Amid a slow start to the new week, specialty drug developer RedHill Biopharma (NASDAQ:RDHL) dramatically enlivened the mood, skyrocketing over 180% during the early afternoon session. Catapulting sentiment was regulatory approval for Talicia, a therapeutic designed to target helicobacter pylori (H. pylori). Even more enticing, several hedge funds own RDHL stock, indicating possible sustained upside potential.
According to the accompanying press release, the U.S. Food and Drug Administration (FDA) granted a five-year market exclusivity for Talicia under the Generating Antibiotic Incentives Now (GAIN) Act Qualified Infectious Disease Product (QIDP) designation. Further, the document states that a broad intellectual property suite protects the therapeutic to 2034. RedHill Senior Vice President of Regulatory Affairs Patricia Anderson emphasized the importance of the announcement:
“Talicia is the only FDA-approved rifabutin-based therapy for the eradication of H. pylori. Its components and formulation are optimized to provide patients with the necessary medications for successful H. pylori eradication, an innovation rewarded by this market exclusivity and other IP, providing protection to 2034.”
Adding to sentiment for RDHL stock, the aforementioned grant is on top of the three years’ exclusivity, which came with the approval of Talicia, per a Seeking Alpha report.
A Relevance Shift May Shine a New Light on Risky RDHL Stock
While RDHL stock represents a massive winner on Monday, it can’t be ignored that the underlying enterprise is extraordinarily risky. Since the beginning of the year, shares have lost around 86% of their equity value. That alone should be enough to warrant extreme caution.
Still, the fundamental case for RDHL stock centers on the potential total addressable market. According to the Mayo Clinic, H. pylori is a form of bacterial infection in the stomach. Typically, this condition occurs in childhood. Moreover, H. pylori infection may be present in more than half the people in the world.
Under this context, it’s not surprising that several hedge funds appear willing to gamble on RDHL stock. Per data compiled by Whale Wisdom, the top five hedge funds based on increased change in shares are as follows:
- Armistice Capital, LLC acquired an additional 722,894 shares.
- Sabby Management, LLC acquired an additional 635,006 shares.
- Empery Asset Management, LP acquired an additional 147,653 shares.
- Gagnon Securities LLC acquired an additional 47,695 shares.
- Citadel Advisors LLC acquired an additional 40,050 shares.
In addition to the massive addressable market, a research paper published by the National Library of Medicine sheds light on Talicia’s possible social equity implications. “The prevalence of H. pylori infection varies widely by geographic area, age, race, ethnicity, and SES [socioeconomic status]. Rates appear to be higher in developing than in developed countries…” the paper stated in part.
Why It Matters
Presently, no analyst covers RDHL stock, per TipRanks. That may be due to the severe financial risks that RedHill faces. According to investment data aggregator Gurufocus, it identified nine red flags. That said, the aforementioned hedge funds appear to have bought RDHL at higher prices than where it currently stands. Therefore, the implication is that these alpha players will wait it out.
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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.
