Stocks rarely go straight up. When they do, the uncommon occurrence is called a “parabolic move.” In stock terminology, such as move is defined by a sudden and dramatic increase in buying volume, thereby causing the company’s share price to rapidly rise in a manner that resembles a parabola.
Oddly enough, this phenomenon has happened on a far more regular basis in 2021 than at any other time in the history of the U.S. stock market. The most recent examples are the explosive upward moves by shares of Donald Trump’s social media-associated stocks, Digital World Acquisition (NASDAQ:DWAC) and Phunware (NASDAQ:PHUN).
Last week, Digital World Acquisition’s shares rose by as much as 1,500%. Phunware’s shares, for their part, posted a jaw-dropping intraday high of over 2,000% during a single trading session last week.
Aurinia Pharmaceuticals: A buyout special
Mergers and acquisitions have been the name of the game for biotech investors this year. While the industry as a whole has trended lower in 2021 for a variety of reasons, shareholders of Acceleron Pharma, Trillium Therapeutics, and Kadmon Holdings, among several others, have all done fairly well this year because the companies were all bought out at a hefty premium. Aurinia Pharmaceuticals may be the next big pharma acquisition. A deal, in fact, could happen as soon as this coming Monday.
Last Friday, Bloomberg News reported that Bristol Myers Squibb (NYSE:BMY) was in talks with Aurinia about a potential buyout. Although the report made it clear that a deal wasn’t a sure thing, biotech is notorious for its pre-merger news leaks. Such leaks occur for a host of reasons. But the typical reason is to increase a company’s leverage in the buyout negotiations. In effect, Bristol might be trying to lowball Aurinia. Aurinia’s brain trust, in turn, might have leaked the news in an attempt to force the pharma giant to up its offer.
Why would a company like Bristol be interested in Aurinia? Well, Aurinia sports an oral lupus nephritis (LN) medication called Lupkynis that could eventually haul in multibillion-dollar annual sales. Now, the drug probably won’t be a huge seller with a small company like Aurinia heading up its commercialization. But Bristol, with its vast salesforce and commercial infrastructure, could probably get the most out of this novel LN drug from a sales standpoint.
Keeping with this theme, Wall Street has pegged Lupkynis’ peak sales at close to $2 billion a year. Aurinia, in a buyout scenario, should be fairly valued at somewhere between 3 to 5 times this peak sales forecast. On Friday’s close, Aurinia’s market cap stood at approximately $3.6 billion. So a buyout could come at a premium — relative to Friday’s close — of between 66% and perhaps a whopping 177%. Either of those premiums would arguably constitute a parabolic move by Aurinia’s stock.
Ocugen: Waiting on WHO
Ocugen, a small-cap biotech, has already seen its shares go parabolic over the past year. Thanks to a North American co-commercialization deal with India’s Bharat Biotech for the COVID-19 vaccine Covaxin, this tiny biotech has become one of the best-performing stocks in the entire market this year.
Ocugen’s shares, however, have lost almost half of their value in the past few months because of a multitude of regulatory delays and setbacks for Covaxin. For example, the vaccine will now reportedly go through the full vetting process with the U.S. Food and Drug Administration (FDA), instead of the coveted emergency-use authorization route. That news hasn’t sat well with Ocugen’s shareholders of late. But the next major catalyst for the company could be close at hand.
What’s the catalyst? The World Health Organization (WHO) is currently evaluating the vaccine’s emergency use listing (EUL) application. This key regulatory decision is supposed to come down before the end of October, and perhaps as soon at next Tuesday during the WHO’s next technical advisory group meeting. WHO officials, however, said last week that they cannot “cut corners” and that these decisions can take longer than expected. So a delay of a few days or weeks certainly isn’t out of the question.
Now, a WHO EUL green light wouldn’t directly affect Ocugen from a top-line standpoint. The vaccine still needs approval from the FDA and Canada’s regulatory body before the company can start booking sales in these territories. But this key regulatory designation would go a long way toward validating Covaxin as a globally important COVID-19 vaccine. A positive WHO EUL decision for Covaxin, therefore, could light a fire underneath Ocugen’s shares next week.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.