What happened

Yesterday, shares in Axovant Sciences (NASDAQ:AXGT) shot higher after management announced it has hired former Medivation CEO David Hung to be the company's next CEO. Today, shares climbed another 10% after the company announced it's shoring up its balance sheet with a $100 million stock offering. 

So what

It's common for companies to tap equity investors for funding following a big move up in share prices, but it's less common for news of an offering to cause share prices to increase.

Business people jump for joy on a beach on a summer day.


In this case, though, that's exactly what's happening. The addition of a proven leader like Hung is a coup for this Alzheimer's disease drug developer, and that seems to be outweighing worry that this stock offering will dilute current shareholders. 

In Hung, Axovant lands someone who successfully launched and commercialized a multibillion-dollar drug at Medivation, and then convinced Pfizer to fork over $14 billion to acquire Medivation last year.

Whether or not Hung can do that again at Axovant Sciences depends heavily on how late-stage trials pan out for the company's lead drug candidate, intepirdine. Results from a phase 3 study evaluating the use of intepirdine alongside Aricept are expected later this year.

Now what

Intepirdine is a 5-HT6-receptor antagonist that boosts the production of acetylcholine, a neurotransmitter important for cognition and brain function. Meanwhile, Aricept is a FDA approved drug that helps prevent the body from breaking acetycholine down. By dosing the two drugs together, Axovant Sciences hopes to boost acetycholine enough to reduce patient symptoms.

While this is an intriguing idea, intepirdine isn't the first 5-HT6 drug to be studied in trials, and unfortunately, those trials haven't been successes. For instance, Pfizer discontinued research on its 5-HT6 drug last year after a futility analysis showed its phase 2 trial wouldn't meet its endpoint.

Pfizer's disappointment added to a long string of disappointments in the field of Alzheimer's disease research, but it doesn't necessarily mean Axovant Sciences drug will fail. In fact, intepirdine's study was designed differently than Pfizer's study, and that difference could allow it to deliver a win.

Regardless, the dismal track record associated with Alzheimer's disease drugs makes Axovant Sciences a very risky stock to buy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.