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Here's Why ArQule Is Soaring Today

By Maxx Chatsko – Updated Apr 11, 2019 at 5:17PM

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The company reported fourth-quarter and full-year 2018 earnings and guidance for 2019.

What happened

Shares of ArQule (ARQL) rose over 70% today after the company reported full-year 2018 operating results and provided full-year 2019 guidance. That said, investors are probably used to wild swings in the stock price by now. The development-stage pharma didn't turn in a particularly impressive performance last year. Management expects revenue to drop significantly in the year ahead as collaboration revenue dries up, which will also widen operating losses.

But that's not necessarily the most important trend for a clinical-stage company. Wall Street seems more impressed by ArQule's guidance for a year-end cash balance of around $61.5 million. That would be plenty of capital to fund operations in 2020 -- especially if a recently licensed product succeeds in a late-stage study.

As of 1:03 p.m. EST, the stock had settled to a 72.3% gain.

Check out the latest earnings call transcript for ArQule.

A man holding a cutout arrow pointing upward

Image source: Getty Images.

So what

ArQule reported full-year 2018 revenue of $25.7 million, which was slightly higher than the consensus expectation on Wall Street for $24.6 million. Meanwhile, the business reported a net loss per share of $0.16, a penny worse than expected by analysts. The clinical-stage company expects full-year 2019 revenue in the neighborhood of $4 million and net loss per share of about $0.38.

Guidance figures for both revenue and earnings per share are worse than Wall Street expectations for the year ahead, but forecasting operations at an early-stage company is difficult, and hitting or missing estimates is generally not that big of a deal. Instead, Wall Street appears excited about ArQule's guidance: The company expects to exit 2019 with approximately $61.5 million in cash, cash equivalents, and marketable securities.

Considering the business recently transferred the global rights to develop derazantinib to two partners, analysts are willing to remain patient. The drug candidate is currently enrolling patients in a phase 3 study evaluating its potential to treat intrahepatic cholangiocarcinoma, a malignancy of the liver. If the drug is successfully developed, ArQule could earn $336 million in milestone payments plus royalties.

Now what

Licensing the pipeline's lead drug candidate was a bold move that could pay off handsomely. If derazantinib succeeds, then ArQule will have significantly de-risked the development of the remainder of its pipeline. But success isn't guaranteed, which still makes this clinical-stage pharma stock a risky bet for individual investors.

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

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