Junior biotechnology business Prana Biotechnology Limited (ASX: PBT) has responded to a "please explain" speeding ticket issued by the ASX after its shares rallied nearly 22% during Thursday's session on high volumes, hitting a high of 19.5 cents before closing at 19 cents.
The company confirmed it was in compliance with the ASX's listing rules and said that it is not aware of any information not already released to the market.
However, it did offer one explanation for Thursday's unusual trading activity, relating to a positive recommendation being received by the European Medicines Agency (EMA) regarding one of its drugs for the treatment of Huntington disease.
According to a recent announcement made by Prana, "Huntington disease is a neurodegenerative genetic disorder that affects muscle coordination and leads to cognitive decline and behavioural symptoms." It also estimates that there are between 40-100 cases of the disease per million people in Europe, qualifying it as a "rare disease".
The EMA has now published the Minutes from the April 2015 Meeting of its Committee for Orphan Medicinal Products (COMP), stating that a positive opinion had been reached that Prana Biotechnology's experimental drug candidate, PBT2, be granted Orphan Designation in Europe.
Gaining this orphan status means that Prana Biotech will qualify for certain benefits as an incentive for treating rare diseases that most other pharmaceutical businesses have little interest (under normal market conditions) in developing treatments for. These benefits can include tax incentives and enhanced patent protection, among others.
Should you buy?
As we've seen with other biotechnology stocks such as Sirtex Medical Limited (ASX: SRX) and Prima BioMed Limited (ASX: PRR), companies within this industry are capable of delivering enormous returns literally overnight, but the excitement can quickly fade away.
While the confirmation of the drug's orphan status is a positive for the company, it is by no means a revolutionary development. It seems that the market has also recognised that with the stock falling back to 17 cents, down 10.5% for the day.
Prana Biotechnology still has a long way to go before proving its drug's ability to treat Huntington disease, and there could well be plenty of speedbumps along the way. Right now, it seems like one for 'Foolish' investors to give a miss.
