Last Wednesday, shares of Tempest Therapeutics (NASDAQ: TPST), a stock you probably have never heard of, surged over 4000%. No, that isn’t a typo.
Remarkably, the stock did not have fundamentally changing news. It did not rocket higher on breaking news that would typically be associated with the whopping gains it experienced.
Instead, the small-cap therapeutics company announced early-stage positive results for its drug for a specific type of liver cancer.
You might wonder, how is it possible that this company’s stock surged so extraordinarily? You’re right in thinking that because a move of this extreme nature is exceptionally scarce.
So, let’s take a closer look at what led to this unfolding as it did and if the move can be justified for the stock.
What is Tempest Therapeutics?
Tempest Therapeutics, Inc. is a clinical-stage oncology company based in Brisbane, California. They focus on developing small molecule therapeutics that utilize both tumor-targeted and immune-mediated approaches to treat a variety of tumors.
The company has two clinical programs in progress: TPST-1495, a Phase 1 trial drug targeting EP2 and EP4 receptors to treat solid tumors, and TPST-1120, a Phase 1 trial drug targeting peroxisome proliferator-activated receptor alpha for solid tumor treatment.
Additionally, they are working on TREX-1, an enzyme that regulates the innate immune response within tumors.
The Breaking News
Tempest Therapeutics saw a remarkable 4,000% increase in its stock after releasing positive Phase 1/2 data for TPST-1120 in treating liver cancer. The stock closed at $9.77, up from $2.13 at the opening.
The updated data revealed a 30% overall response rate for TPST-1120 when combined with atezolizumab and bevacizumab, significantly outperforming previous results of 17.5% versus 10.3%. Notably, TPST-1120 achieved a 43% response rate in a subgroup of patients with a beta-catenin mutation.
Tempest Therapeutics is now looking to move TPST-1120 into a pivotal trial and explore potential partnerships aligning with its drug vision.
Factors that Helped the Stock Surge
When it comes to small-cap stocks, or in this case, micro-cap and low-float stock, several factors lend a helping hand to a stock surge.
While the market capitalization of TPST was over $100 million at one point, as the stock rocketed 4000% higher, the stock had a modest market cap of about $5 million before the move. This micro-cap starting point had positioned the stock to achieve significant percent returns should volume and a catalyst enter the frame.
The biggest contributing factor to the enormous surge was the stock float size relative to the volume traded. The stock is estimated to have a public float of 12.5 million shares, having grown post-dilution. On day one of the breakout in volume and price, the stock traded over 170 million shares. This influx in volume created an enormous supply and demand imbalance, as the float was likely significantly smaller than 12.5 million shares at that point. So, with a lack of supply and a surge in demand, it appeared the stock had nowhere to go but higher on the day.
The final leading factor that contributed to the surge higher is intraday shorts. Intraday shorts threw gasoline on the fire. The supply and demand imbalance existed even without the involvement of short sellers. However, with a wide availability of locates reported for TPST at a reasonably low price, retail short sellers contributed significantly to the imbalance, resulting in a remarkable squeeze higher.
