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Volatility Continues in Affymax; Stock Jumps 22%

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Over the last month, shares of biotech firm Affymax (NASDAQ: AFFY) have lost around 92 percent of their value. The company currently has a market cap of under $50 million.

The catalyst for the plunge in the stock price was the recall of the company's only marketed product -- an anemia treatment called Omontys -- in late February. Affymax's partner in the drug is Takeda Pharmaceuticals. The day of the announcement, AFFY lost 85 percent of its market cap.

The voluntary recall occurred after reports of anaphylaxis, a life-threatening allergic reaction, in first-time users of the drug and at least five deaths.

The company said that fatal reactions occurred in around 0.02 percent of patients after being administered the first dose of the intravenous treatment. Omontys was approved by the FDA in March 2012 and the stock was trading at multi-year highs just under $27 in October.

"Due to the severity of the public health risk, we want to be certain that health care providers stop using Omontys. Americans deserve medications that are safe, effective, and of the highest quality. We are investigating the products and facilities associated with this recall and will provide updates as we learn more," said Howard Sklamberg, director, Office of Compliance, FDA's Center for Drug Evaluation and Research.

The recall was a devastating development for Affymax and the company subsequently said on Monday that it will cut its workforce by around 230 employees, or 75 percent.

Affymax also said that it was exploring all of its options including a sale, a corporate merger, or even bankruptcy. The news resulted in another huge sell-off in the name with the stock closing down more than 60 percent in the wake of the announcement.

On Wednesday, however, the stock is making up some of its steep losses with the shares last trading up around 22 percent to $1.28. The catalyst for the rise in the stock price is likely a Seeking Alpha article which suggests that the FDA will allow Omontys back on the on the market within months.

Nevertheless, going forward, it is difficult to see a scenario where Affymax will be able to turn its business around from an operational perspective. Omontys accounted for a substantial amount of the company's revenue and Affymax does not have any other drug candidates in its pipeline.

Affymax has said that it will focus its resources on the ongoing investigation into the reports of allergic reactions in patients receiving the Omontys injection.

The Seeking Alpha author argues that the FDA will allow Omontys back onto the market if the company provides a detailed warning and protocol for anaphylaxis prevention on the drug's label. He writes, "so if Affymax is able to provide a better method and warning like those from their competitors, fatal anaphylaxis incidents from Omontys therapy can be prevented or minimized."

The author also pointed out the importance of Takeda to the Affymax equation in the wake of the recall. "Currently Affymax is very dependent on Takeda. If Takeda walks away from their contract, Affymax will have a hard time surviving. Affymax needs financial support and clinical experience to solve Omontys's issue. Takeda had dealt with worse cases than this before. Takeda will probably provide some solutions to FDA within a month or so."

Despite the optimistic outlook that the Seeking Alpha author lays out for Affymax, the market is pricing the stock as if there is little chance of Omontys being brought back online. For investors, however, the price may be right to gamble that the drug will be reinstated as nearly all of the company's value has been wiped out.

Investors who purchase the stock should be prepared to lose their entire principal, but a miraculous recovery in the share price is not out of the question. It is, however, unlikely.

Posted-In: Long Ideas News Short Ideas Small Cap Analysis FDA Intraday Update Movers Trading Ideas Best of Benzinga

 

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