Longeveron (NASDAQ:LGVN) is a clinical-stage biotechnology company, developing a clinical pipeline of cellular therapies for aging-related and life-threatening conditions. The company went public with its initial public offering (IPO) in early 2021 at a price of $10 per share. Investors in LGVN stock have seen one month gains of approximately 444% as the stock price closed at $19 on Dec. 9.
LGVN stock is another biotech stock with a roller-coaster-style price swing, and a 52-week range of $2.84 to $45. When it collapsed to $2.84, it was in the category of IPO flops. Today it is in the category of IPOs that have performed very well in less than a year. Does this mean that LGVN stock is a buy now?
In a word: no.
Why? It is all about trading the news and analyzing the financials of this biotech company. Starting with the pivotal words “clinical trials.”
Why LGVN Stock Soared, is it Justified?
Longeveron develops cellular therapies for chronic diseases associated with aging and other life-threatening conditions. Its lead product is a cellular treatment called Lomecel-B. LGVN stock surged on news of the Food and Drug Administration (FDA) including Lomecel-B in the agency’s Rare Pediatric Disease (RPD) program as a potential treatment for Hypoplastic Left Heart Syndrome (HLHS).
HLHS is a rare and life-threatening heart defect in infants. Developing a tested treatment that can save the lives of infants is precious of course.
However, let’s put emotions aside and read between the lines. For the FDA to approve Lomecel-B for the treatment of HLHS, the product must satisfy certain conditions. One such is a Phase 3 clinical trial, and it is currently only in a Phase 2 trial.
Turning to the clinical trial words I mentioned above, you should know that Longeveron is also conducting other clinical trials. The company hopes to use cell-based therapies to fight other chronic diseases like Alzheimer’s and acute respiratory distress syndrome (ARDS). All of these clinical trials are still either in Phase 1 or Phase 2 trials.
None have made it to Phase 3 clinical trials or yet received FDA approval.
This is why Longeveron will try to move to a Phase 3 clinical trial for Lomecel-B. At this trial stage, the treatment is introduced to a larger group of volunteers to present results that it is both safe and effective for a wide variety of people. The end goal, of course, is to get FDA approval to sell and market Lomecel-B in the U.S.
Longeveron’s Lomecel-B Bet Is Questionable
As I have mentioned in one of my previous articles about another biotech company, the problem for Longeveron is that the FDA is very strict and picky in approving drugs and treatments in Phase 3 trials, as it should be. Another problem is that moving successfully from Phase 2 to Phase 3 trials may take years, not just months. This brings all this focus on the clinical stage.
My point is that LGVN stock now is a very risky bet on the biotechnology industry, and the company’s Lomecel-B play leaves us with a lot of unanswered questions.
Will the company have the resources to fund its research and development of its Lomecel-B product to market it, or will it run out of cash?
Will Lomecel-B be a catalyst that will make Longeveron more than just a clinical-stage biotechnology company?
There has been some more news announced related to these two crucial questions. Longeveron has been granted, by the FDA, the Orphan Drug Designation (ODD) for Lomecel-B for the treatment of Hypoplastic Left Heart Syndrome (HLHS), which supplements the previously mentioned RPD designation. The ODD can benefit Longeveron significantly as this opens up opportunities to get more tax credits and government grants for developing Lomecel-B. Additionally, it may get exclusivity to market its product for seven years in the U.S.
Good news for LGVN Stock?
However, reading again between the lines, I am skeptical about this good news for two obvious reasons.
First, HLHS only affects approximately 1,000 babies in the U.S. per year. That is quite a narrow economic moat. Is that enough of a market for Longeveron to make sustainable revenue and profits?
Second, I am not sure if Longeveron will be able to market Lomecel-B internationally. In any case, I see very limited potential from a business perspective, even with the seven-year exclusive rights, if granted.
What can a company with very little revenue do to fund research and development, as well as administrative expenses? Either a stock offering or a private placement can do the trick.
Longeveron announced a $20.5 million private placement of common stock and warrants to fund its business operations. I reckon that this is just the beginning due to the very poor fundamentals.
Longeveron Fundamentals Are Not So Bright
The latest financial results for the three months ending on Sept. 30, showed total revenues of $232,000, operational losses of $4,905,000 and a net loss of $4,855,000. These numbers had widened compared to the same quarter one year ago. This is not surprising. A surge in the total operating expenses to $5,069,000, an increase of about 3.81x compared to total operating expenses of $1,331,000 in the third quarter of last year signals that Longeveron may face a tough time to turn to profitability any time soon.
In the end, LGVN stock is a very risky biotech stock with an unsustainable rally trading at a very elevated price. Trading the news is dangerous as time presents a very short opportunity for investors to make a profit. This happened to LGVN stock upon the release of the FDA news. The more rational story tells that very poor financials are far from being supportive to the stock now.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.