Genfit SA is a late-stage biopharmaceuticals company developing in the liver disease and diabetes space. It’s fair to say that Genfit has been disappointing shareholders for some years now. Back in 2017 the stock – the NASDAQ quote – was in the mid $30 range to be followed by a steady decline. There was a rally and plunge and for the past 18 months or so the stock price has been in the single-digit dollars. The decline might not have been sudden but yesterday’s price was down to $3.27.
The price premarket has bounced up that 42% to $4.81 for Genfit on the news of the deal signed with Ipsen. The big question has to be how far is that rerating likely to go?
The Genfit deal with Ipsen can be seen here. It is a significant change in the prospects for Genfit, the question becomes how much is this going to rerate the stock price?
For a developmental stage pharmaceutical company the base problem is coming up with something that is actually worth introducing to the market. That requires that it pass FDA approval, of course, the grand chokepoint in the industry.
However, this isn’t enough. It also needs to be possible to successfully market the drug on the basis of that development and FDA approval. It’s a pass the first hurdle and then have to tackle the second thing.
Until clinical trials are fully completed it’s not possible to know, with absolute certainty, whether that first hurdle will be successfully cleared. However, it is possible to infer likely probabilities from the reaction of those who might distribute the drug or treatment if it does. Which is what we’ve got here.
Ipsen is investing actual real cash into Genfit, taking a stake in the company, handing over advance payments against the marketing rights. They can see more of the trial results (in Phase III) than we out here can. Having seen more of that information they think those marketing rights are worth paying for.
This does not mean that the drug will pass all trials, not gain FDA approval. But it’s sure a validation of the probability that it will. Which is how we investors out here should take it too. The probability of elafibranor passing trials and gaining a licence has increased. So, therefore so too has the valuation of Genfit increased.
The question for us then becomes well, how far is this revaluation going to run? Is this morning’s jump of 40 to 45% all here is going to be? Or does the step-change in prospects gain momentum as others pile in and the stock price continues to rise?
Evaluating the probabilities there and then being on the right side of future price movements is the trading opportunity.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.