While Monday proved a sigh of relief in the stock market, 2022 has been a very tough year so far due to geopolitical and economic instability. While Nasdaq Composite is squarely in the bear market territory, the S&P 500 also briefly joined it on Friday. The tech-heavy composite has fallen by nearly 29% year to date and S&P 500 extended losses to 20.6% from its January high before making a comeback on Monday. The recovery on Monday as a result of the Biden government’s indication of easing tariffs on Chinese goods imposed by the prior administration. While the index might have saved itself from the official bear market territory, its year-to-date decline of over 17% still highlights the increasing dark economic outlook. This downfall is fueled by slowing economic and earnings growth, geopolitical turmoil, rising inflation, and the subsequent interest rate hike and monetary tightening by the Fed.
Times like the current while instigating a wider sell-off in the market also force investors to stay away from anything that comes with risks. But times like these are also a great opportunity to make some profits by wisely and thoroughly choosing the kinds of risks one can take. A wider downfall in stock markets brings forth good entry points for stocks worth taking the risk at a beaten-down price. One such stock, that has been beaten down but comes with a high reward is Provention Bio Inc. (PRVB). But then again with high reward comes high risk.
Down nearly 30% in 2022, the stock has suffered a decline of over 60% in the past twelve months. PRVB was in the green at the close of the latest trading session on Monday, May 23, at a price of $4.00 in the after hours. Let’s have a look at the rewards and risks associated with the biotechnology stock.
PRVB’s Pipeline Developments
The biotechnology company is working on developing therapies that delay the onset of various autoimmune diseases. Its lead product candidate is teplizumab which targets type 1 diabetes (T1D). The clinical study of the candidate demonstrated its ability to delay the onset of the clinical disease and insulin dependence in the patients for about three years. However, due to some manufacturing issues, the medicine was not approved by the FDA despite the hugely positive results. The FDA did not dispute the safety and efficacy of teplizumab in T1D. Fortunately, the company resubmitted the application for the drug in the first quarter of 2022 after addressing the raised issues.
The FDA has assigned a user-free goal date of August 17, 2022, by which an answer will be given to PRVB. Moreover, the company recently held an investor event on May 19, regarding the potential commercial launch of teplizumab in the second half of this year. Following the FDA’s response later this year, PRVB shares could soar high on positive news or plunge further on another regulatory roadblock.
In addition to the lead candidate, the company’s pipeline also includes PRV-3272 which is a potential therapy for preventing systematic lupus erythematosus (SLE). In case of approval, the programs would bring exponential value to PRVB. Approval of teplizumab would result in peak sales of $800-$1.2 billion and the probability of success lies around 80%.
Financial Highlights
In its latest earnings for the first quarter of 2022, the company posted a net loss of 35 cents a share against the expected 45 per share. With a quarterly earnings surprise of 22.22%, the company shrunk its loss from 52 cents per share in Q1 2021. The total net loss for the quarter was $22.0 million against the comparable $32.4 million. The decline in net loss came from a decrease in R&D expenses and an income tax benefit in Q1 2022.
However, the company’s revenue missed the consensus estimate by 20.87% in Q1 2022. The revenues were $0.58 million for the March quarter under its License Agreement with Hangzhou Zhongmei Huadong Pharmaceutical Co. Ltd. Comparatively, there were no revenues in the year-ago period. Moreover, the company also gained $1.5 million in research, development, and manufacturing funding from Huadong, recorded in deferred revenue.
At the end of the quarter, the company’s cash, cash equivalents, and marketable securities totaled $113.4 million. The management expected the cash balance to be enough for runway into Q1 2023.
With the ongoing preparation for the potential FDA approval of teplizumab in Q3 2022, PRVB is expecting cash-based operating expenses of $29-$33 million in Q2 2022. Analysts are expecting a loss of 49 cents per share on revenue of $0.87 million in the ongoing quarter.
PRVB stock Rating
In early February of this year, PRVN was given a strong buy rating when the company announced its intention for resubmitting the teplizumab application. However, with the continued blows from the wider market instability and the goal date of August 17th, it was downgraded to a hold.
As of last week, the consensus recommendation for the stock is a “Buy” from nine research forms with two analysts giving it a “Hold” rating. Furthermore, the stock has an average 12-month price target of $16.25.
Conclusion
Market dips, like the present due to the wider geopolitical and economic instability, bring forth numerous opportunities to buy meaningful stocks at pennies for their value. PRVB with a great potential near-term success for its lead candidate is one such stock that might give great profits. There are certain risks associated with the stock due to the upcoming FDA decision regarding its lead candidate but the upside is bright with an 80% chance of success.
