Ardelyx Inc (NASDAQ: ARDX) is continuing its momentum run from yesterday's 32% stock price jump with another 28% jump premarket. The background here is the disaster the stock price suffered in the summer combined with the announcement of the market launch of an approved drug now.
Ardelyx is in the drug development business where Food and Drug Administration approval is the most important factor in success. Gain approval and market sales and shares might be good – fail to do so and the project is an entire bust.
Back in the summer, the stock price suffered a catastrophic fall from the $7.50 range down to $2 almost overnight as the FDA declined to approve a once thought to be a promising drug for a form of kidney disease treatment. Since then it has been declining gently to the 90 cents sort of level as it was at the beginning of the week.
Since then the company has announced that another of its drugs, IBSRELA, for the treatment of constipation in irritable bowel syndrome, will hit the market in Q1 next year. This drug is already FDA approved.
That’s something of a turnaround from the fallout of the fall, when the company cut headcount by 65% and announced a restructuring.
The story as a whole shows the intense volatility of the drug development sector. Plus the role of the FDA in being the decisive gatekeeper to the creation of stockholder value. This also makes the sector one ripe for speculation and trading opportunities of course for the two are the same thing, volatility, and opportunity.
The question becomes well, which way next? It’s possible that the announcement of the drug launch will be seen as a decisive turning of the corner. This would mean that the rerating might continue, that the momentum has legs that is. We could also think that sheer momentum will keep the rise coming. On the other hand, a general market view that the launch of this particular drug – an addressable market of some $500 million according to Ardelyx itself – isn’t enough to make up for the earlier approval problems and shrinkage of the company.
What matters to that stock price in this short term being determined almost entirely by what other investors do think of those different prospects. Whatever the revenues from the new drug launch turn out to be won’t be known for many months yet. Any revision in the FDA’s opinion on the kidney drug will arrive with the glacial slowness typical of that agency. The price in any near-term horizon is going to be driven purely by the collective opinions of other market participants.
Those views are going to differ and they’re going to change too – there will be continued volatility in the Ardelyx stock price or at least that’s the likely outcome. Positioning for which way it’s going to go is the problem of course. But 32% up one day, another 28% the next, Ardelyx is certainly delivering stock price movement.
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