Developer of alopecia treatment sees stock surge on news of inclusion in Russell Microcap

Shares of Equillium, a pharmaceutical company valued at $27.7 million, surged over 10% on Thursday, June 13, following the announcement of its upcoming inclusion in the Russell Microcap Index starting July 1.

Details

On Thursday, Equillium’s stock price increased by 10.5% on the Nasdaq, closing at $0.79 per share. However, in after-hours trading, the stock declined by 3.7%, and pre-market trading on Friday also indicated a slight decline of less than 1%.

On Tuesday, Equillium announced that it would be included in the Russell Microcap Index, which tracks 1,000 micro-cap companies. These companies collectively represent less than 2% of the US stock market, according to the Russell Microcap Index.

Why the index matters

Each May, FTSE Russell rebalances its indices, adding or removing companies. Initially, companies are included in the Russell 3000 and then allocated to sub-indices.

Joining the Russell Microcap Index can lead to the potential inclusion of a company’s stock in numerous fund portfolios, explained Equillium CEO Bruce Steel. When a company is added to any index, funds that track that index automatically purchase its shares. NASDAQ research indicates that inclusion in the Russell Index almost always results in new long-term investors in the company’s stock, thereby increasing liquidity and trading volume. Membership in the index lasts for one year.

Context

Steel believes that the inclusion in the index is partly due to recent trial results for Equillium’s alopecia areata treatment. This condition causes immune cells to attack hair follicles, causing hair loss. Earlier in June, Equillium reported positive phase two trial results for its treatment molecule. While the stock initially rose, it later dropped 28% as investors sold shares, trading 34 times the usual volume. Clinical trial data from Equillium and another company with an already approved treatment for the same condition suggest that while Equillium’s molecule works, it may not outperform existing treatments in terms of safety and efficacy.

Analyst insights

According to MarketWatch, four analysts are currently covering Equillium, and they all recommend buying the stock. The average price target is $6.75 per share, indicating a potential increase of 754% from the closing price on June 13.