On the last trading day of 2014, NephroGenex, Inc. (NASD : NRX), a pharmaceutical company specializing in therapeutic products for the treatment of kidney diseases, was the recipient of an extraordinarily substantive move of more than 285-percent on an intra-day basis, eventually settling at $13.35 per share. Prior to the catapult, valuations averaged only $4.63 per share for the second half of 2014, leading potential investors to question whether the company has entered into a new threshold of market behavior or if this is merely a New Year’s bull trap.
Those skeptical of the NephroGenex opportunity have plenty of concerns, primarily that the company has just recently opened its door to public investment, with an IPO date of February 11, 2014. As is typical within the healthcare industry, the company’s sole motivation for being listed in the Nasdaq Composite index is to raise much needed capital. A cursory look at their balance sheet reveals all that there is to know to give an accountant a coronary: with very few corporate resources and current obligations that are piling on exponentially, the total assets to liabilities ratio limps at a paltry 15-percent. Needless to say, if the cash-influx from their open-market venture runs dry, the company itself will likely be forced to shutter its doors rather prematurely.
Awaiting Pyridorins Approval
The bullishness that catalyzed the 285-percent move a few days ago was the announcement by NephroGenex that their drug, Pyridorin, underwent extensive cardiac safety trial testing, specifically assessing the drug’s risk towards long-term proarrhythmic potential. While on the surface this appears to be a significant breakthrough, the reality is that the company has a long road ahead of itself. A self-made assessment, rigorous as it may be, cannot substitute for FDA (Food and Drug Administration) approval, which is granted at the end of the later stages of medicinal trails.
The fact that the positive study was released so late into 2014 should also raise eyebrows as to the objectiveness of the cardiac safety assessment. Whatever the real circumstances are, until the FDA actually approves Pyridorin for the retail market, most of the enthusiasm towards NephroGenex in general is purely speculative. The emptiness of its fundamental framework further attests to the tentative and tenuous nature of this investment opportunity.From a technical performance perspective, the empirical data suggests that NephroGenex shares are stronger than they may actually be. For example, the day-over-day performance over the life of the shares has an upward linear trajectory, thanks in large part to the aforementioned 285-percent move. Take away this statistical anomaly, however, and the market patterns look far different. Generally, daily performances are horizontally trending, and if anything, large clusters of trading involve more selling than buying. Also, acute performances in either positive or negative trajectories have a bearish slant, as highlighted by the red-dotted arrow in the above chart. Taken into context, optimistic trading occurs rather sporadically, and the move on December 31st is multiple standard deviations above normal purchasing behaviors.
As enthusiasm for the essentially self-generated news of clinical trials dies down, the probability that the price action of NephroGenex will do the same is quite high. The next opportunity for a major move in the markets will be an official announcement by the FDA as to Pyridorin’s safety and effectiveness; until that time, expect a very volatile ride.