Some investors might love biotech stocks for their lottery ticket-like returns when a company wins the FDA’s blessing. A lottery ticket, however, costs only a buck or two, while getting a biotech company wrong can hurt a lot more than that. Case in point: Adamis Pharmaceuticals (ADMP) stock lost half of its value this week after getting the red light from the FDA.
The FDA issued a complete response letter (CRL) to the company advising it that the new drug application for Zimhi, a high-dose naloxone injection used for the treatment of opioid overdose, would not be approved as a treatment for opioid overdose. The FDA raised questions about chemistry, manufacturing and controls (CMC), and provided recommendations required for resubmission.
Naloxone is an opioid antagonist and works by stopping or reversing an opioid’s effects. The market for such a drug, unfortunately, is growing larger as drug overdoes are now the main cause of death for Americans under 50.
As is the norm when receiving a CRL, the drug developer promises to work with the FDA to address any issues raised. Dr. Dennis J. Carlo, President and CEO of Adamis, said, “We believe the comments and recommendations stated in the CRL are manageable and plan to fully cooperate with the FDA. We remain committed to this product and our mission to provide physicians and patients access to a higher dose of naloxone. We will take the Agency’s suggestion and request a meeting as soon as reasonably possible to discuss our plan to resubmit the NDA.”
Maxim analyst Jason McCarthy commented, “The company’s plan is to expand on the CMC testing that has already been provided to the FDA to satisfy the CRL items. We are awaiting further clarity. In addition, given the company’s cash balance of $12.1M and current burn rate, Adamis is likely going to need to raise capital and likely at a ‘distressed’ valuation.”
As a result, McCarthy downgrades the stock from “buy” to “hold”, as he “await[s] clarity on the path forward for the company.” (To watch McCarthy’s track record, click here)
With that in mind, the question investors are asking is whether Adamis has bottomed out. With 1 Buy and 2 Holds, the beleaguered biotech currently ranked as a Moderate Buy. The average price target is a rounded $1.00, implying handsome upside potential of 72% for the risk tolerant investor. (See Adamis’s price targets and analyst ratings on TipRanks).
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