Aralez Pharmaceuticals Inc (NASDAQ:ARLZ) is a strong end of the week runner in the biotechnology space this week.
The company just ran close to 35% on no real regulatory or developmental updates and volume, coupled with pre-market activity on Friday, suggests we’re going to see a continuation of this strength as we move into the final session of the week.
So what’s behind the move and what’s next?
In other words, is this the start of something bigger that anyone who missed the initial run can take advantage of?
We think the answer could be yes.
As mentioned, there’s nothing immediately obvious as potentially driving the action but a few things that have hit press over the last couple of weeks have conspired to potentially serve up some logical reasoning behind what’s going on.
This week, analysts at Chardan Capital reiterated a buy rating for Aralez with a price target of $10 a share. That’s a considerable upside on the company’s current price at just shy of $2 a piece and – on its own – would likely be enough to get the stock moving. Whether it’s worth an extra third in market capitalization, however, is up for debate. We don’t think that it is, at least not on its own. It’s great to have the opinion based support of analysts but analysts have been wrong in the past and they’ll be wrong again.
So what else is in play?
Well, there’s an article that just hit press over at Seeking Alpha, available here. This is from a guy that’s been long Aralez for some time and the article basically reiterates a buy thesis for the company on a medium to long-term timeframe, with the thesis rooted in a range of expected increases in sales volume for the company’s lead portfolio assets (which mainly comprises pain management and cardiovascular-related drugs).
When an article hits press on Seeking Alpha, and especially one that’s bullish and rooted in a company at this end of the biotechnology space, it has the potential to move markets. Combine this with the expectations of the above mentioned Chardan for a $10 share price and we’re starting to get an idea why the stock is heading into the final session of this week at a 35% premium to its market cap at the start of play Monday just gone.
There’s one more thing that we think is in play here.
Aralez is set to put out third quarter 2017 financials on November 9, 2017. The company will also hold a conference call (as is pretty standard) to discuss the results and serve up some insight into ongoing and expected future operations immediately subsequent to the numbers hitting press.
We think that the recent action is representative of markets loading up on the company ahead of the numbers and the conference call. Why? Because there are some key metrics that could reinforce both the above-mentioned analysis and the Chartan target if they hit press in line with expectations.
Specifically, we’re looking for the company to confirm its guidance that it will generate $80 million to $100 million in annual sales during 2017, with estimated EBIDTA between ($5 million) to $5 million during the third quarter of this year.
We’d also like to see management confirm that expectations for a ramp up in sales near term across the primary asset portfolio are sound.
This is a bit of a risky play right now, don’t forget that. If the numbers disappoint, we’re going to see the stock give back much of the recent gains. With that said, there’s enough reward on offer here to mitigate some of this risk on a punt for anyone that’s willing to take it.
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Disclosure: We have no position in ARLZ and have not been compensated for this article.