I’ve noticed a pattern among pharma stocks that seems to be a common thing but I don’t get it. A lot of the time when a product in the pipeline gets FDA approved, the price of the stock goes down. This seems counterintuitive to what should happen in theory. What can be the cause behind this? It’s not a rare occurrence either so I feel like there must be a more practical explanation for this.
Many people who own the stock likely only hold it for the short term and sell it. Typically, long-term investors would’ve bought these shares at a low price so they don’t engage with the dip. Long answer short, More seller+No buyers = stock dip
All stocks are expectation vs. reality. One thing to note is that approvals are not always straightforward. One company may seek approvals in many areas but only get clearance for one. So for instance, if your drug cures pain and depression but you only catch approval for pain, it's not in your best interest if your main selling point is depression.
There are many reasons but that's one. Also, market expectations play a huge role here. If it was expecting approval, then selling would be the trend and vice versa. Hope that helps!