Even though all indices turned bearish in October 2018, investors were able to pick up gains in medical and biopharma stocks that delivered on anticipated catalysts.
The stock market punished all sectors, regardless of size, in the fourth quarter of 2018 and early January 2019. Yet when medical and biopharma companies had to report on pre-established catalysts, those stocks defied the bear grip if the decision was positive.
Evolus, Inc. [NASDAQ: EOLS) is the latest to answer the challenge of the recent bear market. Evolus, which will introduce a competing formulation of Allergan’s [NYSE:AGN] Botox for aesthetic procedures, saw its stock dip to $10.50 per share on December 21. But Evolus had a pre-established date for FDA approval (February 2) for its new therapy, named Jeuveau.
Evolus shares slowly rose during January but still closed at $14.39 per share on January 24. One week later, after the FDA signed off on Jeuveau, Evolus shares touched $22.34 per share on February 4, a 55% gain in just seven trading days.
Before Evolus, consider Eidos Therapeutics [NASDAQ: EIDX], which is developing a novel therapy for a heart condition known as ATTR cardiomyopathy. Eidos debuted in the public market at $24 per share last June and then fell to a low of $9 in October as the market turned sour and a competing therapy gained traction. Yet when Eidos announced positive phase II results on November 12, its stock shot up to $14 per share on the news. The stock later touched $16.20 per share in December as larger investors picked up on the development progress.
ARCH Therapeutics (OTC: ARTH), a microcap device company followed by SanaCurrents, rose 15% after its wound sealant device received marketing approval from the FDA on December 17, 2018. If any stocks would be vulnerable to a down market it would be microcaps, yet a positive announcement by ARCH in depths of the bearish turn pushed its shares higher.
The recent results highlight investors’ hunger to find promising therapies at companies of all sizes. The majority of innovation in biopharma and devices is created by smaller companies, who later seek a larger company partner to help finance and commercialize the drug in its final stages. However, the biggest increase in shareholder value typically is realized in the early development of the drug, such as with Eidos and Evolus. Both companies went public in 2018, presenting an opportunity for public investors to capture the upside of the stocks.
Not all small cap stocks grab 55% returns, but the potential exists if investors’ stay ahead of anticipated catalysts. The FDA approved 64 novel therapies last year, a record number for the agency. The FDA also wants to encourage competition for certain biologic drugs, which likely had an impact on approving the Evolus drug after it had received a curious complete response letter in May 2018.
As Evolus and the fourth quarter demonstrate, catalytic development news can overcome the bearish of markets.