On Dec. 13, something unusual happened with Corixa stock. The stock of the small Seattle biotech company is usually quiet on the Nasdaq, but more than 1 million shares changed...
On Dec. 13, something unusual happened with Corixa stock.
The stock of the small Seattle biotech company is usually quiet on the Nasdaq, but more than 1 million shares changed hands that day. It was triple the average daily volume and the second-busiest day of the past eight months.
After trading closed for the day, Corixa released some unexpected bad news: It was unloading its money-losing cancer drug Bexxar and slashing 160 jobs to cut its losses.
The next day, as the market absorbed the news, Corixa stock lost 13 percent on even heavier trading volumes.
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The unexplained surge in trading Dec. 13 is the sort of thing that “happens all the time” in the biotech industry, said David Miller, president of Biotech Monthly, a Seattle-based newsletter. Still, he said, it appears “somebody knew something they shouldn’t have.”
Securities and Exchange Commission records show no Corixa executives bought or sold any stock in the past year. Spokesmen for the SEC and the National Association of Securities Dealers (NASD), according to policy, would not comment on the trading pattern.
Corixa Chief Executive Steve Gillis said his company has not been contacted by regulators about the increased trading before the news. He said Corixa on Dec. 13 actually gave the NASD a courtesy heads-up earlier in the day that significant news was coming, as it sometimes does, so that the NASD could monitor the stock.
Gillis said employees were not told the news until after markets closed. The increase in trading didn’t concern him, he said.
“It could have been one trade by one institution who decided to get in and out in one day,” Gillis said.
If it turns out some investors traded illegally on nonpublic information, it wouldn’t be the first time for the biotechnology industry. The ImClone Systems case, in which Martha Stewart sold her shares based on a tip that bad news was on the way, is the best-known example.
Biotechnology by nature is a volatile business, where investors regularly speculate on which way a small stock will swing around pivotal future events, such as whether the Food and Drug Administration will approve a new drug for sale.
But the surge in Corixa trading was unusual. The company had no scheduled earnings report or regulatory meeting that week that might have caused investors to speculate.
One of Corixa’s partners, Amersham Health, relinquished its European rights to market the Corixa drug Dec. 10, according to a company filing with the SEC. Corixa combined the announcement of Amersham’s decision with the other news after the market closed Dec. 13.
Besides the surge in stock-trading volume, 65 options contracts for Corixa were traded Dec. 13, after little activity in previous weeks, according to Bloomberg financial records. The options contracts represent the right to buy 100 shares.
Paul Latta, an analyst with McAdams Wright Ragen, agreed it’s common to see trading surge on rumors before news, especially in small biotech stocks. He added it is hard to find the source of an advance tip, because in almost any deal, “there are always lots of mouths and ears involved.”
Latta said it wasn’t a sure thing Corixa stock would fall the day after the news. Although some interpreted the announcement as a body blow to the company, Latta said some investors saw it as a positive, because Corixa shed some expensive baggage and could focus on more promising research and development.
Scott Greenburg, a corporate finance partner with Wilson Sonsini Goodrich & Rosati, said the unusual options trading could be a concern, because it not only represents an investor’s belief a stock will move a certain way, but that it will move within a certain period of time.
“That is without a doubt, a red flag,” Greenburg said. “Most of the time, trading is innocent, but sometimes where there’s smoke, there’s fire. This is the kind of example that makes [regulators] pay attention.”
Luke Timmerman: 206-515-5644 or firstname.lastname@example.org