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Why Tonix Pharmaceuticals Is Down 19% Today

By James Brumley – Mar 4, 2022 at 3:54PM

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Buyers are unwinding their trades in a big way, following through on the profit-taking they initiated yesterday.

What happened

Tonix Pharmaceuticals Holding (TNXP -4.55%) shares are down 19.1% as of 3:42 p.m. ET Friday, following through on the sharp intraday reversal of Thursday's price surge. The stock was prodded much higher by Thursday's report that the U.S. Food and Drug Administration (FDA) had granted one of the company's drugs an important designation, but traders are now suggesting that rally was too bold.

So what

The drug in question is TNX-2900, or intranasal potentiated oxytocin, meant to treat Prader-Willi syndrome, a genetic disorder that affects children's sensation of hunger. The FDA granted TNX-2900 an orphan drug designation this week, meaning the agency recognizes the therapy addresses an underserved or completely unaddressed illness. Tonix Pharmaceuticals was up as much as 89% at one point Thursday on the news before settling back to a full-day's (from close to close) gain of 32%.

That big pullback from Thursday's peak should have been interpreted as a warning. With lots of pent-up profits still not locked in, investors continued shedding this overextended stock today.

Now what

As the old adage goes, hindsight is 20/20.

An investor watching a falling stock chart on a computer monitor.

Image source: Getty Images.

Thursday's news that TNX-2900 is now considered an orphan drug is a win to be sure. But, it's hardly an approval of the drug. Rather, it's just an acknowledgement that Tonix might be developing a solution to a problem no other organization has attempted in earnest to address yet. While Tonix Pharmaceuticals' intranasal potentiated oxytocin doesn't have to outperform other alternative drugs to win the FDA's approval, it must still demonstrate it can be of some benefit, and also prove it can be administered safely. As a preclinical drug that's yet to even be tested in a small-scale trial with actual people, there's no way to know how likely either of those outcomes is. The market appears to be remembering this today.

As for prospective newcomers looking to jump into a hot stock while it's in the red, take today's weakness at face value. This company's not that much more ownable today than it was as of Wednesday, when it was still priced near multi-month lows and standing in the shadow of nearly a 90% sell-off just since June of last year.

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

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