Edgewise Therapeutics (NASDAQ: EWTX) is up 50% in a single session and 450% from recent lows for a reason. Its novel, oral, selective treatment for obstructive hypertrophic cardiomyopathy did remarkably well in early trials. The news is important because hypertrophic cardiomyopathy or HCM for short, is the leading cause of sudden cardiac-related death in people under 35.
HCM is a genetic disease causing thickening in the heart muscle, an industry worth more than $1.25 billion today and growing. There are no current treatments of this caliber, with doctors relying heavily on beta-blockers and lifestyle changes. If approved, it will rocket this company from obscurity into the ranks of blockbuster treatments like GLP-1 blockers, which are revolutionizing weight control.
“There continues to be an unmet need for patients with obstructive and non-obstructive HCM, and we are excited to be part of the ongoing CIRRUS-HCM trial evaluating a novel treatment,” commented Anjali T. Owens, M.D., Medical Director, Center for Inherited Cardiac Disease, Associate Professor of Medicine, University of Pennsylvania and CIRRUS-HCM Investigator.
Sell-Side Interest Points to Higher Prices for Edgewise Therapeutics
After years of wallowing, Edgewise Therapeutics's share price action began to perk up this year as the news stream turned positive and sell-side interest was reinvigorated. The trend of price target reductions ended, and now the revisions are leading the market higher.
The consensus estimate reported by Marketbeat.com assumes at least a 15% upside from the $28 level, but revisions lead to the high-end range. Wedbush is among the few issuing revisions immediately after the news was released, raising its target by 42% to $44 and just shy of the high of $48. That was set by Piper Sandler earlier this year and implies a 70% upside is possible for this healthcare stock within the next twelve months.
Institutional activity is also bullish for this market. The institutional activity is robustly in favor of higher prices, surging to a record in Q2 and sustaining a solid pace in Q3. The takeaway is that institutions, private equity, and venture capital own about 90% of this stock and insiders another 4.5%, showing a high conviction in their support.
Short-Squeeze in Edgewise Therapeutics Means Volatility Ahead
Short interest is a factor in the share price surge. The short interest was nearly 15% in the last report and sufficient for a squeeze. Because EDG-700 is still in early trials and far from approval, the company is far from revenue and profits, and the short-sellers will likely reposition at a higher level and weigh on the market over the next few quarters. The good news is that volatility and short-sellers mean the share price will likely decline to retest for solid support. In that scenario, the stock could retreat to the $22 level or lower, opening a more attractive entry for investors.
Edgewise is Not a One-Trick Pony
Edgewise Therapeutics has an attractive, if small, pipeline of candidates in early stage 1 and stage 2 trials. They target individuals with Duchenne and Becker muscular dystrophy and have shown positive results to date. The next batch of results from these tests is expected in Q4 of this year and may provide another catalyst for the market. Regarding operations, the company reports losses due to its research and lack of revenue, but the losses are manageable, given the balance sheet. The company has over half a billion in cash, sufficient to sustain operations at recent levels for over 15 quarters.
The price chart of EWTX looks good. The market is recovering from its post-IPO blahs and appears to be in a full reversal. The price action is supported by increasingly high volume, so it has a high probability of continuing its advance. However, Investors should expect resistance to cap gains near the all-time highs until further developments are announced.
