You've probably heard of the so-called "Santa rally," a rise in stock prices during the month of December. I think a new term is warranted for the performance of three biotech stocks this week: a "Santa razzle-dazzle."
Ignyta (NASDAQ: RXDX), Molecular Templates (NASDAQ: MTEM), and Biohaven Pharmaceutical (BHVN -0.24%) shined brighter than Rudolph's nose over the last five days, with each stock soaring by at least 20%. Here's what drove these stocks higher -- and whether or not they're smart picks to buy now.
Ignyta stock skyrocketed 75% this week. To be precise, the biotech's share price jumped that much in one day.
On Friday, healthcare giant Roche (RHHBY 0.51%) announced plans to buy Ignyta for $1.7 billion. Prior to news of this deal, Ignyta stock had nearly tripled this year. Investors became increasingly excited throughout 2017 about the potential for the biotech's lead candidate, entrectinib. Ignyta hopes to submit the drug for FDA approval next year in treating two indications -- ROS1-positive non-small cell lung cancer and solid tumors characterized by NTRK-fusions.
Roche was especially attracted to Ignyta because the big Swiss company thinks the small biotech fits well with its precision medicine strategy. As a major player in both pharmaceuticals and diagnostics, Roche is one of the top leaders in the field of precision medicine. Ignyta's focus has been on developing precisely targeted therapies that are guided by diagnostics for treating cancer patients. Roche's acquisition of Ignyta is expected to close in the first half of 2018.
Molecular Templates shares zoomed more than 40% this week. What was the great news behind the biotech's big jump? It's complicated.
There wasn't an acquisition lighting a fire beneath the stock, as was the case for Ignyta. There were no clinical updates. In fact, Molecular Templates hasn't made any announcement over the past few days -- or even the past few weeks. What did happen was a surge in trading volume on Wednesday, with the stock moving significantly higher. There has been a big uptick in short interest for the stock recently, so it's possible that we're seeing a "short squeeze" unfold. At this point, though, it's hard to know for sure why Molecular Templates stock enjoyed such a big move.
The company, which underwent a reverse merger with Threshold Pharmaceuticals in August, is in good shape from a cash standpoint. It could also have some catalysts next year. Molecular Templates expects to announce initial results in the first half of 2018 from an expansion cohort of its phase 1 study of experimental drug MT-3724 in treating relapsed/refractory diffuse large B-cell lymphoma (DLBCL) patients. It also hopes to begin a phase 2 study for the drug next year.
Biohaven Pharmaceutical stock jumped more than 20% this week. The company announced on Thursday that the first patient had enrolled in its phase 2/3 study of trigriluzole in treating obsessive-compulsive disorder (OCD). However, most of the gains made this week by Biohaven had already been made prior to that announcement.
We can rule out a short squeeze for Biohaven since short interest in the stock was trending downward well before this week. The company didn't make any other announcements that would have sent its share price higher. Just like Molecular Templates, the reason behind Biohaven's big gain this week remains a mystery.
However, there should be news pretty soon that could be a reason for the stock to go up -- or down. Biohaven expects to announce top-line results from two late-stage studies evaluating rimegepant in treating migraine in the first quarter of 2018. The company also anticipates results from its early-stage study of sublingual riluzole (BHV-0223) in the first quarter.
Are they buys?
The horse has already left the barn for Ignyta. Now that Roche is buying the biotech, don't expect much movement in Ignyta stock's price. As a result, we can rule out Ignyta as a buy candidate.
Molecular Templates' pipeline only has early-stage programs right now. In my view, there's way too much risk in buying the biotech stock at this point.
That leaves Biohaven. Experimental migraine drug rimegepant does look promising. Of these three biotech stocks, I think that Biohaven would probably be the best bet.
However, the company's market cap is already close to $1 billion. High expectations for rimegepant appear to already be largely baked into the share price. There's a possibility that late-stage results could be disappointing. My view is to hold off on buying Biohaven shares. A "Santa razzle-dazzle" can end up in a fizzle.