Spectral Medical Inc. (TSX:EDT) shares jumped on Friday, October 30, rebounding from a 52-week low hit earlier in the week. The gain came as investors wait on a U.S. regulatory decision for the company's sepsis therapy.

The stock was up about a dime to around C$1.03 late in the session, on a day when the S&P/TSX Composite index fell about 629 points.

What happened

The move looks like a bounce in a beaten-down stock rather than a reaction to new information. On Monday, October 26, Spectral shares traded as low as C$0.98, a new 52-week low.

At that point the stock sat well below its 50-day average of about C$1.21 and its 200-day average of about C$1.32. Even after Friday's rise, the shares remain below both levels.

Spectral is a small company, with a Market Value of roughly C$300 million at last week's prices. Small, thinly traded stocks can post large daily swings on modest buying.

Friday's gain also ran against the broader market. Health-care stocks were among the laggards on the TSX, and decliners outnumbered advancers by nearly two to one.

Why it matters

Spectral's value rests largely on one product: PMX, also known as Toraymyxin. It is a hemoperfusion cartridge that filters endotoxin from the blood of patients with septic shock.

The company submitted a premarket approval (PMA) application to the U.S. Food and Drug Administration on May 28, and the agency formally filed it on June 25. Approval would open the U.S. market, where PMX is not yet sold.

In September, Spectral said the FDA had issued a deficiency letter several days before a 100-day review meeting, asking for further information, analyses and testing. The company said the FDA did not ask for additional clinical trials, described the meeting as constructive, and said no delays to its regulatory timeline were anticipated.

Spectral's case rests on its Tigris trial. In August, the company said patients treated with PMX had lower mortality than those on standard care at 28 days and 90 days, and that the benefit persisted through one year.

"The survival benefit observed at 28 and 90 days persisted through one year," chief medical officer John A. Kellum said when the company released its second-quarter results.

"We have transitioned from generating clinical evidence to executing the regulatory review process," chief executive Chris Seto said at the time.

The bigger picture

The Balance Sheet is a key risk. Spectral reported cash of $803,000 at June 30, and second-quarter Revenue of $621,000, down from $813,000 a year earlier.

Reported results have been noisy. Spectral posted a second-quarter gain of $331,000, compared with a loss of $1.9 million a year earlier, mainly because of a non-cash Fair Value adjustment on derivative liabilities. Its six-month loss narrowed to $2.6 million from $14.5 million.

The company has relied on funding from partner Vantive. It received the remaining US$1.0 million of a US$2.0 million advance from Vantive on July 28.

That leaves investors weighing a potentially large regulatory payoff against a thin cash cushion, which helps explain why the shares can swing sharply in both directions.

What to watch next

The next major marker is Spectral's response to the FDA's open questions and any update on the review timeline.

Investors will also look for the company's third-quarter results, which should show its cash position and any new financing.

Until there is a decision from the FDA, moves like Friday's are likely to reflect shifting sentiment more than fresh news. Whether the rebound lasts may depend on the next regulatory update.