Shares of Ardelyx (NASDAQ:ARDX) are doing Tuesday morning what biotech stocks usually do in reaction to bad news. In this case, ARDX stock is off by more than 70% at the market open.
That bad news? It’s a July 13 letter from the Food and Drug Administration (FDA) regarding the company’s New Drug Application (NDA) for tenapanor. The product is a treatment for controlling serum phosphorus in adult dialysis patients with chronic kidney disease (CKD).
Ardelyx said in a press release that the FDA found deficiencies in the NDA that preclude discussion around the would-be labeling and post-marketing requirements for tenapanor. What is more significant is that the agency said it detected issues with both the size and clinical relevance of the drug’s treatment effect.
The selloff this morning signals that investors aren’t waiting around for watchdogs to issue a final decision on the NDA by July 29.
ARDX Stock Is Not for the Faint of Heart
Ardelyx said it immediately requested a meeting to discuss the deficiencies but was notified by the FDA that its request for a meeting was denied. Tenapanor was in Phase 3 clinical studies and widely expected to receive approval.
Biotech shares like ARDX stock are not for the faint of heart. Very few sectors offer the astounding profitability potential of biotech penny stocks. Though terribly risky, it’s the reason why people continue to flock to this market.
Mainly, this comes down to how few therapeutic solutions are approved by the Food and Drug Administration. To be fair, Forbes notes that the period between 2011 and 2018 saw the FDA approve 309 new drugs, which is an average of more than 38 per year. That’s the highest sustained productivity in the modern era. However, it’s also fair to point out that there are many contenders, particularly biotech penny stocks, that have evaporated during this time.
And just as certain as bad news for a biotech leading to a stock-price drop, litigation is usually not far behind. Reacting to the news of the FDA letter, shareholder-rights law firm Johnson Fistel is out this morning with an announcement it’s investigating potential violations of the federal securities laws by Ardelyx. More to come, no doubt.
On the date of publication, Robert Lakin 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.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, including previous stints with Bloomberg News and as a buyside equity research editor. His Substack newsletter, TLV Strategist, covers the Israel business scene.