Denmark-based late-stage biopharmaceutical company Orphazyme (NASDAQ:ORPH) is tiny, but has been getting lots of attention lately. That’s because ORPH stock is making some outsized moves, and traders want to know what’s going on.

As InvestorPlace contributor Chris MacDonald explains, Orphazyme seeks to pioneer a heat-shock protein response for the treatment of neurodegenerative orphan diseases.

It’s an all-or nothing gamble, as Orphazyme’s profitability largely depends on the company’s leading drug candidate, arimoclomol.

As we’ll see, not all of the news surrounding arimoclomol is positive. However, Orphazyme’s investors are surprisingly resilient – and a redirected focus could catalyze a turnaround for this little biotech firm.

A Big Jump in ORPH Stock

For much of the first half of 2021, ORPH stock stayed under the radar among the trading community. Typically, it traded near the $5 level.

Then came June 10, and an unbelievable event took place: Orphazyme shares suddenly shot up to a 52-week high of $77.77.

Yes, you read that number correctly. Unfortunately for some ill-timed traders, however, the exciting rally quickly devolved into a meltdown.

The very next day, ORPH stock sank to $9 and change. By June 22, it was barely above $6. It will open this morning at about $7.35.

This is a textbook lesson in what can happen when we chase after vertical stock moves. The result can be disastrous.

So, what the heck happened to cause the Orphazyme share price to leap above $77? The exact cause isn’t established, but there is a hypothesis worth exploring.

Apparently, some traders may have been speculating about an FDA extended review period for the company’s arimoclomol treatment, which was set to expire on June 17.

Arimoclomol is designed to treat of Niemann-Pick Disease Type C (NPC), a rare disease, and the drug remained under priority review designation by the FDA.

Learning the Hard Way

Hence, it’s possible that speculative investors were front-running what they thought would be an imminent favorable outcome concerning arimoclomol.

It’s also conceivable that Reddit users had an influence on the price action of ORPH stock.

But again, price chasers can get punished when they’re not careful. Buying on hype and hope, without concrete data, isn’t really a viable strategy.

I suppose that some people had to learn this the hard way. June 17 came and went, and then the next day, Orphazyme provided a much-anticipated update on arimoclomol for Niemann-Pick disease type C.

No doubt about it- the update wasn’t what the stakeholders wanted to hear.

Reportedly, the FDA had issued Orphazyme a Complete Response Letter requiring “additional data… to bolster confirmatory evidence beyond the single phase 2/3 clinical trial to support the benefit-risk assessment of the NDA [new drug application].”

Not the Final Chapter

Understandably, Orphazyme CEO Christophe Bourdon said that his company was “disheartened by the outcome of the FDA’s review.”

Still, this isn’t the final chapter in the ongoing story of arimoclomol.

Bourdon affirmed his company’s commitment to working with regulators, while also redirecting the focus outside of the U.S.

In particular, Bourdon asserted Orphazyme will pursue European regulatory approval, “with CHMP opinion expected in Q4 2021 and potential Marketing Authorization in Q1 2022.”

So, at least Orphazyme’s stakeholders have something to look forward to. Just as importantly, there’s hope for a turnaround on the horizon, even if the main event might not happen in North America

Along with that, ORPH stockholders should be glad to know that Bourdon expects his company to reduce its costs “substantially.”

For the time being, is appears that the shareholders haven’t capitulated. If they can hold their ground for a while longer, their patience and loyalty may be rewarded.

The Bottom Line

ORPH stock punished traders who bought on hype without seeking out hard data first.

Now that the share price has declined, informed investors can assess the damage and consider whether to stay the course with Orphazyme.

And hopefully, the company’s next chapter will include a positive update, and higher share prices.

On the date of publication, David Moadel 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.