Atea Pharmaceuticals (AVIR) shares are down about 16% so far this year amid strong headwinds from a multitude of macroeconomic and geopolitical issues.
Despite the downturn, I rate this stock a Hold, as its growth potential continues to build on significant advances in its antiviral treatment for COVID-19.
Nonetheless, given that the bearish market sentiment is likely to persist for some time, more buying opportunities could be on the way if Atea Pharmaceuticals shares become significantly cheaper.
About Atea Pharmaceuticals
Atea Pharmaceuticals is a biopharmaceutical developer of innovative oral antiviral therapies for difficult-to-treat and life-threatening viral infections.
These include infections with the COVID-19 virus, hepatitis C virus (HCV), dengue virus, and syncytial virus. The company’s headquarters are in Boston, Massachusetts.
COVID-19 Treatments: Latest Study Results
Regarding its lead product candidate AT-527 to treat people infected with the COVID-19 virus, the company recently received encouraging results from a clinical study called MORNING SKY and from a Phase 2 study in high-risk patients.
A broad patient population treated with AT-527 reported a 71% reduction in hospitalizations, while the other clinical trial showed potential benefits for high-risk patients compared to placebo.
Also, the research team performed additional in vitro tests demonstrating AT-527’s comprehensive ability to target and inhibit the growth of the most common variants, including Omicron (BA.1).
First-Quarter Results: Swinging to a Loss
Atea Pharmaceuticals isn’t selling any treatments yet, so its quarterly income statement for the first three months of 2022 ended with a net loss of $0.51 per share.
During the quarter, the company ended a collaboration with Roche Holding AG (RHHBY) and experienced a sharp increase in operating expenses.
As a result, the net loss of $0.51 per diluted share for the first quarter of 2022 was a negative reversal from the net income of $0.34 per diluted share for the first quarter of 2021.
Solid Balance Sheet
As of March 31, 2022, Atea Pharmaceuticals had just over $705 million in cash and cash equivalents while having no debt.
Its financial condition appears to be in very good shape, and until the company rolls out its first treatment for a viral illness, likely the COVID-19 virus, its cash reserves should cover operational needs for a few years.
An additional indication of financial soundness is provided by Atea Pharmaceuticals’ Altman Z-Score of 11.65.
Essentially, the ratio measures the likelihood that the company will be unable to continue its operations and will be forced to cease operations due to bankruptcy.
Atea Pharmaceuticals’ balance sheet has very little risk currently, as any Altman Z-Score above 2.9 indicates a “safe zone,” while below 1.79 indicates trouble and a relatively high risk of bankruptcy.
If the value of the metric is between 1.8 and 3 instead, the company is in the “gray area,” still indicating a risk of bankruptcy, albeit small.
COVID-19 Virus Treatment Outlook
So far, AT-527 has the potential to become another anti-COVID-19 viral agent in the future, complementing those already available, as the company now seeks interactions with the regulatory agency over the development of the treatment.
Atea Pharmaceuticals would not have entered this phase without concrete clinical benefits and data on the safety and tolerability of the treatment.
The antiviral treatment against COVID-19 should be a profitable market, as the virus will probably never be eradicated from the population. Not only vaccines but also antiviral treatments will allow us to live peacefully with the virus and prevent it from mutating into a dangerous variant.
Wall Street’s Take on Atea Pharmaceuticals
In the past three months, two Wall Street analysts have issued a 12-month price target for AVIR. The stock has a Hold consensus rating based on zero Buys, two Holds, and zero Sell ratings.
The average Atea Pharmaceuticals price target is $10, implying 33.5% upside potential.
Valuation Seems Cheap but Can Get Cheaper
Shares are currently changing hands at $7.49 for a market cap of $623 million, a price/earnings ratio of 12.9x, and a price/sales ratio of 2.2x.
The stock is currently trading at a low level, as suggested by the following statistics. The stock is nearly 3.5 times below the median (which sits at $26.11) of its 52-week range of $5.31 to $46.91.
Also, the stock price is not much above its 50-day moving average price of $6.88 and is trading about 30% below the 200-day moving average price of $10.94.
The likelihood of this stock falling further is not small, as the current headwinds have very strong triggers that also appear to be a long-term theme.
The stock has a 14-day Relative Strength Index (RSI) of 56.6, suggesting the stock price is far from oversold despite steadily falling year-to-date. The indicator ranges between 30 and 70. A reading of around 30 means the stock is oversold, while a reading of 70 means the stock has approached an overbought level.
The value attributed to Atea Pharmaceuticals by the 14-day RSI means the stock price could fall further if the headwinds that have kept bearish sentiment so far continue to unfold.
So, if you want to invest in the growth potential of this stock, it makes sense to wait for lower prices, as they are likely to materialize.
Based on current share price levels, which are low compared to recent history, and the growth potential represented by the development of its anti-COVID-19 therapy, it is reasonable to consider Atea Pharmaceuticals as an investment opportunity.
However, as the stock could become cheaper under the strong headwinds that are expected to continue in the market, it is likely better to hold off on buying shares for the time being and see how its treatment development progresses.