That’s the question we’re asking about Axovant Sciences Ltd (NASDAQ:AXON), a biotech firm whose share price quadrupled in less than a week.
When a stock explodes upward, it draws the eyes of every analyst and trader. We watch its ascent, spellbound and eager to ride the wave. But what happens when the fuel runs dry?
That’s the question we’re asking about Axovant Sciences Ltd (NASDAQ:AXON), a biotech(NYSEARCA:IBT) firm whose share price quadrupled in less than a week.
We’re going to examine what ignited the rally, the upcoming AXON news, and where the Axovant stock forecast is headed in late 2018.
Let’s start with the good news…
What Started the Rally?
Unsurprisingly, the catalyst for the AXON stock rally was a drug licensing deal.
Axovant bought worldwide rights to develop and commercialize a drug that may help people diagnosed with Parkinson’s disease. (Source: “Axovant Licenses Investigational Gene Therapy for Parkinson’s Disease From Oxford Biomedica and Announces Key Leadership Team Addition,” Axovant Sciences Ltd, June 6, 2018.)
Under the previous owner of the drug, Oxford BioMedica (OTCMKTS:OXBDF, LON:OXB), the medication was known as “OXB-102.” Axovant is changing that name to “AXO-Lenti-PD.”
When the deal was announced on June 6, Axovant stock blasted off like a rocket at Cape Canaveral, Florida. You can see the exact moment of liftoff in the below chart.
Chart courtesy of StockCharts.com
For those who are unfamiliar, Parkinson’s disease is a devastating illness that erodes nerve cells in the brain.
One million Americans live with the condition on a daily basis, their motor functions subject to its arbitrary malice and humiliation. Trembling limbs, stiffness, awkward physical movement—these are a way of life with the disease, yet treatments have been slow to arrive.
Also, studies show that treatment of Parkinson’s disease costs the U.S. healthcare system nearly $25.0 billion per year. So it’s not like doctors are under-medicating the problem. The right drug simply doesn’t exist.
Although no one can guarantee a positive outcome, the Axovant-Oxford BioMedica partnership could go a long way toward improving patients’ quality of life, even if it doesn’t cure them entirely.
As such, analysts expect tremendous demand for the medication. We saw those expectations manifest in a huge price surge, but you shouldn’t take that to mean that AXON stock will remain in the clouds.
The stock’s future will require more top-line growth in the short term and more bottom-line profits in the long term.
More Details About the Deal
Axovant agreed to pay $30.0 million up front. A fraction of that sum goes toward clinical supply, while the rest is a direct payment for commercial rights.
The company might have to spend a lot more in the future, though. Part of the deal includes $812.0 million in milestones, meaning that Axovant has to pay out whenever the drug crosses regulatory, development, or sales targets. (Source: Ibid.)
Luckily, Axovant managed to finance the cash outlay with a $25.0-million equity investment from Roivant Sciences Ltd, a late-stage biopharmaceutical company run by hedge fund types.
In related news, Axovant recently hired Dr. Fraser Wright, the former chief technology officer (CTO) of Spark Technologies, LLC, to shepherd their new drug from infancy to instant bestseller. He brings 20 years of industry leadership to the project, plus deep expertise in gene therapy products.
“AXO-Lenti-PD is a strong foundation for Axovant’s new pipeline, and I am excited to begin preparing the Phase 1/2 clinical study in advanced Parkinson’s disease later this year,” said Wright.
What It Means for the AXON Stock Forecast
Axovant was having a terrible year until the Oxford BioMedica deal took place. The company started 2018 by abandoning one of its core drugs after phase 2 trials failed to deliver positive results.
“Based on the totality of intepirdine data to date, there is no evidence to support its further development,” said Axovant CEO David Hung, M.D. (Source: “Axovant Announces Negative Results for Intepirdine in Phase 2b Headway and Pilot Phase 2 Gait and Balance Studies; Positive Trends in Efficacy Seen in Pilot Phase 2 Nelotanserin Study,” Axovant Sciences Ltd, January 8, 2018.)
“We are incredibly disappointed and saddened for the millions of people living with these difficult conditions, and are deeply grateful to the patients, caregivers and investigators who participated in our trials.”
Shareholders took the loss particularly hard. Optimism for Axovant stock had been founded on three pillars: “intepirdine,” “nelotanserin,” and “RVT-104.” The loss of one of those pillars, intepirdine, meant that some of the company’s expected future value vanished.
In the aftermath, AXON stock fell from $20.00 to $1.00 in under six months.
Chart courtesy of StockCharts.com
The only way for Axovant to recover was by a) advancing nelotanserin or RVT-104 through the Food and Drug Administration (FDA) pipeline, or b) acquiring the rights to another promising drug. The company obviously chose the second route.
But will that strategy serve Axovant stock beyond the next week or month? Can investors expect a healthy return by the end of 2019? Or will the share price fall apart once the momentary hype has passed?
I think that AXON stock is much better off than it was six months ago, but that doesn’t mean it can keep moving up and to the right.
Let’s put this growth in perspective. The stock only had room to climb because it was already trading in the stock market’s bargain bin.
It can’t pull off that trick more than once.
Besides, it’s not like Axovant’s Parkinson’s treatment is foolproof. Old age and memory loss are mysterious branches of biology, way beyond our current understanding of science. It will take major breakthroughs before we get a landmark drug in those areas.
With that in mind, my opinion is that you steer clear of Axovant stock at the moment. I know the stock’s recent meteoric rise is tantalizing, but it has probably exhausted all of the gains it had to offer.