Shares of ChemoCentryx (CCXI) nosedived in May after an advisory committee for the U.s. Food and Drug Administration (FDA) released an underwhelming report on the efficacy of the company's most advanced drug, avacopan, which treats inflammatory and autoimmune diseases and has recently completed phase 3 trials for the treatment of anti-neutrophil cytoplasmic autoantibody (ANCA)-associated vasculitis. While the S&P 500 is up 12% thus far in 2021, the biotech stock has cratered now nearly 80%, with the bulk of those declines coming in just the past couple of months.

But all hope is not lost, and the FDA hasn't shut the door on avacopan just yet. And now that the healthcare stock has all that bearishness priced into it, is it cheap enough that investors should take a chance and invest in the company?

People working in a lab.

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Investors won't have to wait long to learn the fate of avacopan

The FDA's Arthritis Advisory Committee was split 9-9 on whether avacopan was effective in treating people with ANCA-associated vasculitis (an autoimmune disease where small and medium vessels are inflamed). And it was narrowly in favor (10-8) on questions of whether the drug was safe and its benefit-risk profile adequate. Although this doesn't sound encouraging for ChemoCentryx investors, none of it is technically a "no" from the FDA. The agency will likely make a decision by July 7, which is the PDUFA date for avacopan's New Drug Application. For investors, this is essentially decision day.

Unfortunately, there's no way to know what the FDA will end up doing. Earlier this month, the agency raised more than a few eyebrows after it granted approval for Biogen's Alzheimer's drug, aducanumab -- approval that not every member was on board with. In that case, the Peripheral and Central Nervous System Drugs Advisory Committee, which advises the FDA, was opposed to approving the drug. And on most questions evaluating it, the committee wasn't even close to a split decision as the majority weren't convinced of the drug's effectiveness. However, the FDA approved aducanumab anyway.  For disheartened ChemoCentryx investors, that is a very recent example of the FDA failing to take the same path as one of its advisory committees.

However, that doesn't mean that avacopan will get approved, either. The problem with many biotech stocks is that a lot can be riding on a decision that can be impossible to predict ahead of time. And once the decision comes in, a stock can quickly go to boom or bust.

What if the drug isn't approved?

For risk-averse investors, this is probably the most important question to be asking right now. If the FDA doesn't approve the drug, it isn't all over for ChemoCentryx -- while the company has no other drugs as far along in development, it could still try to file another drug application for avacopan later, after it addresses the agency's concerns. But that will take time and then there's still no guarantee the drug will get the go-ahead.

There's a lot at stake here; some analysts project that peak annual sales for avacopan could top $1.9 billion for ANCA vasculitis. ChemoCentryx does plan to submit avacopan for other indications, including one for severe hidradenitis suppurativa (a skin condition that leads to painful bumps) that is progressing toward phase 3 trials. All hope isn't lost for avacopan just yet, and the company does have other treatments in its pipeline, although nothing is as far along.

But ChemoCentryx does need something -- the business has seen little consistent revenue, with its top line coming in at just $10.4 million over the three-month period ending March 31. That was primarily due to a $10 million milestone payment it received from its partner Vifor Pharma (which has the rights to commercialize avacopan in many parts of the world outside the U.S.) in relation to the progress of avacopan's new drug application in Japan, where that country's Pharmaceuticals and Medical Devices Agency accepted it for review.

The most important number from the company's financials is undoubtedly its cash position. And with total cash, cash equivalents, and investments of $424 million as of the end of March, the business is in good shape to keep its operations running. Over the trailing 12 months, ChemoCentryx has burned through just $75 million in cash to fund its day-to-day operating activities. While it isn't sitting on a boatload of money, the company's stockpile looks to be sufficient for the time being, with no apparent urgent need for an influx of cash just yet.

Should you invest in ChemoCentryx?

If you are a risk-averse investor, then ChemoCentryx is not a stock you should consider investing in. But if you are comfortable with the potential volatility that lies ahead, then it might be a high-risk, high-reward stock that is worth taking a chance on. Despite last month's bad news, many analysts still have price targets set above $20 for the stock, with some expecting that it could double in value from where it is today.

Shares of ChemoCentryx are trading around where they were three years ago, suggesting that the markets may have been excessively punitive toward the stock of late. There is the possibility that the shares could go lower on a full rejection from the FDA next month, but with other programs still out there and the drug making progress in Japan, it may be a calculated risk worth taking.