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Assess Biotech Landscape Hazards Before Trading Orphazyme Stock

In another one of the wild (and arguably unpredictable) adventures of coordinated trading on Reddit, biotechnology firm Orphazyme (NASDAQ:ORPH) recently produced more gyrations on its technical chart than robust seismic activity on the Richter scale. Trading hands as low as $4.75 on an intraday basis this month, ORPH stock reached a blistering $77.77 before closing at $21 on the June 10 session.

A scientist holds a test tube while it is in a container
Source: Shutterstock

What could possibly explain these ridiculous rotations? As you might guess from its corporate brand, Orphazyme specializes in the treatment of rare diseases. Specifically, the company pioneered a heat shock protein response for the treatment of Niemann-Pick disease type C (NPC). According to the Mayo Clinic:

Niemann-Pick is a rare, inherited disease that affects the body’s ability to metabolize fat (cholesterol and lipids) within cells. These cells malfunction and, over time, die. Niemann-Pick disease can affect the brain, nerves, liver, spleen, bone marrow and, in severe cases, lungs.

While Niemann-Pick disease can affect a person of any age, it’s particularly pronounced in children. Unfortunately, no known cure exists and the condition is sometimes fatal. Current treatment options focus on helping people live with the disease’s symptoms.

Given the nature of the disease and its impact on children, you can easily see the moral incentive for ORPH stock. Further, the investment community grew excited about the possibility of favorable clinical results. Specifically, speculation ran that the Food and Drug Administration will give the okay for Orphazyme’s NPC treatment. If so, it would have been the first treatment for this particular disease variant.

Based on the choppiness on the choppiness of ORPH stock, you can guess what happened. Rather than a green light, the FDA issued a Complete Response Letter (CRL). Essentially, the regulatory agency needs more data to validate the treatment moving ahead in the clinical trial process.

Of course, that wasn’t what neither the company nor shareholders were looking forward to.

ORPH Stock Is More of a Gamble Than a Science

Though the upside potential for ORPH stock is admittedly exciting, the first clue that this trade is almost exclusively for speculators is that it’s popular on Reddit. Don’t get me wrong, sometimes you can find some real gems in strange places. But before you place your own wager, you want to make sure that you’re doing your due diligence.

My gut feeling tells me that the social media crowd didn’t do too much due diligence other than analyzing its short interest. Granted, on the settlement date of May 28, 2021, the days to cover for the bears is 3.2. That definitely shows that people are bearish on ORPH stock. But I’m not entirely sure this metric alone justifies sticking your neck out.

One of the main problems with the speculative side of biotech is that the space is littered with failures. I’m not suggesting that ORPH stock is doomed, not at all. But just like going to Vegas to gamble, you want to know what the odds are before you start playing with real money. It’s the same concept here.

Also, there’s another wrinkle with ORPH stock that prospective buyers should consider. It’s not just a biotech firm but one that focuses on rare diseases. As Biospace.com reported, Orphazyme’s heat shock protein response treatment received orphan drug designation (ODD) for NPC. In short, such a designation grants a drug special status.

This status is needed to make rare disease treatments — and research and development of said solutions — economically viable. With a small patient base, it would otherwise be prohibitive for biotech firms to even get involved in the first place.

However, limited research into this space suggests that orphan drug pricing could still be prohibitive to the end-user. Therefore, even a clinical win isn’t necessarily a holistic one.

You Just Don’t Know

Again, please don’t misread this — I’m not trying to dissuade you from buying ORPH stock. Instead, you should just do your research to determine if this is the right investment for you.

Absolutely, I can understand the appeal of something like Orphazyme. This is one of those plays that you could put in a few thousand bucks and come out with a six-digit figure. But the opposite is also true. Over the last few years, I’ve covered several risky biotechs and it’s really a crapshoot.

To spare you the time writing an angry email, I’ve had criticisms directed against me that resolutely stated that my opinion was wrong. Yet in many cases, those stocks went onto crumble.

I have zero clue what ORPH is going to do next. Personally, I’m staying out of this trade because of the unpredictability risk. But if you want to participate, don’t let me stop you. Just be aware of why you’re doing it before you pull the trigger.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

Article printed from InvestorPlace Media, https://investorplace.com/2021/06/orph-stock-assess-biotech-hazards-before-buying/.

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