What causes stock prices to fall after a strong guidance?
However, regardless of the fundamentals of a stock, there may be plenty of times when a company meets or even exceeds analysts' expectations, provides solid guidance, and sees the share price fall anyway. When this happens, supply, demand, and trading factors may be the catalyst.
Why do Stocks go down after positive earnings reports?
They are often thought of as impulsive and may overreact to good or bad news. So, if XYZ Corp. begins to sell off after a positive earnings report, as described above, noise traders may jump aboard, exacerbating the down move. Lastly, external influences can also be a big factor.
How are stock prices determined?
As a science, the modeling of a stock’s price is based heavily on the estimated expectations and actual results investors and analysts have for the firm's earnings and cash flows, both now and in the future. When a company releases an earnings report, a fundamental reaction is often the most common.
What is the average daily trading volume of a stock?
These stocks also see average daily trading volume of 25 million shares per day or more. In contrast, smaller cap stocks will also see many of the same influences as large-caps but they may be more inclined to show greater volatility with big stock lot trades.
Summary
Since 2018, positive PDUFA catalyst gains in biotechnology stocks were negligible compared to previous years.
Investment thesis
Biotechnology investors work on the assumption that news surrounding assets in clinical development impacts company valuation significantly.
Short-term biotechnology investments using PDUFA as a "make it or break it" catalyst
The Food and Drug Administration (FDA) scrutinizes the safety, efficacy, and manufacturing of a clinical asset under development and decides to approve or reject the application to convert the drug into a commercial product.
Shifting investment analysis toward Phase 2 and Phase 3 to capture higher gains
Valuation has shifted away from positive PDUFA outcomes, and we strongly argue that these are no longer the best catalysts for biotechnology companies. This PDUFA acceptance/ stock valuation correlation, which was consistent from 2012 to 2017, has dissipated or even reversed during 2018 and generated low gains in 2019.
Phase 2 data release drive "high gainers" in biotech stocks
We analyzed SMID companies individually (up to 10B market cap, n=118 companies) focusing on positive outcomes for 80 Phase 2 events, 66 Phase 3 events and 24 PDUFA events scheduled for the first 3 quarters of 2019 (January-September), and compared the relative valuation increase with similar outcomes in 2018 (84 Phase 2, 41 Phase 3 and 61 PDUFA positive outcomes, for a total of 127 companies).
High gainers in biotech stocks reflect robust safety and surprisingly elevated efficacy in lead assets
So which are the SMID biotechnology companies that behaved as outliers and showed higher than average gains in the biotech sector in the last two years? Can we identify common features that justify the magnitude of market appreciation? Companies which had >50% increase in valuation over a single market day (5 Phase 2 and 3 Phase 3 data release, n=8 in 2018) occurred more frequently in 2019 (8 Phase 2, 6 Phase 3 data release and 1 PDUFA, n=15 for the first 3Q in 2019).
Seven stocks with potential high gains surrounding Phase 2 data release until the end of 2019
To test our hypothesis we analyzed 33 Phase 2 events listed in the FDA calendar for the end of 2019 and picked 7 stocks that fit our assumptions: orphan drug designation, unmet needs and large patient populations combined with very high efficacy in preclinical and early clinical data, in companies with small to midsize market caps where the asset is lead or second in development.
Why is Phase 2 so profitable?
Many times, Phase 2 results are positive. Sometimes it’s because the drug works. And other times it’s because the trial is rigged to provide positive results.
What happens when a company reports strong Phase 2 results?
Very often, when a company reports strong Phase 2 results, the stock takes off, as Phase 2 results are the first real indication that the drug might be approvable. Investors get excited, potential partners begin sniffing around, and the media begins to cover the drug’s potential.
How much did we close out in October 2018?
We closed out a 168.85% average gain over 115 days in October 2018.
How many patients did Cel-Sci have a complete response rate?
At the end of the trial, Cel-Sci boasted of a 12% complete response rate. But it was impossible to determine if the two (out of 19) patients who had a complete response saw their tumors disappear due to Multikine or the other treatment.
How many phases are there in clinical trials?
The Three Distinct Phases of Clinical Trials. Before a new experimental drug is tried in humans, it’s put to work in test tubes, then animals. Once it’s ready for human trials, it’s tested in three distinct phases. The Phase 1 trial is conducted with a limited number of subjects, usually fewer than 50.
What happens in phase 3?
In Phase 3, companies test hundreds to thousands of patients. If the data proves that the drug is safe and effective, the company will usually apply for approval. Naturally, the more patients who take part in a trial, the greater the chance the drug fails.
Which data is most accurate?
The data that’s considered most accurate is from a trial that’s “double blind” (neither the patient nor the doctor knows if the patient has received the drug) and placebo-controlled (compared with a placebo or standard of care).
How does Phase III affect stock price?
Phase III clinical trials and Food and Drug Administration (FDA) regulatory decisions are critical for success of new drugs and can influence a company’s market valuation. Knowledge of trial results before they are made public (ie, “inside information”) can affect the price of a drug company’s stock. We examined the stock prices of companies before and after public announcements regarding experimental anticancer drugs owned by the companies.
How many positive and negative phase 3 trials were there?
