How Often Does a Failed Biotech Trade Down To Cash? - A Marinus $MRNS Case Study

Today, Marinus Pharmaceuticals $MRNS gapped down 60% on a failed drug study for their drug ganaxolone for postpartum depression in women.

After the results came out that there was no difference between this drug and placebo, the stock crashed and then continued to trade down.  Here's the chart.

MRNS Intraday After the Stock Crashes on Drug Failure

When compared to the previous day, it doesn't appear that the stock had much range during today's session.  But in fact, it actually traded between $1.43 and $1.18 which is a 17% difference.  That is still quite a range for the interested trader to take advantage of.

It turns out that $MRNS has about $1.14/share of cash in the bank, which could be one reason why the stock traded down very close to this level.

Hey Piggie, How Much Cash You Got?

If a biotech's drug fails, then the only assets it has left are cash in the bank.  Worst case is they could close the entire business and return the cash to shareholders, so theoretically, the cash in the bank should be the floor at which the stock should trade after a lead-drug failed study.  Many times, the stock trades down to this cash level.

Let's look at some more examples.

Here's Acer Pharmaceuticals on June 25th when the stock gapped down 70% on a FDA rejection for its drug Edsivo for the treatment of vascular Ehlers-Danlos syndrome.  Investors agreed that the company would likely not have a path forward after this rejection.

$ACER Intraday Chart After the Stock Crashes on FDA Rejection

$ACER had $3.18/share of cash in the bank.  It took an additional 16 trading days, but the stock did eventually fall all the way to $3.18 after this event.

Finally, here's InflaRx, who failed their Phase 2b study for their drug IFX-1 in patients suffering from moderate to severe hidradenitis suppurativa, a chronic inflammatory skin disease.  The stock gapped down initially 70% to $6.20 (where we talked about it on the Behind The Bid Premarket Show at 8:20am ET), opened down 80% at $4.50 and closed down 90% at $3!  What a massive run to the downside.

Guess how much cash $IFRX has in the bank?  $1.96/share says

$IFRX Intraday Chart After the Stock Crashes on Drug Results

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