If you’re into tiny biotech companies, you might have heard about Iterum Therapeutics (NASDAQ:ITRM). This company specializes in novel oral and intravenous treatments for serious bacterial infections. And, as you’ll find with many small-scale biotech investments, ITRM stock is quite cheap.
It’s so cheap, in fact, that it qualifies as a penny stock — defined by the U.S. Securities and Exchange Commission (SEC) as a stock that trades under $5 per share.
That means the stock can move quickly, in both directions. So, if you’re risk-tolerant and can handle a fast mover, this stock might be worth considering.
As we’ll discover, the company has the potential to achieve clinical milestones and help a lot of patients. The main problem for me, though, is that the earnings picture for Iterum Therapeutics is (to put it politely) less than ideal.
A Closer Look at ITRM Stock
Let’s rewind the clock a few years. On May 24, 2018, Iterum Therapeutics announced its initial public offering (IPO) with an original share price of $13.
Unfortunately, as of early March 2021, the shareholders never saw that price again. There were occasional spikes in along the way, but overall it was just downhill after the IPO.
ITRM stock ended 2019 at $4 and change, and finished 2020 at around $1 per share. So, it’s going to be a challenge for the bulls to get the stock above the $5 penny stock threshold.
Admittedly, the bulls have put in a decent effort so far in 2021. They even managed to push the share price up to $2.75 on Feb. 11.
Yet, that rally is already fizzling out as the stock landed at $1.64 on February’s final trading session.
And here’s the real kicker. On a trailing 12-month basis, Iterum Therapeutics has earnings per share of -$3.90. That’s on a $1.64 stock.
Based on the long-term downtrend in the stock, and on the company’s deeply negative earnings-per-share profile, it’s going to be awfully difficult for me to recommend owning ITRM stock at this time.
Hoping for a Blockbuster
I suppose that none of the foregoing considerations would matter if Iterum Therapeutics scores a major regulatory approval for one of its primary therapeutic candidates.
After all, a green light from, say, the U.S. Food and Drug Administration (FDA), could quickly send the share price soaring.
If any of Iterum’s treatment candidates has the potential for this to happen, it would probably be the oral version of Sulopenum.
Iterum is working to make oral Sulopenum available for three indications: uncomplicated urinary tract infections, complicated urinary tract infections and complicated intra-abdominal infections.
Beyond the appeal of having an oral product available instead of only an intravenous injectable product, the company’s investor presentation highlights other factors that suggest blockbuster potential (my unsolicited parenthetical commentary is included):
- “High unmet need” (and large addressable market — fair enough)
- “Potential for multiple indications” (sure, we just mentioned three of them)
- “Community focus” (I’m still trying to figure out what the company means by that, but I’ll go along with it)
- “Payer access & reimbursement outside the hospital” (let’s hope that America’s broken health-care system accommodates this)
Let’s Talk About Share Dilution
I hate to veer away from the company’s infection treatment programs, which are certainly inspiring.
However, I must report that Iterum Therapeutics announced a direct offering in which 17.5 million of the company’s ordinary shares will be sold.
The good news is that Iterum Therapeutics will collect gross proceeds of approximately $35 million, before placement agent’s fees and other offering expenses are deducted.
But of course, there’s no free lunch in the markets. Printing up and selling 17.5 million stock shares could come at a steep cost to the shareholders.
I’m not saying that the company won’t put the proceeds to good use. As the investors would expect, Iterum Therapeutics plans to use the proceeds for “ongoing review,” “pre-commercialization and potential launch activities,” “continued clinical development,” “working capital and general corporate purposes” — i.e., the usual activities.
So now, investors have to weigh to prospect of share dilution versus the company’s potential use of the proceeds. They’d better hope that Iterum Therapeutics finds its “blockbuster” in the near future.
The Bottom Line
What Iterum Therapeutics is trying to achieve is highly commendable. The idealist in me is certainly rooting for the company to succeed.
The pragmatist in me, however, can’t get the earnings and price-action data out of my head — and that’s enough for me to avoid ITRM stock for the time being.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.