Outlook Therapeutics Inc OTLK shares have been rallying strongly since Thursday, gaining more than 150 percent over two trading sessions.
The shares had been flatlining around $1 for much of the past year, frequently violating the Nasdaq listing standards pertaining to the minimum $1 per share bid price requirement.
The Reverse Split
Outlook Therapeutics — previously known as Oncobiologics — announced board approval for a 1-for-8 reverse stock split that took effect March 18. This essentially reduced the number of outstanding shares from 94.1 million to 11.8 million.
Although the stock rallied to an intraday high of $8.80 following the reverse split, it gradually gave back its gains and was trading back in familiar territory around $1 by May 13.
Strong Move On Startling Volumes
After closing at 91 cents May 15, Outlook shares gap opened Thursday and traded in a $1.15-$1.77 range before ending the session over 68-percent higher at $1.53. The volume was above average, with 51.36 million shares exchanging hands compared to the average three-month volume of 1.39 million.
The catalyst that drove the stock higher was an initiation by Oppenheimer, which started the shares with an Outperform rating and a $12 price target, suggesting roughly 1,200-percent upside from Wednesday's closing price.
The momentum carried into Friday's session, with the stock taking off at the open and moving in the $1.75-$2.72 range, once again on a heavy volume of 56.1 million.
Is the upward move backed by fundamentals?
Single-Product Pipeline
Outlook's lead and only product candidate ONS-5010 is a proprietary formulation of bevacizumab, an anti-VEGF — or vascular endothelial growth factor — recombinant humanized monoclonal antibody. It inhibits the VEGF receptor from binding and prevents the growth and maintenance of tumor blood vessels.
ONS-5010 is administered as an intravitreal injection. It is being investigated for wet age-related macular degeneration, or AMD, and other retinal diseases.
The FDA recently activated its investigational new drug application, or IND. Subsequently, the company said it will begin enrolling patients with wet AMD in the U.S. portion of the Phase 3 trial in the second quarter of 2019.
A Phase 3 study is underway in Australia and New Zealand for the same indication.
"We remain on track with our plan to submit ONS-5010 for regulatory approval in multiple markets in 2020," Outlook CEO Lawrence Kenyon said in an April 1 news release.
The primary outcome for the study is a statistically significant improvement in mean visual activity of five letters or more for ONS-5010 over the Roche Holdings AG Basel ADR RHHBY's Genetech unit's Lucentis.
Is A Short Squeeze In Play?
Is the unusual spike the handiwork of short sellers who are squaring up their positions?
Out of the float, or freely tradable shares, of 4.9 million, 11.08 percent — 540,000 — are shorted, according to Shortsqueeze.com. This suggests that about 11 percent of shareholders have a bearish bet on the stock.
The short interest ratio, or the number of days required to cover the short position based on the volume, a half-day.
Although these metrics do not set off any alarm bells, the short percentage has increased by a factor of about five times from the previous month.
The rally could also be tied to short sellers scrambling to close their positions and cut their losses as the stock began climbing.
For now, caution could be the watchword for investors considering an entry into this volatile stock.
Outlook shares were trading higher by 45.1 percent at $2.22 at the time of publication Friday.
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