Anavex?So what happened to Ananvex month ago or so. Out came positive results, and stock dropped 60%? Now more good news comes out and nothing happens, Go figure.
Just looking for a little insight into this anomaly, which by the way, happens a lot it seems to these small biotech stocks.
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The stock is a favorite of individual traders and has been touted and re-touted by a few newsletters as the company has continued to overpromise while they explore their drug — that attention magnified the response to the most recent news and drove up excitement before the “results” were announced, but that doesn’t tend to create long-term shareholders… it creates people who trade the news because they’re hoping to get rich quick, which then further exacerbates the news-driven volatility. It’s possible that will ease if the company gets some institutional shareholders or analyst coverage so some kind of mainstream “consensus” can form about their prospects, but they just uplisted to the Nasdaq a couple months ago and it’s really still a penny stock that trades on the whims of individual investors, some of whom don’t dig deeper than the headlines or hold stocks for longer than a week.
I’m no expert on the science, but I stand by what I wrote last time it was heavily teased: This is a preliminary study even though the drug has been touted for seven or eight years as a miracle cure, the measures of efficacy in Alzheimer’s are iffy at best, and past experience with Alzheimer’s drugs should give us great caution because essentially all of them have failed due to either some unforeseen risk or complete lack of efficacy once they are given to large numbers of people in double-blind trials against a real placebo or standard of care. That doesn’t mean it won’t work or can’t work, it just means the risk is very high. (That article is here, if anyone missed it.)
You can’t value a stock like that based on any financial metrics, and you can’t foresee the results of clinical trials with certainty — you just have to make your own estimate of the odds and decide how much you’re willing to lose if your bet fails. I’d go into Anavex thinking that it’s either worth essentially zero if their lead drug doesn’t end up working in a few years, or it’s worth thousands of times what it’s valued at today if the drug cures or reverses Alzheimer’s — whether it trades at $3 or $20 or $6 in the next year (it’s seen all those levels in the last two months) is not terribly relevant unless you’re trying to trade in and out based on the waves of hype and news (or unless they run low on cash at a time when the news is weak… clinical trials get more expensive with each stage).
Whether you think the chance of eventual success is 0.01% or 1% or 20% will determine whether or not you feel like owning the stock through the next couple years of research, I have no idea what the odds are and I’ve seen Anavex over-hyped too many times to have any stomach for it personally.