Here’s Why ArQule Inc. Rose as Much as 20.1% Today

What happened

Shares of ArQule (NASDAQ: ARQL) rose over 20% today after the company announced second-quarter 2018 earnings. As a clinical-stage biopharma, there’s not much to report on the income statement. There are no commercialized drugs to generate product revenue, after all.

But the business received a boost during the quarter from a recent partnership deal that provided an upfront payment of about $14 million. That more than covered R&D expenses and corporate overhead, allowing the small-cap biopharma to report net income of $5.1 million.

As of 12:59 p.m. EDT, the stock had settled to a 13.1% gain.

Image source: Getty Images.

So what

Biopharma development is a risky and expensive endeavor, so the surprise profit for the quarter is great to see for a clinical-stage company. It sure beats the usual onslaught of losses. That said, although ArQule conquered the second quarter of 2018, the results will be temporary. The collaboration revenue was part of a one-time payment. Moreover, management said it expects the business to report a net loss of $10 million to $14 million for the full year of operations.

Then again, that’s par for the course. Investors are more excited about the potential of the company’s early-stage pipeline, which has demonstrated flashes of potential in recent months. Following a recent stock offering, management expects to end 2018 with at least $100 million in cash and marketable securities. That should carry development activities for more than a few quarters.

Now what

ArQule stock has gained 238% year to date on numerous positive updates from the pipeline, partnerships, and balance sheet. That has put the now-$500 million biopharma on investors’ radars. Yet, while the company is navigating early-stage life spectacularly well, it’s important to remember that clinical-stage biopharmas are accompanied by above-average risk profiles. For the company to earn its market cap — and keep trekking higher — its drug candidates have to reproduce impressive results in larger trials.

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Maxx Chatsko 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.

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