Evolva share surge prompts head scratching

A quick look at Evolva’s share price performance last week in the wake of news of a discovery collaboration with Roche would certainly give the impression that a knock out deal had been announced; shares in the newly-listed company quadrupled in value giving it a chunky market value of SFr603m ($589m) by the end of the week.

However, the surge in the value of Evolva, which took over Arpida’s Swiss market listing last year, has prompted much head scratching amongst analysts and at the company itself. The Roche deal is certainly good news, but it is very early stage, and aside from this collaboration Evolva’s most advanced candidate is a phase I anti-thrombotic, none of which justifies the current valuation. It appears that technical factors were at work last week and the stock is likely to head back down to more realistic levels almost as quickly as it shot up.

Notable volumes

Evolva bought Arpida last year after the latter’s disappointing failure of antibiotic iclaprim, in a move largely aimed at achieving a market listing. This went through in December, creating a company with SFr49m in cash, 140 million shares outstanding, and with a market value of around SFr170m.

However, 120 million of those shares are subject to a lock-up period that does not expire until December this year, meaning there are only roughly 21 million shares freely tradable at the moment.

The volumes traded throughout last week roughly equal this entire free float, suggesting that every Evolva share that could change hands, did so. This sort of turnover in a stock that would normally be considered “illiquid” is very unusual, and suggests that there was more going on than just excitement over the Roche deal.

Short squeeze

Andrew Weiss, pharma analyst at Vontobel, believes that a short position created strong demand, which pushed the price up to SFr7.50 at one point. This means that an investor took a bet that Evolva shares would fall and borrowed stock from someone else to sell, hoping to be able to buy them back at a much lower price later on and pocket the difference as profit. When this investor needed to unwind this bet and tried to buy back the stock they had sold, lack of availability pushed Evolva stock sky high.

Paul Verbraeken, head of investor relations for Evolva, agrees that a short position may be the explanation. “We had some positive news, but this could not really explain the size of the reaction. There could be technical factors at work or limited supply,” he told EP Vantageearlier today.

Delivering on promises

Whatever the reason, the Evolva share price is now heading back to more reasonable levels. By the afternoon today the stock had dropped to SFr3.30, having closed last week at SFr4.34.

Swiss bank Vontobel, which advised Evolva on the merger with Arpida, valued the company at 87 cents at the time of the transaction, and it seems highly likely that in the coming days the shares will fall back towards that fundamental valuation.

At the core of that valuation lies Evolva’s proprietary technology platform, based on biosynthetic chemistry, which the company is using to create novel small molecule compounds. The flotation has provided enough cash to see three compounds though phase II proof-of-concept trials over the next two to three years: the anti-thrombotic EV-077, the anti-fungal EV-086 and anti-viral EV-075.

On top of that, Evolva has promised three discovery deals this year, the Roche collaboration being the first, seeking to create compounds with activity on targets in oncology and anti-infectives. As such, whilst last week’s share price might have been artificially created, if the company keeps delivering on its promises, more deserving gains could be on the way.

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