We’re now heading in to the home straight for the week, and there has been plenty to go at from an intraday perspective in the biotech space. Double digit gains and losses have featured heavily, and volume is up ahead of the US election – more than can be said for wider markets, even as the big name earnings start to roll in.
With this in mind, here are two companies that have moved considerably over the last twenty-four hours or so, what’s driving the action, and where we expect price to go next.
We’ll kick things of with Galena Biopharma Inc (NASDAQ:GALE).
A few times on these market mover roundups, we’ve discussed capital structure driven moves, and the fact that they are all too common in the biotech space, especially at the low market cap end of the sector. Companies with, say, market caps sub-$100 often have a tough time maintaining share price that falls in line with the minimum bid price of the exchanges on which they trade. If they fall below threshold, they need to get back above for a predefined period (normally 10 days) to regain listing compliance. One of the simplest ways to do this is to reverse split, but the split is often seen as negative by markets (it can be dilutive based on post-split short pressure, it’s indicative of underlying weakness, etc.)
Galena Biopharma Inc (NASDAQ:GALE) dropped more than 25% over the last couple of sessions on the announcing of exactly this scenario – the company needs to split to maintain its minimum NASDAQ bid. The split is 1 for 20, and while it will likely help the company maintain its listing, the outcome price is unlikely to be an exact 20X multiple of the pre-split price for the reasons discussed above.
That said, we often see this as an opportunity. Short pressure weighs on price presplit, and a dilutive raise often follows, which weighs on price further, but if the company can hold above threshold, and put the capital raised on the back of the dilution to good use, there’s no reason it won’t recover long term.
Moving on, let’s look at Oculus Innovative Sciences, Inc. (NASDAQ:OCLS).
This one is more in line with the traditional biotech event driven move.
The company announced yesterday that it expects to sell its Latin American business to an entity called Invekra S.A.P.I. de C.V. of Mexico for a total cash payment of $19.5 million, and beyond the initial capital, will receive a royalty to the tune of 3% on all revenues recorded by the latter on sales outside of Latin America. Now, for a larger company, this might not be a huge deal.
For a company the size of Oculus Innovative Sciences, Inc. (NASDAQ:OCLS), however, it’s an important step forward. The company needs cash to develop its North American pipeline, and only recorded just shy of $5 million on hand at last count. Market cap in its entirety, even after the more than 25% gains recorded on the buyout announcement, comes in at a little over $19 million – pretty much the total value of the deal in question.
The company now is able to advance its pipeline while avoiding the necessity to raise finance through a dilutive raise, keeping shareholders happy as it traverses the regulatory pathway towards commercialization.
We also discussed action in Palatin Technologies, Inc. (NYSEMKT:PTN) in our primary biotech analysis, which moved on some excellent top line (not complete, but insight nonetheless) trial data from its lead HSDD trial.
Note: This article is written by Mark Collins and originally published at Market Exclusive.