Here’s Why These Two Small Cap Biotechs Just Collapsed

recovery

In biotech so far this week, we’ve had plenty of fundamental updates to drive volatility across the space. Here are two of the most talked about as we head into the US open on Wednesday. The two companies in focus are CEL-SCI Corporation (NYSEMKT:CVM) and Galectin Therapeutics Inc (NASDAQ:GALT).

Let’s kick things off with the former, CEL-SCI. The company announced on Tuesday that the FDA had put its lead trial on clinical hold. We don’t yet know the reason for the hold, as is usual in these sorts of situation. At some point across the next 30 days the agency will issue a letter to the company in question with some specifics, but we can assume that the implications are not good for CEL-SCI and its development program. The candidate in question, Multikine (Leukocyte Interleukin Injection), was under investigation as part of a phase 3 clinical trial in advanced primary head and neck cancer, and markets were looking forward to an interim update at some point between now and the close of the year based on the recent enrollment information issued by the company. Now, any such update looks unlikely, as the company digests its hold and starts to move forward in an attempt to achieve some sort of resolution. In other news, the company’s founder just resigned for health issues – the assumption is that these two concerns are not related, but that cannot be said for certain given the close timing of each event.

Sometimes, it’s worth mentioning, these clinical holds are relatively minor delays, and there’s every chance CEL-SCI can register a quick recovery – especially given that the agency has put a hold on what looks to be only new enrollments (patients already receiving treatment are allowed to continue).

Let’s see how this one plays out.

Moving on, the next company in our sights is Galectin.

This one is an interesting one, and a situation that highlights the huge potential risk of investing on rumors and momentum in the biotech space. Galectin gained considerably during September on the back of an increased amount of attention in a particular subsector of biotech – liver disease. Specifically, a slightly less well-known condition that often precursors liver disease, nonalcoholic steatohepatitis (NASH). A big-name takeover mid September drew an unusual amount of attention to the space, and any and every company with a tie to NASH, however weak, received some degree of a market capitalization boost. In its defense, Galectin has one of the most solid ties to the space, with an exploratory phase 2 trial underway when news of the takeover press. That said, the company just reported that this trial failed to meet its primary endpoint, and also missed on a number of key secondary endpoints. Despite the missed endpoints, and as ever at this end of the sector, the company remains optimistic on the future of its candidate:

“Although there was no apparent improvement in the three non-invasive tests for assessment of liver fibrosis in this four-month pilot trial, inhibition of galectin-3 with GR-MD-02 remains promising for treatment of NASH fibrosis”

We take this with a pinch of salt, however. Enrollment is now complete in a larger phase 2b study, and corporate attention (with the intention of public attention doing the same) has shifted towards this, but the chances of this trial ending successfully are very much reduced on the back of the data from the just-reported pilot study.

NASH is notoriously difficult to control, and that one of the most promising assets aimed at treating it (at least in the small-cap space) has failed is disappointing for the target population, but as a silver lining, it should consolidate the space and reallocate capital towards the more promising assets in development.

We’re going to be watching this one closely for any indication that the phase ­2b study is set to go the same way as the pilot study.

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