ResTORbio, Inc. (NASDAQ:TORC) has had a fairly underwhelming start to public trading. The company completed its IPO earlier this year with an offering price of $15/share. TORC stock came out of the gate successfully, opening trading around the $18/share level. After hitting $21, however, things went south for resTORbio.
By April, TORC stock had fallen to below $8, losing half of its IPO value. Since then, resTORbio has seen a series of ups and downs. The stock hit $12 in May, fell back to the $8s, hit $12 again in June, and recently found itself back at $8. However, on Wednesday, resTORbio put in a sharp bounce, with shares rallying more than 10% off that support level. What reawakened TORC stock, and will it lead to further gains going forward?
What Is resTORbio Trying To Achieve?
As you might guess from the company’s capitalization of “TOR” and its ticker symbol, TOR is an important concept for the company. In particular, it stands for mTOR, a gene that is closely tied to aging in both mammals in general and humans specifically.
Needless to say, this genetic pathway could be a huge deal for medical research. The company’s name hints at restoration. A drug company that could tinker with the genes tied to aging could potentially make a fortune. mTOR drug inhibitors have been shown to extend the lifespans of mice. A similar finding, if it were to occur in humans, would be ground-breaking. mTOR also appears to be linked to cancers, and perhaps Alzheimer’s, autism, and other brain dysfunctions.
For now, however, resTORbio is starting off with more modest ambitions. The company’s main drug candidate, RTB101, focuses on lowering the number of respiratory tract infections that older people experience. RTIs are a major problem for people above the age of 65, leading to frequent hospitalizations.
In the company’s prospectus, they show Phase IIa data demonstrating that their drug appears to lower RTI occurrences around 40% or so compared to the placebo. If that result holds through more rigorous testing, it would be a major development, as RTIs are a large problem and thus the potential market could be vast.
What Happened This Week
TORC stock popped on Wednesday following a company press release highlighting more clinical data for their main drug. Their press release started off with the following news:
“resTORbio today announced newly published data from a Phase 2a clinical trial demonstrating that target of rapamycin complex 1 (TORC1) inhibitor treatment improved immune function and decreased incidence of all infections, including respiratory tract infections (RTIs), in people aged 65 years and older. RTIs in particular are a significant health risk for the elderly with life-threatening consequences and few treatment options. Data were published in the July 11, 2018 online edition of the journal Science Translational Medicine.”
The press release goes on to detail said finds from the study. It’s worth noting, however, that this data is not all that dissimilar to data that the company reported in its prospectus, though it does reaffirm those numbers.
This wasn’t the big catalyst that investors were waiting for, as we can see with the relatively muted response in the price of TORC stock. Instead, investors are looking forward to data readouts from the company’s Phase IIb trial which is expected in the first part of 2019. The company is running an additional trial with older and more at-risk folks, such as those with diabetes. If the drug shows similar efficacy in this higher stakes setting, it’d do a lot to increase the drug’s commercial prospects.
How Long Is Their Runway?
One of the pivotal questions for a clinical-stage biotech company is how long their cash will last. Since a biotech company with no approved drugs has minimal revenues, its cash position is of utmost importance.
In the case of resTORbio, the company had $135.7 million in cash at the end of March. That seems like a meaty cash position, given that the company only had a net loss of $41 million last year. However, the company is ramping up its spending post-IPO to power through its clinical trials. As a result, the company states that it has enough cash to last at least 12 months. But a capital raise later in 2019 wouldn’t be surprising.
For TORC stock, a key question will be when the company seeks to raise more money. The pivotal data readout is supposed to come in early 2019 with the Phase IIb trial results. If the drug shows strong efficacy, TORC stock should surge, making a capital raise significantly less dilutive. On the other hand, weak data would likely tank the stock. That’s especially true since resTORbio’s doesn’t have that much else in the clinical pipeline.
TORC Stock Verdict
As is often the case with clinical-stage biotech companies, this is a high-risk, high-reward venture. Even if the clinical data from the Phase IIb trial is good, resTORbio would still have to make it through Phase III, where many previously promising drugs end up failing to demonstrate statistical efficacy. It will still be a couple of years before resTORbio could potentially have an approved drug, meaning that the company will be reliant on the capital markets for funding. These ingredients make for a volatile stock price in the interim.
Additionally, it’s worth considering that resTORbio got access to this drug platform due to Novartis AG (NYSE:NVS) unloading it for a modest financial consideration and some equity in the company. Novartis executed a similar move with the UK biotech firm Mereo several years ago, and that one hasn’t been a winner as of yet. As always, it’s worth asking why Novartis would let this drug candidate go if it felt highly of its prospects.
Long story short, as it goes with clinical-stage biotech companies, there is loads of upside potential here. But a bad trial result could send shares down 50% or more. If you like the platform, the stock looks interesting here bouncing off technical support. Keep position sizes appropriate, however, considering the significant downside risk.
At the time of this writing, the author had no positions in the aforementioned securities.
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