Vancouver-based Tekmira's stock (TSX:TMK) closed down nearly 22 per cent at $20.25 on the Toronto Stock Exchange on Tuesday.
Tuesday's drop followed a nearly 60 per cent surge over the previous two trading sessions.
"The recent trading activity in the stock has been more trading driven than investment driven," said Doug Loe, an analyst with Euro Pacific Canada.
But longer term, Loe said he sees upside potential in the wider array of products Tekmira has in the development pipeline.
Tekmira announced last Thursday that the U.S. Food and Drug Administration had "verbally confirmed" it would relax a clinical hold on its TKM-Ebola drug, potentially enabling its use in individuals stricken with the deadly virus.
The outbreak has killed more than 1,000 people in West Africa since March.
Jason Kolbert, an analyst at Maxim Group in New York, said investors were "freaking out" because a Spanish priest, who was reportedly treated with another Ebola drug called ZMapp, died Tuesday in Madrid after being flown out of Liberia.
Kolbert said he sees "no relationship whatsoever" between the prospects for ZMapp and TKM-Ebola, as the two treatments take completely different approaches.
"However, just as the people were focused on Ebola and kind of drove Tekmira shares higher, now you're seeing selling in the stock. It's just volatility associated with a lot of, I'd say, retail buying of Ebola biodefence names."
"It's a pendulum. It tends to overreact."
The World Health Organization said Tuesday that it is ethical to use untested Ebola drugs, but that countries using experimental treatments have a moral obligation to collect data so the world can learn how to combat the virus.
The statement makes no reference to the fact that these experimental therapies are currently in short supply.
On Monday, ZMapp's San Diego-based developer, Mapp Biopharmaceutical, said it had exhausted its supply of the product, components of which were created at Canada's National Microbiology Laboratory in Winnipeg. Experts have said it will take three or four months for another small batch of ZMapp to be made.
That drug was given to two American relief workers who contracted Ebola in Liberia and both appear to be recovering.
It's unclear how much TKM-Ebola Tekmira has in stock, or how quickly manufacturing of the drug can be ramped up.
Tekmira says its drug, which targets the cells where the virus replicates, is the most advanced Ebola treatment option in development.
The timelines for making TKM-Ebola available for "compassionate use" — providing a drug that has not been formally approved on an emergency basis — wouldn't be too long, Loe said.
"We'd be measuring those in days to weeks rather than weeks to months, as would be the case for other biologics that could be developed in this space."
Last week, Tekmira CEO Mark Murray said the company was pleased the FDA considered the risks and rewards of potentially using TKM Ebola in infected patients.
"We have been closely watching the Ebola virus outbreak and its consequences and we are willing to assist with any responsible use of TKM-Ebola. The foresight shown by the FDA removes one potential roadblock to doing so," he said in a release.
Tekmira has a $140-million contract from the U.S. government to develop TKM-Ebola but last month a small human trial of the experimental drug was put on hold after safety issues emerged.
Restrictions remain on testing the drug on healthy volunteers, but Murray said the company is "focused on an expedient resolution" on that matter.
In a research note last week, analysts with RBC Capital Markets called the FDA move an "incremental positive" for Tekmira.
"Bottom line, we've confirmed with the company this lifts the obstacle in case one seeks the drug for compassionate use and they do have supply of some drug intended for clinical trials. To meet the much larger demand of the broader outbreak, they would have to ramp up manufacturing, which could take months," they wrote.
"While we acknowledge there is the potential for (Tekmira) to land significant revenues due to its Ebola program, this should only be considered a long-term upside opportunity as visibility is very low and predicting what happens with pandemic outbreaks and government contracts can be risky."
Adrian Mastracci, with KCM Wealth Management, said he'd consider Tekmira an "aggressive" investment bet.
"These guys could be a Cinderella story if something works out," said the Vancouver-based portfolio manager.
He said the recent share price fluctuation has been driven by "pure emotion."
"It's got nothing to do with logic."
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