What happened

Shares of Ardelyx (NASDAQ:ARDX) were sinking 11.5% as of 10:58 a.m. EDT on Friday. The drop appears to be a case of "buy the rumor, sell the news." The biotech stock has soared in recent weeks in anticipation of Food and Drug Administration approval of Ibsrela (tenapanor) in treating irritable bowel syndrome with constipation (IBS-C). Ardelyx announced on Thursday that the FDA had approved Ibsrela.

So what

Investors' reaction the day after the FDA approval isn't all that unusual for a small biotech stock. Some opt to take profits off the table after a milestone development. Others could be concerned that Ardelyx might take advantage of its big share-price jump to issue new shares to raise additional capital, a move that would dilute the value of existing shares.

Businessman holding card with "FDA approved" printed on it

Image source: Getty Images.

The important thing to focus on, however, is the long-term business outlook for Ardelyx. FDA approval of Ibsrela is a big deal for the company. EvaluatePharma even ranked Ibsrela as the fifth-biggest anticipated new drug launch of 2019. The market researcher projects that Ardelyx's drug could rake in $700 million annually by 2024.

But it's not always a piece of cake for a small biotech with its first drug on the market to be successful. The good news for Ardelyx is that its management team has solid experience in launching new drugs with previous companies, including CEO Mike Raab's track record at Sanofi subsidiary Genzyme. 

Now what

While investors watch how Ardelyx's launch of Ibsrela in treating IBS-C goes, the company should have more big news on the way relatively soon. It hopes to file for U.S. approval of the drug in treating hyperphosphatemia next year. If all goes well, the biotech will have two approved indications for Ibsrela by 2021.

Investing in biotech stocks comes with plenty of risks, though. That's especially the case for small biotechs like Ardelyx. There's no guarantee that the sales estimates for Ibsrela will be achieved, and the possibility of failure in clinical studies can't be ignored. Today's pullback for the stock probably reflects these concerns to some extent.