Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Prosensa Holding NV (NASDAQ: RNA), a developer of RNA-based therapies to treat genetic disorders, were rocked for a second time in less than a week, falling by as much as 11% after being downgraded by JPMorgan Chase.
So what: Before the opening bell, JPMorgan analyst James Gordon downgraded Prosensa from an overweight rating to a neutral rating while stripping its price target down from $35 to just $6.50. The impetus for the downgrade was the failure of it and GlaxoSmithKline's (GSK 0.76%) late-stage Duchenne muscular dystrophy drug, drisapersen, to meet its primary and secondary endpoints in a late-stage trial. According to Gordon, the lack of positive data will make the drug difficult, if not impossible, for the FDA to approve. He also sees the potential that Glaxo may simply walk away and provide no additional funding for future studies of drisapersen, leaving Prosensa with $117 million in dwindling cash and no FDA-approved drugs.
Now what: Don't get me wrong, Gordon's analysis of Prosensa makes complete sense, but it also highlights just how little faith you can place in analyst ratings. Keep in mind, prior to Prosensa's nearly 75% cannonball it was rated an overweight with a $35 price target by the same firm that now expects the company to struggle moving forward. This is a perfect reminder that analyst actions are mostly white noise and shouldn't affect your long term investing thesis.
As for Prosensa, its remaining pipeline is built around exon-skipping technology -- the same type of exon-skipping technology that apparently didn't work in the late-stage drisapersen trial. On paper, the science is very intriguing, but in practical application I'm not seeing anything at the moment that would make Prosensa a particularly attractive investment.
