Small Cap Arca Biopharma Inc (ABIO) Soars and Pulls Back: Now What? IBB & XBI

On Wednesday, small cap biotech Arca Biopharma Inc (NASDAQ: ABIO) surged 25.01% on good news about an Investigational New Drug (IND) application only to fall 8.33% on Thursday, meaning investors and traders alike need to take a closer look at both the stock and the history of the drug plus take a look at the performance of biotech benchmarks the iShares NASDAQ Biotechnology Index ETF (NASDAQ: IBB) and SPDR S&P Biotech ETF (NYSEARCA: XBI).

What is Arca Biopharma?

Small cap Arca Biopharma is dedicated to developing genetically-targeted therapies for cardiovascular diseases with the company's lead product candidate being GencaroTM (bucindolol hydrochloride), an investigational, pharmacologically unique beta-blocker and mild vasodilator that is being developed for the prevention of atrial fibrillation ("AF") in patients with heart failure and reduced left ventricular ejection fraction ("HFREF"). Arca Biopharma believes Gencaro has the potential to be the first genetically-targeted cardiovascular therapy. In addition, the company holds exclusive, worldwide rights to Gencaro, has been granted patents in the US and Europe for methods of treating various cardiovascular disorders with Gencaro and has collaborated with Medtronic, Inc (NYSE: MDT) on the Phase 2B portion of GENETIC-AF, the Company's Phase 2B/3 clinical trial evaluating Gencaro as a potential treatment for AF.

For benchmarking purposes, the iShares NASDAQ Biotechnology Index ETF tracks the Nasdaq Biotechnology Index through 119 holdings while the SPDR S&P Biotech ETF tracks the S&P Biotechnology Select Industry Index through 58 holdings.

What You Need to Know or Be Warned About Arca Biopharma

Small cap Arca Biopharma announced that its Gencaro Investigational New Drug (IND) application for atrial fibrillation has been accepted by the FDA and is now active. If the GENETIC-AF trial successfully confirms the atrial fibrillation data analysis from a prior Phase 3 clinical trial, Gencaro has the potential to be the first genetically targeted treatment for the prevention of AF. Then on Thursday, Arca Biopharma announced that Laboratory Corporation of America had submitted an Investigational Device Exemption (IDE) application to the FDA for a planned companion diagnostic test for Gencaro. Arca Biopharma and LabCorp have also developed a companion diagnostic test for Gencaro to identify patient genotypes based on genetic variations of the beta-1 cardiac receptor.

However, investors may have wanted to contain their excitement because before these announcements were made, a Forbes contributor wrote an article about the long history of Gencaro (bucindolol) whose origins date back to the early 1990s. Apparently, published 2001 results were lackluster, but some researchers remained convinced that bucindolol was worth salvaging – for something. So much is riding on the GENETIC-AF trial to decide (probably once and for all) whether Gencaro will pay off for the company and for investors.

With that in mind, it should be mentioned that Arca Biopharma has not been reporting revenues and has reported net losses of $4.32M (2012), $5.36M (2011), $8.42M (2010) and $9.14M (2009) for the past four years. At the end of September, Arca Biopharma reported $18.63 million in cash and just $769k in accounts payable with no further debts thanks to closing a June $20 million (net $18 million) offer for 125,000 shares of Preferred Stock together with warrants to purchase 6.25 million more shares of common stock. Each share of Preferred Stock is convertible into 100 shares of common stock plus each investor received a warrant to purchase 50 shares of common stock for each share of Preferred Stock purchased. In other words, Arca Biopharma is not going to run out of money any time soon but it does need to achieve success with Gencaro.

Share Performance: Arca Biopharma vs. IBB and XBI

On Wednesday, small cap Arca Biopharma surged 25.01% to $1.80 only to drop 8.33% to $1.65 (ABIO has a 52 week trading range of $1.13 to $5.93 a share) for a market cap of $25.86 million plus the stock is down 27.6% since the start of the year and down 94.6% over the past five years. Here is a quick look at Arca Biopharma's performance verses that of the iShares NASDAQ Biotechnology Index ETF and the SPDR S&P Biotech ETF:

As you can see from the above chart, the performance of small cap Arca Biopharma has headed in the opposite direction of both the iShares NASDAQ Biotechnology Index ETF and the SPDR S&P Biotech ETF.

The latest technical chart for Arca Biopharma is not particularly inspiring verses those of the ETFs:

The Bottom Line. Given the long and uncertain history surrounding Gencaro, new investors might want to be cautious with Arca Biopharma. But the fact that some researchers have continued to believe in the drug could make the stock worth the role of the dice by more speculative investors.