Apnex, Inc., is a biotechnology firm that is about to announce the results of its clinical trials

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Apnex, Inc., is a biotechnology firm that is about to announce the results of its clinical trials of a potential new cancer drug. If the trials are successful, Apnex stock would be worth $62 per share. If the trials are unsuccessful, Apnex stock would be worth $16 per share. Suppose that the morning before the announcement is scheduled, Apnex shares are trading for $57 per share.

a. Based on the current share price, what sort of expectations do investors seem to have about the success of the trials?

b. Suppose hedge fund manager Paul Kliner has hired several prominent research scientists to examine the public data on the drug and make their own assessment of the drug’s promise. Would Kliner’s fund be likely to profit by trading the stock in the hours prior to the announcement?

c. What would limit the fund’s ability to profit on its information?

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Corporate Finance The Core

ISBN: 9781292158334

4th Global Edition

Authors: Jonathan Berk, Peter DeMarzo

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