Genocea Biosciences took a massive hit to its stock on Tuesday following the news of a readjustment to their business focus.

On Monday (September 25) after the markets had closed Genocea Biosciences (NASDAQ:GNCA) shared its decision to completely revamp their business plans and enter the immuno-oncology sector to develop cancer vaccines. The market was less excited on Genocea’s decision to cut about 35 employees and move away from a phase 3 candidate.
This move comes at the cost of dropping the development of their genital herpes treatment GEN-003 and a layoff announcement, which will leave the company with 55 employees according to a report by MarketWatch.
“The sharp reduction in headcount reflects the fact Genocea no longer needs the team it put together to take GEN-003 through the clinic as it won’t spend any more money on the program,” FierceBiotech wrote.

Genocea expects to save 6.5 million approximately after the layoffs are completed. However, severance costs will total $1.1 million. All of these transactions will take place during the third quarter of the company.
“To our teammates who’ve given so much to advance GEN-003, we offer our profound thanks for their dedication,” president and chief executive officer of Genocea Chip Clark said in the company’s announcement. “We see this strategic process, which is already underway, as the best way to drive to commercial launch of and maximize shareholder value from GEN-003.”

Market reaction

The market responded to Genocea’s plans with a massive 76.55 percent drop to its stock at the close on Tuesday (September 26). After hours trading showed its stock price had increased 7.20 percent to $1.34 as of 7:11 p.m. EST.
The company’s cancer pipeline includes GEN-009, which Genocea claims will get its own clinical trial during the first half of 2018, which will report data in 2019.
“GEN-009 is an adjuvanted peptide vaccine designed to direct a patient’s T cells to attack their tumor. Antigens in a patient’s vaccine are selected by Genocea’s proprietary ATLAS platform,” the company said.
The company, up until Monday, had seen a 29.37 percent increase to its stock on a year-to-date period. On Tuesday however, they are facing a 65.28 percent reduction.
According to the analyst data aggregator site TipRanks, two of the four analysts covering the company, Alan Carr at Needham & Company and Stephen Willey at Stifel, downgraded their rates and removed their price targets on Genocea’s stock. At the time of this writing, Phil Nadeau, managing director and biotech research analyst at Cowen had reiterated its target price of $10 for Genocea, alongside his “Buy” rating, on Monday.

Investor Takeaway

Genocea is taking a gamble shifting from a product seemingly ready to enter the late stages of clinical development with a positive upside into a novel area with a vaccine that will take time to develop. So far the market has taken a negative take on the news and decided to jump the ship on the stock.
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Securities Disclosure: I, Bryan Mc Govern, hold no investment interest in any of the companies mentioned.