Cadence shares fell 9% to $8.20 in early Wednesday trading despite what looks like good news -- The U.S. Food and Drug Administration approved Ofirmev, an intravenous formulation of the pain reliever acetaminophen that Cadence plans to sell to U.S. hospitals. The stock traded as low as $7.51 earlier in the day.
When is a drug approval reason to sell a stock? Answer: When the drug's approval was widely expected and when the company planning to market the approved drug faces significant challenges convincing doctors or hospitals to buy it.
Cadence and Ofirmev fit both scenarios, hence the stock's significant weakness. Cadence is being penalized further because the company needs money to fund the Ofirmev commercial launch."For now, the stock faces investor skepticism about the launch – most recent drug launches have been disappointing – and a financing overhang. These issues may mute the usual post-approval stock rise and provide an inexpensive entry point, in our view," said Canaccord Genuity analyst Adam Cutler. Cadence closed the second quarter with $68 million in cash but now needs to pay $15 million to Bristol-Myers Squibb (BMY - Get Report) as part of the licensing deal for Ofirmev.
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