Headquartered in Copenhagen, Denmark, shares of relatively unknown biopharmaceutical company Orphazyme A/S (ORPH) soared to hit their $77.77 all-time high on June 10, 2021, on investors’ anticipation of FDA approval of the company’s lead pipeline candidate arimoclomol for the treatment for Niemann-Pick disease type C (NPC).

The rally was primarily a result of retail traders’ investments that were driven by enthusiasm surrounding the stock on social media platforms such as Reddit. However, the company issued a notice on June 11 that the surge in its stock price was not related to any material change in its clinical development programs or financial condition and further warned its shareholders that they could lose a significant portion of their investments.

Indeed, the stock has declined 90.6% since hitting its all-time high, and by 40.8% over the past three months to close Friday’s trading session at $7.33. The decline can be attributed to ORPH’s announcement on June 18 that it failed to receive U.S. Food and Drug Administration’s (FDA) approval for the treatment of NPC. Furthermore, Johnson & Johnson’s (JNJ) Zavesca is already approved to treat other lysosomal disorders, which could  pose a threat to ORPH. ORPH’s poor profitability is evident from its negative values for ROE and ROA. So, we think ORPH’s near-term prospects look bleak.

Click here to checkout our Healthcare Sector Report for 2021

Here are the factors that we think could influence ORPH’s performance in the upcoming months:

FDA Rejection

ORPH announced on June 18 that it has received a Complete Response Letter (CRL) from the FDA following its review of its new drug application for arimoclomol, which is a heat shock protein amplifier intended for the treatment of NPC. The FDA said that it would need additional qualitative and quantitative data. ORARIALS-01 pivotal trial of arimoclomol in amyotrophic lateral sclerosis (ALS) and its phase 2/3 trial evaluating arimoclomol for the treatment of inclusion body myositis (IBM) also did not meet its primary and secondary endpoints.

Consequently, the company lowered its guidance for its fiscal 2021. ORPH now anticipates its operating loss to come in between DKK 670 million ($106.85 million) and DKK 700 million ($111.63 million) in its fiscal year 2021. The loss was previously anticipated to be in the range of DKK 100 million ($15.95 million) and DKK 150 million ($23.92 million). Its cash position at year-end 2021 is expected to be roughly DKK 50 million ($7.97 million) compared to DKK 350 million ($55.82 million), which was expected earlier.

Ongoing Investigation

Several law firms, including Pomerantz LLP and Bronstein, Gewirtz & Grossman, LLC, have launched investigations against ORPH to identify whether the company and certain of its officers and/or directors are engaged in securities fraud or other unlawful business practices. ORPH completed its IPO in September 2020, and on May 7, 2021, it issued a press release that ORARIALS-01 pivotal trial of arimoclomol in ALS did not meet its primary and secondary endpoints to show benefit in people living with ALS.

Lofty Valuation Not in Sync with Financials

In terms of forward EV/S, ORPH’s 13.70x is 99.1% higher than the 6.88x industry average. The stock’s 20.60x forward P/S  is also higher than the 7.71x industry average. However, ORPH’s operating loss increased 81.1% year-over-year to DKK 608.53 million ($97.05 million) for the fiscal year ended December 31, 2020. Its net loss for the year increased 87.6% year-over-year to DKK 633.25 million ($100.99 million).

Consensus Price Target Indicates Downside

ORPH is currently trading at $7.33 and Wall Street analysts expect the stock to hit $5 in the near term, which indicates a potential 31.8% decline.

Bottom Line

ORPH’s stock is currently trading 90.6% below its all-time high and it is  expected to decline further given the U.S. FDA’s rejection of its lead candidate arimoclomol. Analysts expect its EPS to remain negative in fiscal 2021 and 2022. So, we think the stock is best avoided now.

Click here to checkout our Healthcare Sector Report for 2021

ORPH shares fell $7.33 (-100.00%) in premarket trading Monday. Year-to-date, ORPH has declined -31.69%, versus a 11.34% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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