Up nearly 400% in the last month alone, Longeveron (LGVN -3.83%) is doubtlessly one of the more volatile biotechs in the longevity space. Between its brief dalliance with meme stock traders in November and recent progress with regulatory authorities, plenty of people have made a lot of money on the stock.
However, when it comes to the prospect of newcomers making money, the prospects are less certain. With positive catalysts in the rearview mirror, there isn't much on the radar that could send its shares toward the moon. Is it still worth investing in this stock, or is it all downhill from here?
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It's still in the early innings
The key fact for investors to know about Longeveron is that it's a young biotech without any late-stage projects. And even though its shares have traded at a higher premium recently, there remains a huge amount of work to be done in the clinic before it can make a dollar from sales of a drug.
On that note, its flagship pipeline project is called lomecel-B, which it hopes to use to treat conditions like frailty in aging, Alzheimer's disease, hypoplastic left heart syndrome (HLHS), and even acute respiratory distress syndrome (ARDS) associated with severe COVID-19. The reason why the therapy can potentially treat so many disparate conditions is that it's derived from living human cells which serve a handful of different functions.
If the company can show regulators that the treatment is safe and effective in more than one context, it could easily scale up its manufacturing operations to serve multiple markets with the same production line. This could ultimately support a large profit margin.
On Dec. 6, the Food and Drug Administration (FDA) granted the company an orphan drug designation (ODD) for lomecel-B in young children with hypoplastic left heart syndrome. The designation is a favorable development because it means Longeveron will get tax rebates for clinical trial costs as well as a waiver for the costs associated with applying for the drug's approval. Importantly, last month the FDA also assented to its rare pediatric disease (RPD) indication for lomecel-B, which caused its stock to explode overnight.
Yet, the story is far from over, it'll take a few years to advance the project through clinical trials and confirm its safety and efficacy.
This isn't a stock for the faint of heart
On the basis of its pipeline being composed of early-stage programs, it's definitely not too late to buy Longeveron stock. Although, it might make sense to wait a while for the hype over its new designations to wear off.
In the meantime, don't forget that lomecel-B is an investigational therapy that's quite far from being proven to be a panacea. In August, the biotech announced that its phase 2b trial for frailty in aging had failed to meet its primary endpoint. Though it still plans to initiate a new phase 2 trial in Japan investigating the same indication, new shareholders will be exposed to the risk that the new trial has the same outcome as the old one.
Aside from the development risks of lomecel-B, one of the other issues that investors should be aware of is that Longeveron doesn't have a huge war chest to draw from to run clinical trials and conduct its research and development (R&D) activities. According to its third-quarter report, its cash holdings were just shy of $19 million. With trailing total operating expenses of $16 million, that's quite a short runway. The company held a private sale of its stocks and warrants on Dec. 3, and its cash proceeds should be around $20.5 million in total.
With the new cash infusion in hand, shareholders can breathe a sigh of relief. The respite is destined to be temporary, however. Phase two of its Alzheimer's disease trial will start early next year alongside its frailty trial in Japan, and its costs will rise accordingly.
If you're willing to bet that management will be able to find new sources of funding -- and they probably will -- it might make sense to think about an investment. Just remember that early-stage biotechs are highly risky investments. Another setback in the clinic might devastate Longeveron's stock price, especially if there are signs that lomecel-B isn't going to be workable as a therapy in general. On the other hand, if losing your capital doesn't sound too frightening in the context of your diversified portfolio, have at it, but you'll need to also be ready to wait quite a while for a payoff.
