Full-year 2016 financials are hitting press thick and fast in the biotech space right now, and injecting plenty of volatility into the sector. One company that just put out its numbers, but is really moving for a variety of other reasons, is Innocoll Holdings PLC (NASDAQ:INNL).

Here is what has happened, what is happening, and what we expect will happen, going forward.

First, for those new to this company, Innocoll is a biotechnology company with a range of products already commercialized as part of a portfolio in the US, and a development pipeline that has – to put it nicely – struggled over the last 12 to 18 months. Most of its products are rooted a proprietary collagen technology, and are designed to improve surgical outcomes.

There are two primary development assets that we are focusing on as providing the majority of the company’s capitalization valuation right now. These are XARACOLL and COGENZIA. Both, however, took real hits last year, and these hits put (and are still putting) pressure on Innocoll’s share price.

The former, XARACOLL, is a postsurgical pain candidate, and it achieved its primary endpoint in a phase 3 late 2016. However, upon the company submitting a new drug application (NDA) to the FDA, things started to go wrong. The agency responded to the submission with a refusal to file, and basically halted development in doing so.

The latter, COGENZIA, on the release of data from a late stage study, did not achieve statistical significance in improving clinical cure in diabetic foot infections. There may be some room for continued development with this latter asset dependent upon expanded study, but for now, it is playing second fiddle to XARACOLL with regards to which is likely to get to market first.

And therein lies the real problem.

Investors took positions in this company over the last year or so in optimistic anticipation of both of, but at worse one of, the drugs hitting the market within, say, a twelve-month period. Risk calculations (read: whether the company was going to run out of cash before being able to collect revenues on one of its lead development products) were made based on this 12-month timeline. With this target now (almost certainly) not likely to be met, risk needs to be recalculated.

Leaving COGENZIA alone right now, markets are looking to XARACOLL as a recovery asset.

In the most recent conference call, management detailed that it has held a Type A meeting with the FDA (this is one of the three types of meetings a company can request, and is basically designed to jump start a stalled trial), and that we should see some detail on this meeting before the end of the month. Some follow-up data has already been submitted to the agency, and there is a chance that this might be enough to support a resubmission of the returned NDA. There’s also a chance, however, that it won’t be. If this latter scenario proves correct, the company will have to conduct further study, and this is going to necessitate a dilutive raise.

It’s not all doom and gloom, however.

This one ran up early on in the week on speculation that it is in talks with a buyer, and – alongside its latest earnings release – management put out a statement confirming these talks.

“The Board …confirms that it is in discussions which may or may not lead to an offer for the entire issued share capital of the Company.”

If such a buyout were to occur, there’s every chance it would do so at a nice premium to current PPS, and we’re willing to bet there is a reasonable base of shareholders that would be willing to ‘take a premium and run’ at this stage, with one eye on avoiding the dilution that might come with the necessity to conduct further clinical trials.

For the more optimistic of the base, however, this may be seen as an early concession, especially given that we don’t yet know exactly what the FDA wants to see from COGENZIA going forward.

All eyes on the Type A minutes, which as mentioned, should hit press before the end of the month.

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Disclosure: We have no position in INNL and have not been compensated for this article.