Eleven Biotherapeutics Inc (NASDAQ:EBIO) stock plunged 70% on Monday after the company’s Phase III drug candidate, EBI-005, failed to achieve either of its primary endpoints. As a result, EBIO will abandon efforts to get EBI-005 approved for treatment of moderate to severe dry-eye disease.
A 70% correction is pretty harsh, but then again, EBIO stock needed its dry-eye drug to carry it forward, as Eleven Biotherapeutics posted just $2.24 million in revenue last year — none of it from products. (Eleven makes all revenues via collaborations).
By comparison, large biotech Gilead Sciences, Inc. (NASDAQ:GILD) posted revenues of nearly $25 billion in 2014 — so, on average, it would’ve taken GILD about an hour to reach $2.24 million in sales.
A Brief History of EBIO Stock
Volatility is by no means a foreign concept to EBIO stock investors. After the EBIO IPO in February 2014, shares roared 50% higher in just more than a month. They then were halved over the next year, roared 75% higher out of their April 2015 lows, and now they’re back down more than 70% today.
What gives?
Well, when the EBIO IPO went live in 2014, small-cap biotech stocks were a-flyin’, so the market accepted the offering and even bid shares higher before the subsequent industry-wide selloff.
In the two years between February 2012 and February 2014, the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) more than doubled, surging 125%. However, when IBB suffered a severe, 20% decline in the subsequent months, EBIO and other small-cap stocks in the space felt the brunt of the pain. While IBB recovered well, EBIO continued to sell off until early April 2015, with the selloff accelerated by a Securities and Exchange Commission filing in March announcing that EBIO could dilute shareholders by issuing up to $40 million worth of additional shares.
Shares began to rebound in April in anticipation of the Phase III EBI-005 trial results, but the speculative optimism proved to be too bullish for reality.
While today’s 70% plunge does indeed reflect EBIO’s diminished prospects, all is not entirely lost. Per a briefing report, Eleven Biotherapeutics is intelligently pivoting to “advance EBI-005 into late-stage clinical development for allergic conjunctivitis, with plans to initiate a pivotal Phase 3 study in patients with moderate to severe allergic conjunctivitis in the second half of 2015.”
EBIO stock likely will be an underperformer for years if its trial later this year doesn’t go well. According to Eleven’s own annual report:
“Our ability to become and remain profitable depends on our ability to generate revenue. We do not expect to generate significant revenue unless and until we obtain marketing approval for, and commercialize, EBI-005, which we do not expect will occur before 2017, if ever.”
While Eleven Biotherapeutics does have two other drugs in its pipeline, they’ll take years to get to the point of commercialization — if they get that far. EBI-031, an intravitreal injection for diabetic macular edema, is the next most developed drug in the pipeline … and it’s in preclinical studies today.
The company is also in the discovery phase for EBI-028, targeting an indication of uveitis, an inflammation of the middle layer of the eye.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
