Why Ultragenyx Pharmaceutical Stock Is Cratering Today

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What happened

Shares of the rare disease specialist Ultragenyx Pharmaceutical (RARE -14.83%) are having a rough session Tuesday. Specifically, the biotech’s stock dropped by as much as 17% in early morning action. 

The company’s shares have rebounded to some degree since, but Ultragenyx’s stock was still down by a hefty 13% as of 11:30 a.m. ET. 

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So what

What’s sparking today’s sell-off? Yesterday, Ultragenyx announced that it would exercise its option to acquire GeneTx Biotherapeutics for an up-front cash payment of $75 million, plus another $115 million in potential milestone-dependent payments. Through this acquisition, the biotech will add the antisense oligonucleotide therapy GTX-102 to its broad pipeline of therapies indicated for various rare diseases.

GTX-102 is currently in early-stage development for Angelman syndrome, a rare neurogenetic disorder caused by loss of function of the maternally inherited UBE3A gene. The problem — at least from the market’s perspective — is the fact that early-stage drugs are inherently risky. Stated simply, this moody market clearly would have preferred the company hold onto this cash, rather than attempt to create long-term value for shareholders.  

Now what

Investors, however, may be overreacting to this news. At present, there are no Food and Drug Administration-approved therapies for Angelman syndrome. GTX-102, therefore, could turn out to be a major revenue generator for the company within a few short years. As a result, aggressive investors might want to take advantage of today’s double-digit dip.

George Budwell 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.