Why Kala Pharmaceuticals Stock Sank Today

What happened

Shares of Kala Pharmaceuticals (NASDAQ: KALA) were sinking 17.4% as of 3:30 p.m. EDT on Tuesday. The big drop came after the drugmaker announced FDA approval of Eysuvis for the short-term treatment of dry eye disease.

So what

Aren’t biotech stocks supposed to go up when they win FDA approval for a drug? That’s what usually happens, but not this time.

Image source: Getty Images.

The old adage of “buy the rumor, sell the news” sometimes can cause a stock to fall on a positive development such as regulatory approval. However, that’s not the reason why Kala’s shares fell today. The stock has trended downward most of October as well as over the last few months.

That leaves one logical reason for the sharp decline today: Some investors aren’t confident about Kala’s prospects and decided to sell on FDA approval of Eysuvis. However, Kala thinks that the drug could be a winner. CEO Mark Iwicki stated that the FDA approval of Eysuvis is “an important moment for patients, who have been waiting for an FDA-approved, safe, effective and fast-acting therapy.” Eysuvis is the first FDA-approved therapy that specifically targets the short-term treatment of dry eye disease.

Now what

Kala is ramping up its sales team for a planned U.S. launch of Eysuvis by the end of 2020. The company reported a cash stockpile of $159.1 million (including cash, cash equivalents, and short-term investments) as of Sept. 30, 2020. It thinks that amount, combined with sales from Inveltys (Kala’s already-approved drug used to treat pain and inflammation after eye surgeries) will be enough to fund operations through the third quarter of 2022. Sales from Eysuvis could extend the company’s cash runway even further.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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