Kala Pharmaceuticals’ stock price went bonkers on Wednesday as investors cheered the company’s progress with the Food and Drug Administration (FDA). The KALA share price surged by more than 218% in the regular session and by another 30% in extended hours. Despite the pop, the shares are down by over 79% in the past 12 months, giving it a market cap of just $18 million.
Why did KALA shares jump?
Kala Pharmaceuticals is a tiny clinical-stage biotech company that is developing drugs for rare eye diseases. The company does research, gets FDA approvals, and then sells its drugs to other large companies. In June 2022, the firm sold its commercial products to Alcon.
Companies like Kala Pharmaceuticals are high-risk and high-reward firms because the drug under development can fail or succeed. If it fails, then it means that the company has wasted millions of dollars in R&D.
Kala stock price popped after he company made a new announcement about its drug KPI-012. KPI-012 is a human mesenchymal stem cell secretome that is being designed to treat persistent corneal epithelial defect, commonly known as PCED. It is a rare disease that affects about 100k people in the United States.
The drug will also be tested for the treatment of Partial Limbal Stem Cell Deficiency and ocular manifestations pf Sjogren’s.
“We are now turning our focus to clinical execution. We are working closely with investigators to initiate our Phase 2b clinical trial of KPI-012 for PCED in the first quarter of 2023.”
The announcement came after the company announced a new fundraising round to fund its operations. The firm sold shares worth over $6 million. It closed its first tranche of the sale earlier this month and the second one this week. Further. The company said that an investor had agreed to buy preferred shares worth about $25 million.
Kala Pharmaceuticals stock forecast
The daily chart shows that the KALA stock price has been in a tight range in the past few days. For the year, the shares plunged from a high of $100 to below 5. The stock has now moved above the 50-day moving average after it went parabolic on Wednesday.
Therefore, I suspect that this enthusiasm will wane in the coming days. Historically, investors tend to overreact when positive and negative news come out. If this happens, the stock will likely return to its previous range of between $8 and $10. Besides, the company still has a long way to prove that its technology works.