AVEO Declines: Why Bulls Aren’t Concerned

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AVEO Pharmaceuticals, Inc. (NASDAQ: AVEO)

AVEO had an incredible day in the market yesterday. However, today, the story seems to have changed. Unfortunately the stock is down by nearly 5%. Nonetheless, if you’re an AVEO bull, chances are that you’re not concerned in the least. Today, we’ll talk about what caused the stock to climb yesterday, why bulls aren’t concerned about declines today, and what we can expect to see moving forward. So, let’s get right to it.

What Caused AVEO To Climb Yesterday

Yesterday, AVEO Pharmaceuticals announced that it had entered into an exclusive, worldwide licensing agreement with Novartis. The licensing agreement was centered around AVEO’s first-in-class, potent, humanized inhibitory antibody, known as AV-380. The antibody is designed to target growth differentiation factor 15. According to the licensing agreement, the relationship will start with an upfront payment to AVEO of $15 million; followed by milestone-based payments that could reach $311 million as well as low double digit royalties. Following the announcement of the deal, AVEO’s president, Michael Bailey had the following to say…

AV-380 holds great promise as a potential treatment for cachexia secondary to multiple disease states, including cancer, chronic kidney disease, congestive heart failure and chronic obstructive pulmonary disease… Novartis brings resources and expertise to bear on advancing this program, which we believe provides the optimal path forward…”

As a result of the news, AVEO climbed in a big way; gaining more than 50% by noon yesterday.

What We’re Seeing From AVEO Today

Unfortunately, AVEO isn’t having quite as strong of a day in the market today. As a matter of fact, we’re starting to see declines. Currently (12:53), AVEO is trading at $1.64 per share after a loss of 3.77% so far today. However, the bulls aren’t concerned. Instead, they see this as normal market movement. The reality is that price movements in the market, especially the biotech space, generally happen through a series of overreactions. Therefore, the massive gains that we saw yesterday pushed the price of the stock higher than it should have gone. So today, we’re seeing a slight correction; bringing AVEO down to a more sustainable rate before growth continues.

What To Expect Moving Forward

There’s no doubt that AVEO is a company that’s had its ups and downs. Nonetheless, the move made yesterday with Novartis is probably one of the strongest moves the company has ever made; and will likely lead to profit in the long run. Therefore, I’m expecting that after the correction comes to an end, we’re going to see slow and steady upward movement.

What Do You Think?

Where do you think AVEO is headed and why? Let us know in the comments below!

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