Drug Stock Plunges 75% on Devastating Lung Disease Data

The company's key pipeline drug failed to meet its primary goals in a late-stage study

Savara Inc (NASDAQ:SVRA) stock is spiraling this morning -- down 75.4% at $2.60, tagging a record low of $2.55 out of the gate. This plunge comes after the Texas-based pharmaceuticals firm said Molgradex, its key pipeline drug to treat rare lung disorder autoimmune pulmonary alveolar proteinosis, failed to meet its main goals in a late-stage study, though secondary goals were met. CEO Rob Neville said SVRA is preparing to meet with the Food and Drug Administration (FDA) and European Medicines Agency (EMA) to "determine our options to seek approval."

A round of bearish brokerage notes is only pouring salt on the proverbial wound, with Ladenburg Thalmann downgrading SVRA stock to "neutral" from "buy," and slashing its price target to $3 from $21. The brokerage firm said it believes Savara will need to run another study in order to gain approval from the FDA and EMA. Price-target cuts also came through at H.C. Wainwright (to $6) and Jefferies (to $10).

Ahead of last night's data release, one trader may have initiated a collar strategy using SVRA's July 7.50 puts and 17.50 calls. If this is the case, they bought to open the puts and sold to open the calls to potentially lock in recent gains or limit risk on their portfolio in case of a negative reaction to the Molgradex results. Heading into today's trading, Savara stock was up almost 40% year-to-date.

Today, options volume is running hot in early trading, albeit amid relative light absolute volume. At last check, 765 calls and 2,126 puts were on the tape, about nine times what's typically seen at this point. New positions are being initiated at the June 5 call, though it's not clear if they're being bought or sold.