It's a good thing the shorts largely stayed away from Alimera
Shares were up 35% yesterday and another 70% today as news broke that its eye drug Iluvien received approval to treat diabetic macular edema (DME) in seven major European countries.
To understand why approval caused a 70% pop (or a two-day double for those with the foresight to invest on Monday morning) it's important to look at Alimera's rocky history. Iluvien has been twice rejected by the FDA, once in 2010 citing manufacturing concerns and access to additional trial data, and again last November. In fact, the November denial was worse, since the agency doubted the drug's risks were worth the benefits to patients and requested two additional trials from the cash-strapped drug maker. The company lost 82% over the course of that month -- quite an accomplishment, even in the land of biotech.
The damage didn't stay with Alimera either. pSivida
What does approval mean for Alimera? Most importantly (besides revenue), it gives them options. They can try to set up a licensing deal with a Big Pharma company, likely with a nice upfront payment combined with a royalty stream. Or Alimera could potentially be attractive enough, with its $125 million market cap (and even smaller enterprise value), that instead of bothering with a deal, a larger player could just scoop them up. Pfizer
Also, I don't want investors to think that European approval is an automatic pathway to U.S. approval. For example, Cell Therapeutics
The best approach
Instead of rolling the dice and hoping for a buyout or that the FDA has second thoughts about Iluvien, why not invest in a health care stock poised for massive growth thanks to its disruptive product already on the market? Motley Fool co-founder David Gardner believes in this small-cap company's ability to radically change how patients are treated and invites you to download The Motley Fool's special report, "Discover the Next Rule-Breaking Multibagger." It's free, but only for a limited time.
David Williamson owns shares of Pfizer, but he holds no other position in any company mentioned. Click hereto see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Pfizer. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.