On June 26, FibroGen's (FGEN 1.96%) lead program, pamrevlumab, reported poor late-stage clinical trial results for the second time in a month, sending its stock barreling downward to the tune of 80%. Now, shareholders have little hope that the candidate will be useful in treating a pair of the conditions it's being developed for: idiopathic pulmonary fibrosis (IPF), and Duchenne muscular dystrophy (DMD).
Could this stock eventually recover?
The latest stumble isn't the first
In June, FibroGen whiffed twice with a pair of its phase 3 clinical trials, and canceled a third phase 3 trial for IPF that was expected to also fail. The bottom line with those trials was simply that the patients given its medicine pamrevlumab didn't experience the benefits specified as the benchmarks for a successful course of treatment. So, it's likely the end of the line for the company's attempts to develop a drug for IPF, as it has no other pipeline programs seeking the indication. And while it's possible that its still-ongoing phase 3 trial for DMD could pull through when it reports data sometime in the third quarter, investors are probably correct to be pessimistic.
If it fails, that would leave the company with three late-stage trials in progress, only one of which it owns entirely, its program for locally advanced unresectable pancreatic cancer (LAPC). That means its prospects for growth over the next few years just took a huge blow, and there isn't any clear path to reversing the damage. While it does have a drug on the market in China that's bringing in some sales, that hasn't proven sufficient to make it profitable.
Its medicine Roxadustat is intended to help people suffering from anemia caused by chronic kidney disease (CKD), and it sold $24.2 million in the first quarter, up 28% from a year prior. But over the trailing-12-month period, the company reported a cash burn of $188 million, most of which was due to its hefty research and development expenses, which topped $349 million. So even if Roxadustat continues to experience solid uptake, and even if it gets its indications expanded to address other illnesses, it probably won't be enough to stabilize FibroGen's finances anytime soon. And cutting research costs, while it might be effective at bringing its cash burn down to a long-term sustainable level, would also deny the chance for the pipeline to deliver.
This company isn't done just yet
As bleak as the biotech's June has been, there are three upcoming late-stage clinical trial readouts in the next few quarters that could be opportunities for the stock to recover. Beyond that, assuming it can report favorable clinical trial results, commercializing its medicines would also help to generate more sales that'd restore confidence in its stock. And FibroGen probably has the resources to survive to make another attempt at entering one of its target markets.
It currently has nearly $356 million in cash and equivalents, and $104 million in debt. While its debt load means that it might be hard for it to borrow more money at an attractive rate, it can still issue more stock to raise funds, and management thinks there's enough cash to last it through the end of 2026 after making a few cuts, which is a reasonable estimate. But is it worth buying this risky biotech stock on the chances of it making a turnaround?
It's best to avoid this stock at the moment. With its lead candidate looking like a lemon until proven otherwise, the risk is simply too high. Likewise, its revenue growth from its sales of Roxadustat does not change much of anything about FibroGen's fundamental challenges moving forward.
