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Here's Why AVEO Oncology Rose as Much as 15% Today

By Maxx Chatsko – Jul 19, 2017 at 2:01PM

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The momo trading continues for AVEO Oncology stock -- this time with news from investment funds.

What happened

Shares of biopharma AVEO Oncology (AVEO) rose up to 15% this morning as the nearly monthlong momentum continued to keep the roller-coaster ride going. While there has been a steady undercurrent of automatically generated articles in recent weeks, several articles today -- even some written by humans -- have summarized moves into the stock made by various investment funds during the first quarter of 2017. 

As of 12:50 p.m. EDT, the stock had settled to a 9.7% gain.

So what

While it's impressive to see that any investment funds bet on AVEO Oncology stock in the first quarter given the long odds of success at the time, the newsworthiness is the same as the holdings themselves: insignificant. There aren't any big names among the funds that would be recognizable to individual investors. Most funds mentioned own a relatively small amount of shares. One fund -- Deer VI & Co. -- owns only one stock: AVEO Oncology. Two others reported combined holdings of 7.8 million shares at the end of the first quarter of 2017, but that still only amounts to less than 7% of the total outstanding share count. 

A stock chart showing gains.

Image source: Getty Images.

Investors should also keep in mind that these funds very well could have sold some or all of their positions since the end of March. Additionally, the main advantage of a stock having high institutional ownership is that it helps to subdue volatility, which obviously hasn't been the case for AVEO Oncology. The stock is up 250% in the last month.

AVEO Oncology stock was trading at just $0.70 per share and had a market cap of about $75 million before late June. That's when the Committee for Medicinal Products for Human Use (CHMP) in the European Union made a surprise announcement recommending the company's lead drug candidate, tivozanib, for approval as a treatment for renal cell carcinoma. Given that micro- and small-cap companies almost never win approval for oncology drugs, it's easy to see why Mr. Market was caught off guard by the events of the past month.

Now what

It appears that investors won't be able to escape the volatility in AVEO Oncology stock. Therefore, if you plan on holding shares, then it's best to ignore the noise and focus on real catalysts on the horizon. Those include the actual decision on marketing approval from EMA and data readouts later this year from ongoing trials in the United States.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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