Hollis-Eden Downgraded on HHS Decision

The stock plunged $1.21, or 28.3 percent, to $3.07, on the Nasdaq Stock Market on heavy volume after hitting a 52-week low of $2.81 earlier in the session.

The Department of Health and Human Services said it considers Hollis-Eden's Neumune drug "technically unacceptable" and no longer in the competitive range and provided no further rationale, according to the company. A new Request for Proposal (RFP) is in the works, according to the agency.

"The cancellation of the RFP was an extreme shock for both investors and Hollis-Eden and went beyond what we had considered to be a worst-case scenario: awarding the contract to another company," Pantginis wrote in a note to investors.

He added that the situation was "bizarre" considering all the delays in the process to date and downgraded the stock to "Hold" from "Buy," pulling his valuation, saying it was based on Neumune.

The company's acute radiation sickness drug candidate has been under review by the agency for months under a proposed plan to possibly include it in a national stockpile.

Hollis-Eden and analysts have been sounding positive forecasts for the contract, as the company had previously said Neumune was in the lead for the bid, and it was in final negotiations.