What happened

Shares of Orphazyme AS (NASDAQ:ORPH), a clinical-stage biopharmaceutical company, shot through the roof on Wednesday after the company disclosed a significant sale from one of its largest shareholders. Retail investors, convinced this is a sign the company was preparing for a buyout offer, pushed the volatile biotech stock 77.1% higher as of 3:23 p.m. EDT.

So what 

On Jun. 15, 2021, Orphazyme made a disclosure to investors regarding one of the company's largest investors, the Sunstone Life Ventures fund. The company didn't disclose how many shares Sunstone sold, but it was enough to lower its share of voting rights below a 5% threshold that required the disclosure. Some investors took this as a sign Sunstone was getting out of the way to make room for a potential merger. 

Physician speaking with a patient.

Image source: Getty Images.

Orphazyme doesn't have any reliable sources of revenue yet, but that could change any day now. On or before Jun. 17, 2021, the FDA is expected to issue an approval decision regarding an application for the company's lead candidate, arimoclomol. If given a green light, it will become the first treatment specifically approved for around 1,800 Americans with an ultra-rare lysosomal storage disorder called Neimann-Pick Disease Type C.

If approved, arimoclomol could end up competing with Zavesca, a drug from Johnson & Johnson (NYSE:JNJ) that is already approved to treat other lysosomal disorders. Back in 2010, the FDA refused to complete its review of Zavesca's active ingredient until it had more data that never materialized.

Now what

It's possible the Sunstone Life Science Ventures Fund is just getting out of the way to make room for a buyout, but highly unlikely. 

Arimoclomol helps little vesicles called lysosomes transport cholesterol and other important lipids through cells by boosting the production of heat shock proteins. If greenlighted, it would be the first heat shock protein booster approved by the FDA to treat anything.

The FDA generally doesn't like to unleash completely new drugs without clear evidence of a benefit. Unfortunately, the clinical trial data supporting arimoclomol application isn't as strong as Orphazyme investors would like it to be.  

Arimoclomol narrowly missed meeting the primary endpoint in its pivotal trial with NPC patients. More recently it's also missed primary endpoints in trials with inclusion body myositis patients and amyotrophic lateral sclerosis patients.

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