A retrospective examination of the stock prices of publicly traded biotechnology and pharmaceutical companies before and after key public announcements regarding 23 positive and 36 negative phase III clinical trials in which their cancer drug was tested, and before and after 41 positive and nine negative FDA regulatory decisions for such cancer drugs.
What is the gray line on a stock price?
The gray line is the mean standardized value of the National Association of Security Dealers Automated Quotations (NASDAQ) index on corresponding trading days.
What is a negative trial?
A trial was classified as negative if it was the first randomized phase III trial that failed to show a statistically significant difference between treatment arms in the primary endpoint, and the drug had not received FDA approval for any indication. Trials of drugs that were never approved by the FDA but that met their primary or secondary endpoints were excluded. A drug that was evaluated in a negative trial could only be included once.
What is a positive phase 3 trial?
A trial was classified as positive if it was the first randomized phase III clinical trial for a given indication in which there was a statistically significant improvement in either 1) the primary endpoint or 2) a key secondary endpoint (such as overall survival, progression-free survival, or time to progression), and 3) the drug was approved subsequently by the FDA for that indication. A drug could be included more than once in this analysis if it was approved for more than one indication, such as for more than one tumor site or for metastatic and adjuvant settings of a given tumor site. Drugs that received accelerated approval based on phase II data were excluded.
How can investors profit from clinical trials?
With such foreknowledge, investors can profit regardless of whether a company’s product succeeds or fails in a clinical trial ( 3 ). Many people, including trial investigators, company employees, and outside consultants, know the results of clinical trials before they are made public. In the period before public disclosure of trial results, such information is considered to be inside information—that is, material nonpublic information that is likely to affect the price of a drug company’s stock when it is made public ( 4 ). Investment analysts will go to great lengths to obtain such valuable information for their clients, because it is not widely known and is therefore not already reflected in the market price of a stock ( 5–7 ).
What is phase 3 clinical trial?
Phase III clinical trials and regulatory decisions by the US Food and Drug Administration (FDA) are high-profile events that are critical for the financial success of new drugs. These events can also have a substantial impact on the market valuation of the companies that might bring these drugs to market ( 1 ).
AGTC DD
I wrote this about Applied Genetic Technologies Corporation. This is written rather stream-of-consciousness (think writing a long term paper the night before it’s due) so it's a little messy. I mostly focus around the spaces of XLRP and ACHM and the companies developing drugs for it.
Quick Writeup on Some Remaining Q1 Readouts
Figured I should do some quick summaries on some stock-moving data readouts due in Q1 that haven't come out yet. What good is being biotechplays if we don't have plays to look forward to?
Why do stocks fall with good news?
You've likely heard the adage, "buy the rumor, sell the news," which is the tendency for traders to push up a stock's price on rumors or expectations and then sell once that news has been released, even if the news is positive. This phenomenon can be one of many reasons why a stock might fall with good news and is often seen with stocks releasing earnings reports .
What are the factors that affect stock market?
These influences can be broadly divided into either macro or micro. Macroeconomic factors like rising interest rates or a market shift to lower risk investments could potentially cause stocks to fall across the board and specifically result in stock losses for a single stock despite good news. Sector influences can also be important to consider. Within the microeconomic environment for a specific sector there may be simultaneous developments detracting from a particular stock or sector’s growth despite the release of good news about the company. Moreover, positive gains or interest in a rival company within the same sector may stifle gains of a stock, even with the announcement of good news.
What is the model of a stock?
As a science, the modeling of a stock’s price is based heavily on the estimated expectations and actual results investors and analysts have for the firm's earnings and cash flows, both now and in the future. When a company releases an earnings report, a fundamental reaction is often the most common. As such, good earnings that miss expectations can result in a downgrade of value. If a firm issues an earnings report that does not meet Street expectations, the stock's price will usually drop. 2
Why does XYZ sell off after good news?
Noise traders do not analyze the fundamentals of a prospective investment, but instead make trades based on news, technical analysis indicators, or trends. They are often thought of as impulsive and may overreact to good or bad news. So, if XYZ Corp. begins to sell off after a positive earnings report, as described above, noise traders may jump aboard, exacerbating the down move.
Why do companies give future guidance?
With each earnings report , companies usually also provide some future guidance. Future guidance is also a big factor for fundamental valuations. Future guidance provides investors and analysts with management’s insight on the projected future growth as well as any new developments that may affect the fundamentals. A company may release results that match or exceed the market’s expectations but with that they may also include revisions to future estimates that can be a valuation detractor. Any downward revisions to future sales, earnings, cash flow, and more could lead to concerns over the stock’s future value. Downward revisions or developments that decrease future value expectations can be a fundamental reason why a stock might fall alongside good news.
What happens when a company releases an earnings report?
As such, good earnings that miss expectations can result in a downgrade of value. If a firm issues an earnings report that does not meet Street expectations, the stock's price will usually drop. 2 . Other situations may also occur around earnings.
Why do stocks fall across the board?
Macroeconomic factors like rising interest rates or a market shift to lower risk investments could potentially cause stocks to fall across the board and specifically result in stock losses for a single stock despite good news. Sector influences can also be important to consider.
