Yet again the biotech sector has given us plenty to talk about, with a number of companies logging double digit shifts in market capitalization over the last 24 hours. Here are two of the biggest movers as we head into the end of the week.
Valeant Pharmaceuticals International, Inc. (NYSE:VRX)
Valeant has had a tough few months. Having maxed out at all time highs of $262 a share back in August, the company declined more than 73% to close out last week at just $70. Why the decline? Well, research organization and short side specialist Citron issued a report last month suggesting Valeant had falsified some of its financials. Essentially, Citron suggested that Valeant had recorded products transferred internally as sales, and that the company’s revenues, as a result, were inflated. Additionally, reports that Valeant had recorded stock held in Eastern Europe as goods sold exacerbated the situation. On Thursday, however, Citigroup released a report stating that the market response to the allegations was over zealous, and that we should remember that Valeant is a cash rich, fundamentally sound company. Additionally, Valeant responded to the allegations on both counts, denouncing their validity in a manner that looks to put the issues to bed.
On the back of the Citigroup recommendation, Valeant stock closed out Thursday’s session at just shy of $85 a share, a 20% gain on lows, and is already up 3% at time of writing, mid session Friday. Whether the gains will continue into the week’s close remains to be seen, but what looks probable is that this marks the beginning of a longer term turnaround for the company. As Citigroup stated, it seems markets are done pricing in any uncertainty, and at less that $30 billion market cap, Valeant looks to be an intriguing, oversold company available at a discount to its peers.
KaloBios Pharmaceuticals, Inc. (NASDAQ:KBIO)
Next up, KaloBios. This is something of a controversial one. Most reading this will be familiar with Turing CEO Martin Shkreli – he’s the guy that overnight became the face of the biotech pricing scandal. Enough about that, however – we’ll let mainstream media debate the virtues of that particular situation. Now Shkreli and a couple of other investors have bought a controlling share in KaloBios, just as the company was unwinding into administration. On the news, its stock gained close to 800%, and is up nearly 20%at time of writing. It’s still a small company, valued at circa $80 million at current rates, but it has a couple of what look like promising oncology candidates in early stage development, and this (Shkreli claims) served as motive for the buyout. This claim could, of course, be a rouse to mask ulterior motive. There has been speculation that Shkreli has bought KaloBios to offer a vehicle through which he can take his other company, Turing, public via reverse merger. Such a move would greatly reduce the time it takes to go public, and would negate the usual scrutiny associated with an IPO. Reverse mergers in biotech are often viewed as suspicious, for the latter of the two aforementioned reasons, but this doesn’t necessarily mean they are. If Shkreli is using KaloBios as a reverse merger vehicle, it may just be to gain access to the financing option being listed on a public market brings, sooner than an IPO would afford. Regardless of motive, the company has rocketed, and looks set to gain further strength as we head into the weekend. A short squeeze? Yes. Large numbers of traders will have undoubtedly been short KaloBios pre-buyout, and we are already hearing stories from the unfortunate sell-siders. One in particular stands out, which you can see here.
We’ll be watching KaloBios closely going forward. We’d love to see Shkreli carry its pipeline into continued development – irrespective of motive. One to keep an eye on.