It’s a good question Ziebes1. The market is forward looking. So if good news is expected within days why is the share price in the toilet?
A good a place to start as any I think would be to ask what has the bookie (the market) is telling us about the odds of approval.
Assume a share price of 120c. Posit ballpark downside / upside estimates. Lets say at a current price of 120c we predict the share price will go to 80c for rejection and 350c for approval.
So risk 40c and reward 230c. Gives you risk reward of 1:6 for an implied probability of success of 15%.
Pretty dismal but for someone who thinks the true probability of success is 70%+ it’s a once in a lifetime opportunity. Even for Whytee’s coin toss of 50:50 implying a 50% chance of approval it’s a very good bet. This is because using the numbers above with a probability of approval of 70% the share price should be around 270c. 120c is a bargain.
Try the risk reward numbers from that world leading analyst - Lopez.
Share price 120. Downside 50c Upside 250c. So risk 70c and reward 130c. Or 1:2 for an implied probability of success of 35%.
But how do we get to the 72% chance of success that he imagines the insto’s are apparently working from?
Share price 193c. Downside 50c. Upside 250c. So risk 143c reward 57c for 5:2 – 72%.
So the argument is that the market has got it very wrong - the share price should be 193c.
It’s a nonsense. The institutions who supposedly believe in the 72% chance of approval are not buying up to 193c. And neither are there enough delusional retail shareholders on Hot Copper to get the share price up to the level that pops out from their silly probability of success estimate.
So what gives ... it is a bit of a conundrum.
Conundrums call for changing tack. My hunch here is that we are heading for an anti-climax.
The outcome I see most likely is that the FDA approves the potency assays and CMC issues. SI also successfully walks the FDA back from their at least one rct position. The next step (agreed with the FDA) is an adult / child propensity score matching gvhd study with the understanding that positive results may lead to approval.
SI can sell this as a win. This type of trial is quicker, easier and cheaper compared to one or more rcts. And arguably more ethical. And with success the prize is also potentially bigger – approval for adults and children.
But what is gained from a propensity scored trial that hasn’t already been achieved from the propensity scored survival analyses that MSB has performed of previous data from the single arm trial and EAP program?
These analyses were post-hoc and correlational. They do nothing to tip the scales of the totality of negative evidence generated from the previous failed rcts of the product across many indications.
A new propensity scored study would be prospective and if done properly (meaning the design agreed with the FDA) can potentially generate causal inferences approximating in strength those from a rct and therefore move the needle on the totality of evidence problem – which is at the heart of the FDA rejection of the original application.
On this scenario there would be little price movement following the decision because the share price will have already got to where it should be; around the 100c – 120c mark; confirming our notions that the market is forward looking.
(20min delay)