Shares of Stoke Therapeutics (NASDAQ:STOK) crashed 42.6% in September, according to data provided by S&P Global Market Intelligence. That was a dramatic turnaround for the young biotech, which just had its IPO in June.
August's story was dramatically different. Despite a lackluster quarterly earnings report mid-month, the share price soared 52% to end August at $37.44.
Stoke's share price may have been a victim of its own success. According to its website, the company develops "medicines that increase gene expression to treat genetic epilepsies and other severe monogenic diseases, including genetic conditions affecting the central nervous system, eye, liver, and kidney."
Stoke hasn't released any news recently about the status of its products in development. However, numerous analysts initiated coverage of the company in July, when its share price was in the mid-$20s. Credit Suisse gave the company a price target of $35, while J.P. Morgan came up with a target of $34.
In the absence of other news, it looks like investors, seeing that the company was now worth more than the analysts' price targets, simply decided it was a good time to cash out. That seems to have caused a snowball effect with other investors fleeing the stock.
Stoke doesn't have any drugs in clinical trials yet. In fact, its best candidate for a clinical trial -- STK-001, a proposed therapy for Dravet syndrome, a severe form of genetic epilepsy in children -- hasn't yet been approved by the Food and Drug Administration. Stoke is still wrapping up toxicology trials, which it hopes to complete in early 2020. Assuming those are satisfactory, it will then be able to submit an investigational new drug application to the FDA.
Whether the share price is at $20 or at $40, any biotech that doesn't even have a drug in trials yet is a risky bet. Despite the sharp drop in shares, investors should probably steer clear until the company gets further into the development cycle.