Biotech firm Equillium loses third of market value in a day after Ono no-go

Equillium, a biotech company developing treatments for severe autoimmune diseases, saw its stock price plummet almost 38% on Thursday, October 31. The sharp drop followed news that Japan’s Ono Pharmaceutical had opted not to exercise its option to purchase rights to Equillium’s experimental drug for organ transplant rejection. In early trading today, Friday, November 1, Equillium shares continued to slide, down another 2.5% as of this writing.

Details 

On Thursday, Equillium stock lost almost 38% on the Nasdaq to close at $0.87 per share. It is still up about 20% since the beginning of the year and 62% over the last 12 months.

The steep losses on Thursday followed an announcement by Equillium that Ono Pharmaceutical had chosen not to acquire rights to itolizumab, a drug the companies had been jointly developing since 2022. Equillium is studying itolizumab to treat two conditions: transplant rejection (known as graft-versus-host disease) and ulcerative colitis, an autoimmune disease affecting the large intestine. The collaboration with Ono focused on the former.

In the summer, Equillium reported positive interim trial data, which gave Ono the opportunity to review the results and purchase rights to itolizumab for JPY5 billion (approximately $33 million). The deadline was the end of October, and Ono ultimately opted to let the option expire, leaving the rights to itolizumab with Equillium.

What it means for investors

According to Equillium, Ono’s decision was based on strategic considerations rather than trial data. Nevertheless, Freedom Finance Global junior analyst Aydin Seitzhapbar noted that this may signal that the drug’s development did not meet expectations.

“Even if a drugmaker says a partner’s decision is unrelated to trial results, investors may question the product’s attractiveness, since a major partner initially saw potential but later changed its mind,” Seitzhapbar explained.

He added that a partner’s thumbs-down does not necessarily spell failure for a smaller company. Often, the firm continues developing the drug and may attract new investors or partners if it can demonstrate strong results in later trials.

Equillium is currently testing itolizumab for transplant rejection in phase III clinical trials, with 150 patients enrolled. Further enrollment has been paused while the company “reviews clinical options for the program.”

Seitzhapbar highlights similar past cases:

• In 2018, AstraZeneca decided not to exercise its option on R835, a drug by Rigel Pharmaceuticals for autoimmune diseases. Rigel continued development on its own and later found a new partner for its other projects.

• In 2023, Sangamo Therapeutics lost two major partners: Novartis and Biogen, both of which cited shifts in strategic focus. Sangamo carried on development despite the withdrawals.

• In 2021, Merck ended its partnership with NGM Biopharmaceuticals, opting not to renew development rights for therapies targeting nonalcoholic steatohepatitis (NASH). Although the market saw Merck’s withdrawal as a negative signal, NGM pressed on with its research and eventually found other partners.

Analyst insights

According to MarketWatch, the three analysts covering Equillium have a “buy” recommendation, with an average target price of $5 per share. This suggests nearly 500% upside versus the last closing price.