The end of the week is nearly here in the biotech space and it’s been a mixed bag for a range of companies. Here is a look at some of the biggest movers, up and down, where we expect each to go next. The companies in our crosshairs for today are SteadyMed Ltd. (NASDAQ:STDY) and Merrimack Pharmaceuticals (NASDAQ:MACK).
First up, then, SteadyMed.
On Thursday, SteadyMed announced that the FDA had issued a Refusal To File (RTF) letter to the company in response to its New Drug Application (NDA) for a drug called Trevyent. SteadyMed was trying to get the drug approved in a target indication of pulmonary arterial hypertension (PAH), which is a potential billion-dollar market and one that could be a game changer for company the size of SteadyMed (market capitalization at the most recent close was $103 million) if it could get an asset on shelves in the US.
Unfortunately, in its current iteration, it doesn’t look like Trevyent is going to be that asset. The thing with these sorts of RTF responses is that markets never get too much information as to how and why the FDA has made a decision. Pretty much all we have to go on is paragraph (at best) vaguely leading to the section of the application is deficient. In this instance, here’s what the company said:
“The FDA has requested further information on certain device specifications and performance testing and has requested additional design verification and validation testing on the final, to-be-marketed Trevyent product.”
Trevyent is a patch pump type product so we can assume that the concerns are rooted in the hardware as opposed to the concept or the active compound delivery, but that’s speculation. Whatever the specifics, the real impact on SteadyMed and its shareholders will be determined by whether or not the company has to conduct additional trials in order to satiate the agency’s demands. If it does, additional trials are going to cost money and this money is almost certainly going to come from an equity raise. Equity raises are diluted to shareholders and can really hurt a stock near-term.
Markets are aware of this and are pricing in the potential early. At last close, and subsequent to the latest announcement, SteadyMed is trading for $3.80 a share, down from $5.90 pre-announcement or a discount of more than 35%. There is a good chance we will see this one bounce slightly during the Friday session, but don’t expect any real strength heading into the weekend and beyond.
Next up, Merrimack.
This one is a far simpler situation the above-described SteadyMed outcome, and it’s also extremely common to the smaller end of the biotechnology space. This week, Merrimack announced that it has set a date for a reverse split and that said split will take effect on September 6, 2017. This is nothing new for the company, in that the split was approved by shareholders back on August 11 and was initially raised as a potential development as far back as July. However, that the split is now in place and that we now have the details (it will be one-for-ten reverse stock split) and, just as importantly, that we now know exactly what it’s going to happen, is a bunch of fresh information and it is weighing on the company little bit.
Reverse splits are not problematic inherently, but they are generally seen as negative by markets (primary) for the reason more often than not, the company that is conducting one has been forced into it for one reason or another. Most often, especially as it relates to the biotechnology space, it is the failure to meet the minimum bid requirement for listing on the NASDAQ exchange. A reverse split can boost the company above the one dollar minimum pretty easily and so long as the company isn’t in violation of any of the other requirements, NASDAQ has no problem with this solution. The question is, however, how much of the price gain can the company hold onto post split. Short traders often sell into splits in an attempt to benefit from an immediate post-split decline, and this can put pressure on share price near-term.
That’s what we are looking for from Merrimack on September 6 and during the days subsequent to the split.