Cumberland Pharmaceuticals (NASDAQ: CPIX) was up 131% after hours last night, falling back to only – only – 118% up this morning pre-market. The trigger for this soaring price was FDA approval of allowable expanded usage for one of Cumberland Pharmaceuticals medical preparations.
The preparation itself doesn’t sound, to non-medical types, like all that much of a change. Caldolor – Cumberland’s product – is a version, a derivation, of the standard ibuprofen but which can be delivered intravenously. This means that it can be, and is, used pre-operation – all that nil by mouth stuff perhaps – and so decreases pain immediately post-operation. The effects upon inflammation may also apply.
The FDA has approved Cumberland’s Caldolor for a wider set of labeling. Again, this sounds like not very much to those of us not entirely up to date with medical practices. But there are two important issues here.
The first is the emphasis this puts on FDA authorizations for any medical supply company, whether of pharmaceuticals like Cumberland or of machinery and so on. Just the one FDA decision on an already known and used pharmaceutical like Caldolor can double a stock price. What the FDA decides and when is vitally important to the stock prices in this field.
The second is the background against which this is all taking place. Opiates are wondrous at removing pain and are extensively used both pre- and post-surgery. Yet there are clearly risks with the use of opiates as the Oxycontin and then following fentanyl episodes have shown. Society at large really doesn’t, for obvious reasons, want opiates to be used any more than they absolutely have to be. Intravenous ibuprofen is one part – only a part but a signal of an obvious direction of travel – of being able to replace opiates for such pain relief.
Cumberland Pharmaceuticals also announced the results of a 185 patient test which validated the company’s claims about Caldolor and pain relief when administered around surgery.
The combination of the two pieces of news means the price could go either way from here – this is obviously therefore a trading opportunity. It could be that the market generally has combined the two pieces and so thinks that the FDA approval is for the extended use indicated by the trial – that would be good for revenues and sales. Don’t forget, the manufacturing cost here would be minimal, the vast bulk of any increase in revenue will flow through to the bottom line. When this turns out not to be quite so – the FDA approval is about labeling, the trial is a different thing – then the price could slide back.
Or, alternatively, the indication that the FDA is looking favorably on that change, added to the test results and that general desire to move away from opiates for surgical pain relief, portends better things to come. At which point the Cumberland Pharmaceuticals stock price continues to rise.
Trading opportunities come from that uncertainty about the market reaction. We’ve already seen a 131% price change as a result of this announcement – which way will it go next?
Healthcare stocks, including Cumberland Pharmaceuticals shares, saw a wave of investors buy their shares during the pandemic. Governments also pumped money into the companies in an attempt to speed up the vaccine process. But, what happens now some vaccines have been approved and the pandemic is (seemingly) in the rearview mirror? Should we still invest in coronavirus-focused healthcare stocks? Or should we look to firms tackling other areas? Here's what our analyst had to say on the issue…
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Tim Worstall is a freelance writer specialising in economics and the financial markets.