Should biotechs come with a volatility warning label attached? Most followers of the sector probably already know the risks involved when investing in a biotech stock; The possibility of mercurial gains is real, but a merciless drop is not out of the question, either.
The latest piece of evidence for the crushing despondence these stocks can induce: Iterum Therapeutics (ITRM). Yesterday, shares dropped 60% after the Dublin, Ireland-based company’s candidate failed to meet the primary endpoint in a clinical trial.
Specifically, the Phase 2 SURE clinical trial, which was assessing antibiotic treatment, sulopenem, in patients with complicated urinary tract infections (cUTI), saw the drug produce a weak topline result; Sulopenem couldn’t exhibit non-inferiority to ertapenem within the FDA required 10% range by the 21-day endpoint of the trial.
According to RBC analyst Gregory Renza, the “must-win situation for sulopenem” leaves the nano-cap in a precarious position. The company exited Q1 with cash in the coffers amounting to $22 million. After talking to management, Renza said the company is now looking at “strategic alternatives,” – these include asset licensing and a company sale or merger.
Following the disappointing results, Renza now believes sulopenem has a 5% probability of success in gaining approval as a treatment for cUTI.
The 5-star analyst said, “Topline miss in the complicated UTI study is a major blow to the sulopenem pivotal program ahead of their important uncomplicated UTI trial readout, now casting uncertainty on both the asset and company… With a new level of uncertainty on pipeline viability - the trial failures, doubt now on the uUTI study readout, and the company initiating a pursuit of strategic alternatives.”
This prompted the analyst to issue a downgrade, from Outperform to Sector Perform. The lower rating comes with a significantly reduced price target, too. Down from $7 to $2, there’s still upside potential of 23% from current levels. (To watch Renza’s track record, click here)
Based on two Holds and two other Buys, Iterum has a Moderate Buy consensus rating. The average price target hits $4.75 and could provide the risk-tolerant investor with massive returns of 219%, should the figure be met in the coming months. (See Iterum price targets and analyst ratings on TipRanks)
To find good ideas for healthcare stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.