Vion Plunges 60 Percent Following Tuesday's Jump

May.25.07 | About: Vion Pharma (VION)

On Tuesday, shares of Vion Pharmaceuticals (OTC:VION) traded up sharply on heavy volume with no news. That night Vion was placed on the BHI BioWatch Alert list to be tracked over the next two weeks.

Surprisingly, the very next morning, Wednesday, Vion sent out a press release saying that it will:

suspend enrollment and further patient treatment in its Phase III clinical study of Cloretazine® (VNP40101M) for patients with relapsed adult myelogenous leukemia [AML] pending a detailed review of all of the data from the trial. This decision was based on the recommendation of the trial's independent Data Safety Monitoring Board [DSMB] after a planned interim analysis.

Shares promptly sold off in pre-market action to the tune of a 60% decline in price.

Stocks on the BHI BioWatch Alert list have generally done well, with the first five stocks averaging a high of 17% within two weeks. Only Provectus (NYSEMKT:PVCT) was a loss. The purpose of the watch list is to catch stocks right before a major move, hopefully a positive move!

So here's my question; how could a stock, that traded up more than 6% on almost five times the 3-month daily average volume, and finished only 12% away from the 52-week high, come up with a devastating news release the next day and plunge more than 60%?

Whatever the answer may be, this event will reinforce the notion that investing in small biotechs for short term gains will always be a risky endeavor to say the least.