Can a biotech stock that's down by about 40% in the last month have any chance of rallying to multiply in value by a factor of five over the next two years? Prospective investors looking for a big catch may be tempted to look to Anavex Life Sciences, (AVXL 1.63%) a clinical-stage drug developer making waves, thanks to recently disclosed data from one of its trials investigating a therapy for Alzheimer's disease.
Growing by 5x would give Anavex a market cap of nearly $3 billion. That's a tall order for a company with no revenue whatsoever today, but it might still be possible, and some people think its near-term performance will be quite favorable. Wall Street analysts' average one-year price target on the stock, for example, is around $41 -- around 390% higher than its Thursday closing price of $8.35.
With expected growth like that, the prospect of the stock rising by 5x is very much on the table, but you probably shouldn't bet on it actually happening. Here's why.
The latest Alzheimer's trial data didn't wow everyone, but it still might
Anavex is running late-stage clinical trials on its candidate drug blarcamesine for use in multiple indications -- Alzheimer's disease, Parkinson's disease, and Rett syndrome. On December 1, it breathlessly reported that in a placebo-controlled phase 2b/3 trial of blarcamesine with 509 patients, it successfully reduced the cognitive impairment that's a hallmark of the early stages of Alzheimer's. Per the new data, patients that got the drug instead of a placebo were 84% more likely to experience better scores on a common Alzheimer's cognitive rating scale by the end of the 48-week trial, and the company claimed that their rates of cognitive decline were reduced by as much as 45%. Considering that there are no medicines on the market that offer both the prospect of symptom improvements and slower progression of Alzheimer's disease, blarcamesine could well be revolutionary for patients and their families.
If we assume those results are valid, the implication is that Anavex is a shoo-in for regulatory approval, and that it will soon secure a sizable and growing share of the Alzheimer's treatment market, which the biotech says was worth around $305 billion in 2020. With access to such a large market and a therapy proven to provide both short- and long-term benefits to patients, the company would probably not have any problem growing by 5x in the next couple of years.
The main issue with this narrative is that when something sounds too good to be true, it usually is. And there's reason to believe that blarcamesine isn't all it's cracked up to be.
One industry commentator described the company's data release as "sloppy," and the CEO was forced to publicly defend the findings against critics who alleged that Anavex had miscalculated some of the most-applauded efficacy figures. Others piled on and pointed to more severe stumbles, asserting that Anavex used incorrect statistical analyses, tampered with the composition of the study cohorts, moved the goalposts regarding the drug's efficacy, and ignored safety issues.
It's unclear whether these criticisms are correct or not. Even if the critics were on the nose, the biotech could still get the drug approved and make billions. Still, most clinical trial results do not experience such vigorous pushback. Nor is it common for management to step in and contest objections to key technical details like the methods used to perform statistical analyses and efficacy calculations. So the very existence of this controversy should be a red flag for investors until proven otherwise.
Should you buy this stock in hopes of a near-term surge?
Anavex is already planning a 96-week open-label extension study to confirm the prior trial's results, and it's also looking to publish its data in a peer-reviewed medical journal so that third-party experts can scrutinize its findings. Beyond that, expect to get a bit more clarity on its Alzheimer's trial results when it presents at the annual J.P. Morgan healthcare conference scheduled for Jan. 12. But it might take a while for the full story about blarcamesine's efficacy to come out, and that's a huge risk for anyone thinking of buying the stock, even if there's a chance it'll 5x.
So, despite the lofty predictions from analysts and the somewhat contentious publication of its latest data, most investors should think twice before buying this stock unless they're willing to sustain major losses. But if high risks are worth the prospect of high rewards for you, by all means, gamble on Anavex -- just be aware that it wouldn't be the first would-be Alzheimer's drug developer to overpromise and underdeliver.
