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Why Quotient Ltd. Is Soaring Today

By Brian Feroldi - May 18, 2018 at 11:40AM

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Traders cheer after the company shares some good news with investors. Here's what shareholders need to know.

What happened

In response to sharing an update on its development process for its MosaiQ microarray diagnostic product, shares of Quotient Limited (QTNT 0.00%), a commercial-stage diagnostics company, jumped 14% as of 10:59 a.m. EDT Friday.

So what

Quotient reported today that it has officially completed the verification and validation (V&V) process for its MosaiQ microarray (IH I) product candidate. In addition, the company said that it has already kicked off field trails in Europe, which is a key step to getting the product on the market.

Management announced in January that they were planning several changes to the manufacturing process for MosaiQ that were designed to "further improve the performance and reliability" of the product. Once those changes were implemented, a V&V study needed to be performed before field trials could be started.

A person in a suit giving two thumbs up as cash money falls in the background.

Image source: Getty Images.

Here's the commentary that Quotient's interim CEO Franz Walt shared with investors:

"I am very pleased to announce the start of our European field trials for IH I. This is the next important step in our rigorous development process, that included the V&V performance data which we have previously shared. We feel confident in moving forward to commence the fields trials at this time." "The concordance portion of the study is moving forward and we expect to make the concordance data available in a press release some time during the month of June."

Given today's positive update about the successful completion of the V&V process and the start of European field trials, it isn't hard to figure out why investors are feeling optimistic.

Now what

MosiaQ looks like a neat product and it could be a big winner, but when I take a close look at Quotient's financial statements I come away worried. For one, Quotient's net loss in the first nine months of fiscal year 2018 (the company hasn't reported full-year earnings yet) was $62 million. Meanwhile, the company's cash balance as of the end of December was only about $33 million. It also carries $84 million in long-term debt. Those are ugly numbers that suggest a capital raise should be expected relatively soon.

That's not great news for shareholders since this stock has lost to the market badly since it went public in 2014:

SPY Chart

SPY data by YCharts

At the same time, this Quotient's former CEO retired in March 2018 and the company's hasn't identified a permanent replacement yet. Given the company's current financial situation, I find that news to be troubling.

Overall, I think that Quotient's technology looks interesting, but I have no interest in getting behind a business that is in a precarious financial position and needs to identify a new leader. For that reason, I'm content to look elsewhere for investment opportunities.

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