As part of today’s Biotech Movers analysis, we are first going to touch on a company we looked at yesterday and then cover a few more companies that are proving volatile midweek in the sector. The companies we have in our crosshairs heading into the U.S. session open today are Aldeyra Therapeutics, Inc. (NASDAQ:ALDX), Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) and Viking Therapeutics, Inc. (NASDAQ:VKTX).
Aldeyra, as regular readers will know, is a company that we first looked at yesterday, as part of this analysis. The reasoning behind our coverage was that management was about to hold a conference call (at market open) detailing the results of a phase 2B study investigating its lead asset, a drug called ADX-102 as a potential therapy in a target indication of allergic conjunctivitis. We noted that, if the data hit press as positive, the company would likely run to the tune of low double-digit percentage points. We also noted, that, conversely, if the data wasn’t positive, there was an equivalent downside offer.
As it turns out, the data wasn’t all positive, but no was it particularly negative. However, markets decided to side on the air of caution and traded down on the company anyway. As things stand, Aldeyra trades for around 10% discount to its pre-release pricing.
The situation was this: the trial failed against its primary endpoint of a one point improvement in what’s called ocular itching when compared to placebo. However, it came very close to success, and also demonstrated some later stage efficacy that is not currently associated with the standard of care in this space – antihistamines.
For this reason, and despite failing against the primary endpoint, management expects to push forward into a phase 3 trial and we will likely see an altered protocol; one altered in such a way that it favors a positive outcome measured against the specific elements of the phase 2B trial in which the drug succeeded. As such, we think this one will probably recover near-term as the company moves forward with its development program in this indication.
This one is not a traditional biotechnology move, but it’s well worth noting nonetheless as we head into the close of this week. The company announced on Wednesday that it had appointed Paul J. Clancy as its Chief Financial Officer (CFO), and on the announcement, gained 10% on its market capitalization. The reason for the run is that Clancy previously served in the same position at biotech giant Biogen Inc (NASDAQ:BIIB). He held his position at Biogen for a little over a decade, so the assumption is that if you can be successful in the CFO position at a $55 billion company, then his input at a smaller company, like Alexion, will be a value add proposition. That, and the fact that his willingness to join the team at Alexion validates the company’s operations to a certain extent.
This one is a more traditional move. The company announced on Wednesday that it will conduct a direct offering that will see it raise $4.3 million through common stock issue. In response to the announcement, the market sold off on Viking to the tune of 10%, and the company now trades for little over $1.12 a share.
So why is this a decline?
When a company issues shares to raise capital, the shares issued increase the number of outstanding shares on the market. This increased number of shares means that the existing shares are worth a lower proportionate representation of the company’s overall value, or in other words, dilution. As such, when we get an announcement like this, and especially in biotechnology space, where these companies are often pre-revenue and have to rely on equity issue to fund operations and research and development, we generally see a selloff in the company in question as markets revalue the individual shares so as to balance out the proportionate representation of the company in question’s valuation.
If Viking can put the capital to good use, then going forward, this dilution gap should close. This company has a relatively wide pipeline (especially for its size) and so the assumption here is that the capital will be used to advance a number of its phase 2 assets into late-stage development. The catalysts on offer as this process matures suggest that there is a good chance we will see the gap close, assuming the assets under development serve up positive data