KaloBios (NASDAQ: KBIO) is a clinical stage pharmaceutical company with a number of products in the pipeline. However, the events of the last two weeks can only remind us of how clinical stage companies work, and how they might fail. The recent events also beg us to ask the question of where to go with the KaloBios stock from here. It all depends on your stake in the company, and your appetite for risk.
What occurred in the last few weeks was a slowly climbing share price on the report on one of the clinical studies the company was doing for KB003. It was the most advanced drug in the company and the one closest to market, however, the results were disappointing and the share price has fallen by more than 40% in three days. That's to be expected as future cash flow has been delayed, diminished, and shows how the company has lost much of its potential. Now KBIO had a lagging share price anyway, but its decent rally and catastrophic collapse teach us two lessons. Clinical stage pharmaceutical companies are incredibly risky and should only take up a small amount of any portfolio. That goes for all pharmaceutical companies, especially the dozens of recent IPO's in the field. While some may be pure gold, others are not so spectacular. So that should be a well-known before investing, given the scientific, regulatory, and advertisement hurdles they have. However, the question now is, what to do with KaloBios stock?
The easiest answer for a current investor now is to give up, dump the stock and absorb the loss. That may be practical for the mental sanity of some investors given the level of risk, however, for me, my stake in the company is relatively low, and given its fall in share price and still extensive product pipeline, I believe I may be able to recuperate part of losses faster than if I were to exit the stock and invest elsewhere, not to mention the opportunity cost of researching other equities. The mentality needed now for investors in this stock is that it will be a laggard compared to the market unless it pulls off a miracle with one of its other products. Until then you can expect a small recovery in the stock cost and a continued emphasis on the Humaneered technology platform by the company.
My strategy for this stock is to ride a small recovery in the share price and then re-evaluate my position. Hopefully the stock will rebound modestly and then have some good news about its other clinical trials. My advice to other is that if you want to buy, consider this stock a very high risk, modest return stock. However if you already own it you may as well hope to recover some of your losses.
Disclosure: I am long KBIO.
Additional disclosure: I currently own 250 shares of Kalobios stock and do not plan to buy or sell any stocks or financial instruments regarding KaloBios stock within 72 hours. I also am not receiving any financial compensation from any entity for this post