2 Drug Stocks Selling Off on Failed Studies

One name is at risk for a round of bearish brokerage notes

Aquinox Pharmaceuticals Inc (NASDAQ:AQXP) is bracing for a steep plunge out of the gate, after the company said it would stop developing its bladder pain treatment, rosiptor, following disappointing late-stage study data for the lead drug. The firm also said it is evaluating its current drug pipeline, and looking into strategic alternatives.

At last check, AQXP stock was down 82.2% in pre-market trading -- on track to open at its lowest point since August 2015. Last night, the stock closed at $15.31, up 30% on the year. However, short sellers have been actively betting against a pullback, with short interest on Aquinox Pharmaceuticals stock surging 34.4% in the most recent reporting period. These bearish bettors are sure to be sidelined today, with the security likely headed to the short-sale restricted list.

Skepticism has ramped up in the options pits, too, with speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) buying to open 2.91 puts for each call in the past 10 days. The July 5 strike is home to peak front-month put open interest, and those who purchased the puts could be staring at a handsome profit should today's pre-market price action pan out.

Summit Therapeutics PLC (NASDAQ:SMMT) has halted the development of its Duchenne muscular dystrophy (DMD) drug after it failed in a mid-stage trial. As a result, SMMT stock is down 79% ahead of the bell, set to open at its lowest point on record.

Heading into today's trading, SMMT shares were up 14% year-to-date, and closed last night at $12.65. A round of bearish brokerage notes could come down the pike, too, considering all six analysts covering the stock currently maintain a "buy" or better rating, and the average 12-month price target sits all the way up at $28.63.