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Stock Watch: Tales Of Stock Price Overreactions

History Repeats Itself In NASH

 
• By Andy Smith

Two clinical trial announcements in the same NASH indication separated by almost nine years had very similar stock price reactions despite the known unknowns of NASH remaining unknown.

Stock Watch Image, Andy Smith
ANDY SMITH OFFERS A LIFE SCIENCE INVESTOR'S PERSPECTIVE ON BIOPHARMA BUSINESS

Investors often overreact to both good and bad news. Positive clinical trial results can be welcomed with ballooning stock prices that incorporate blockbuster sales expectations, very little marketing cost offset and 100% probabilities of regulatory and commercial success. The converse is also true. The market capitalization of a biotech company with a single clinical asset can fall below the value of its cash after a Phase III failure or, as in the recent case of gene editing company Graphite Bio, Inc., a clinical hold after dosing the first patient. This second type of overreaction is more logical because investors are inferring that the company needs to spend a good chunk of its cash to come up with something else of value.

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