סמינר במימון חשבונאות

Speaker:            Tiran Rothman

Abstract

In the summer of 2012, the FDA approved a pioneering drug for obesity, developed by Arena Pharmaceuticals (NASDAQ: ARNA). ARNA’s stock price increased gradually in the preceding three months, from $2 to $11 on approval day. However, one month after FDA approval, Arena’s stock price had declined by more than 30%, to $7. What went wrong? Why did ARNA’s stock price decrease after the ‘good news’ dissemination? Was this a specific case of ARNA, or did it reflect a general, intriguing, phenomenon?

To answer, we have collected a sample of FDA resolutions over a period from 2006 to 2014, consisting of 133 cases, 73 of which were approvals and the rest 60 were non-approvals.

Our findings bring about an interesting picture of price adjustments following the FDA announcements. In the cases where the FDA has not approved the drug application, as well as in the cases of approval, stock prices tended to decline after the announcement. The price decline after non-approvals was rapid (within a few days), while in the case of approvals it took longer (aprox. 30 trading days); the latter is especially puzzling as, ostensibly, it stands at odds with the nature of the released information.