Galmed Pharmaceuticals Surges 400%: What's Behind the Explosion?

September 17, 2024 at 14:40 PM EDT

Cropped view of biologist in medical mask and latex gloves holding syringe near microscope — Photo

Galmed Pharmaceuticals (NASDAQ: GLMD), a little-known biotech stock, has become the center of attention as its shares have skyrocketed close to 400%. By 2 pm, the stock had traded over 80 million shares, a monumental leap from its average daily volume of just 75,000.

The sudden surge begs the question: What’s driving this small-cap biotech to such heights, and should investors consider jumping in?

First, What Is Galmed Pharmaceuticals?

Galmed Pharmaceuticals is a small-cap biopharmaceutical company headquartered in Tel Aviv, Israel. Its primary focus is developing therapeutics for liver diseases, mainly targeting non-alcoholic steatohepatitis (NASH). The company's leading product, Aramchol, is an oral therapy currently in Phase III trials for treating NASH in patients with obesity and type II diabetes.

Galmed is also investigating Aramchol for other conditions, including liver disease related to HIV, via the ARRIVE study. Additionally, the company is developing a 5-amino-acid synthetic peptide, Amilo-5MER, and has partnerships with Samil Pharma and OnKai.

Why Did Galmed Surge Today?

Two key reasons are behind today's dramatic surge in Galmed's stock price, one of which is far more critical than the other.

1) Regaining Nasdaq Compliance (Minor Catalyst)

Galmed’s 6k SEC filing on September 16, 2024, revealed that the company had regained compliance with Nasdaq’s minimum bid price requirement. Previously, the stock had fallen below the $1.00 threshold for 30 consecutive days, putting it in danger of delisting. While this news attracted attention, it’s insufficient to explain the explosive 400% rise. Instead, this announcement acted as a spark, bringing more eyes to the stock.

2) Short Squeeze Driven by Technical Factors (Major Catalyst)

The real driver behind the surge lies in Galmed’s unique stock structure and trading dynamics. The stock is susceptible to supply-demand imbalances, with a tiny float of only around 600,000 shares. Today’s trading volume saw an RVOL at 2 pm (Relative Volume) of over 600, meaning the stock was trading 600 times more than its average daily volume. When supply is this limited and demand spikes, as it did today, stocks can experience epic short squeezes, pushing prices higher in a short period.

The availability of stock locates (shares available for short selling) across various trading platforms further fueled the surge. Short sellers, betting on the stock's decline, have consistently been forced to buy back shares at ever-increasing prices as demand vastly outweighs supply in the short term, creating a textbook short squeeze of massive proportions.

Is Galmed a Smart Play for Active Investors Seeking High Returns?

While Galmed’s surge has captured attention, the answer to whether you should invest largely depends on your risk tolerance. For long-term investors, the answer is likely no. The stock’s volatility, low liquidity, and susceptibility to dramatic price swings make it better suited for short-term traders who can capitalize on intraday moves.

This stock's enormous potential for both gains and losses makes it appealing for day traders but dangerous for those looking for a stable, long-term investment. The combination of a tiny float, trading inefficiencies, and supply-demand imbalances means that while the stock could rise another 200%, it could just as quickly retrace most of its intraday move.

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