, proposed yesterday a 2-for-1 stock split as a way to protect its share price from the jarring volatility it experienced last year.
"We think this is the best reasoned way to meet future demand for the stock and at the same time prevent the volatility we've seen," said Dr. Gilbert V. Levin, Biospherics' chairman and chief executive officer.
The tiny company, which netted $400,000 in the first three quarters of 1995, saw two big run-ups in its stock last year.
Last May, the company's stock jumped 11 percent in one day after it announced distribution deals for its sweetener, D-tagatose, with companies in Asia. In early September, the company's stock price rocketed in six days from $7.875 per share to $25.50 per share after the company said it had landed a patent for D-tagatose as a possible diabetes treatment and had struck a deal with a Danish food company to manufacture the sweetener.
The day after the stock closed at $25.50 it collapsed, dropping to $15.25 after CNBC's Dan Dorfman said his sources believed the stock was badly overvalued and would tumble.
Yesterday the stock closed at $10.50 per share, up $1.50.
Dr. Levin, who founded the company in 1987, said the runs on the stock were caused largely by the fact that the stock is so thinly traded. While there are 3.8 million shares outstanding, Dr. Levin and his wife, M. Karen Levin, a director in the company, own about 1.7 million shares, or 45 percent.
Much of the rest of the stock is held by what Dr. Levin describeas "die-hards" who believe the company's D-tagatose product will one day be a big profit generator.
"We do believe there is a good market out there for the sharesand when there is good news there should be a reasonable way for investors to buy shares without so much gyration in the stock price," Dr. Levin said.
Splitting a stock usually is done when a high stock pricdiscourages new investors, but it can also be used to prevent a thinly traded stock from becoming overvalued.
Dr. Levin said he and the other directors of the company favorea stock split over going back to the public market to create more shares, because they did not want to dilute the equity longtime shareholders had invested in the company.
"When we get to a point where we need capital we'll be back," to the market with an offering, he said.
Under Biospherics' proposal, shareholders of record March 15 would get two shares for each one they own, thereby creating almost 8 million shares.
The price of each share would drop by 50 percent.
Shareholders will be asked to vote on the proposal at the company's annual meeting May 15 at the Beltsville headquarters.
Meanwhile, company executives have been active in hawking D-tagatose to potential customers in Europe and the Pacific Rim, Dr. Levin said. He and other company executives recently returned from meetings with food company executives in Australia, France and Denmark, where they touted the advantages of D-tagatose over its chief potential competitor, Monsanto Co.'s NutraSweet. Biospherics says D-tagatose, which is made from a byproduct of cheese production called whey, doesn't break down under the high temperatures used in baking. NutraSweet does.
The company expects to ship the product to customers in Europe, Asia and the Pacific Rim long before it is able to do so in the United States. Biospherics faces several more years of gathering data for stringent toxicology reports the U.S. Food and Drug Administration requires before it approves a food additive for marketing.