What happened

Shares of MacroGenics (NASDAQ:MGNX) initially soared as much as 14% on Thursday but were down 3.6% as of 3:34 p.m. EST. The gyrations came after the company announced Wednesday that the U.S. Food and Drug Administration (FDA) approved Margenza in combination with chemotherapy as a third-line treatment for HER2-positive breast cancer.

So what

The initial jump for the biotech stock is understandable. Investors usually get excited when a drugmaker wins its first FDA approval. So why did MacroGenics stock then nosedive? Taking a look at one Wall Street analyst's reaction could help make sense of today's reversal.

Hands holding card with "FDA Approved" printed on it

Image source: Getty Images.

Barclays analyst Peter Lawson recognized the good news for MacroGenics by boosting his price target for the stock to $14 from $8. That's great, right? Not when you consider that MacroGenics' shares already trade at a big premium to Lawson's higher price target.

The analyst's concern is that the FDA approved Margenza with a black box warning for left ventricular dysfunction and embryo-fetal toxicity. These kinds of black box warnings can sometimes negatively impact the market potential for new drugs. That won't necessarily be what happens with Margenza. However, it appears that many investors are focusing on the bad news associated with the FDA approval more than they are focusing on the good news.

Now what

We'll have to wait a while to see how well Margenza will actually perform in the marketplace. MacroGenics said that it expects to launch the breast cancer drug in the U.S. in March 2021.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.