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Why Avenue Therapeutics Stock’s (NASDAQ:ATXI) 107% Moonshot is Probably an Illusion
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Why Avenue Therapeutics Stock’s (NASDAQ:ATXI) 107% Moonshot is Probably an Illusion

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It’s tempting to jump into the trade with Avenue Therapeutics stock as its shares fly and the company trends on social media. At the same time, cautious investors should consider whether this is a company worth wagering their hard-earned capital on – or whether it’s really just a high-risk meme-stock trade.

Avenue Therapeutics (NASDAQ: ATXI) soared today, gaining 107%. Before you jump on the bandwagon and grab some shares, however, it’s important to learn about the company itself. I am neutral on Avenue Therapeutics stock because it’s a business with multiple risks that shouldn’t be ignored.

First, let’s learn about what this company is and does. Headquartered in New York and founded by Fortress Biotech (NASDAQ: FBIO), Avenue Therapeutics is a tiny specialty pharmaceutical company. How tiny? Yahoo Finance says Avenue Therapeutics has four full-time employees and a minuscule market cap of around $14.1 million (I’ll admit, I added the “minuscule” part).

As you may be aware, small-cap stocks can make really big moves. As Avenue Therapeutics more than doubles in a day, sensible investors shouldn’t just buy the shares because the price is going up. Instead, delve into the company’s crucial data and always remember: stocks that go up very fast can come back down just as quickly.

Avenue Therapeutics is a Single-Product, High-Risk Business

With potentially great rewards can come huge risks. Traders ought to keep this idea in mind if they’re thinking about investing in Avenue Therapeutics. This is a biotechnology firm with only one primary product, and it has come under regulatory scrutiny recently.

What’s wrong with having one main product? Nothing is “wrong” about this, strictly speaking, but it elevates the risk level because if that one product fails somehow, then the company’s stock can lose value quickly.

In the case of Avenue Therapeutics, the company’s entire focus is on an intravenous (IV) version of tramadol, a “potential alternative that could reduce the use of conventional opioids, for patients suffering from acute pain in the U.S.” This pretty much sums up what Avenue Therapeutics is and does.

In a recent regulatory update, Avenue Therapeutics noted “concerns around the safety risk of IV Tramadol in combination with other opioid analgesics” in specified uses. Apparently, Avenue Therapeutics is working with the Food and Drug Administration (FDA) to address these concerns.

It’s not great news that the nation’s drug regulator has safety-related concerns about Avenue Therapeutics’ single product. This isn’t the only thing to worry about, however, as Avenue Therapeutics’ financial situation is less than ideal.

Avenue Therapeutics Isn’t Even Close to Being a Profitable Business

It’s one thing if a company is slightly below breakeven in terms of profit versus loss. In the case of Avenue Therapeutics, however, it’s evident that the company is deeply underwater.

Here’s an example of why all investors should get into the habit of reading SEC forms. A quarterly Form 10-Q from Avenue Therapeutics starkly states that the company isn’t generating revenue yet and “has incurred substantial operating losses since its inception.” Not only that, but Avenue Therapeutics “expects to continue to incur significant operating losses for the foreseeable future as it executes on its product development plan and may never become profitable.”

We don’t need to hunt for distressing data points, as Avenue Therapeutics already did the legwork on this. The company disclosed that it had an accumulated deficit of $80.5 million as of June 30, 2022. Furthermore, Avenue Therapeutics incurred a second-quarter net loss of roughly $604,000 – a hefty loss for such a small company.

Avenue Therapeutics’ Reverse Stock Split Isn’t Really Good News

There wasn’t any great news today that ought to have prompted a share-price gain of around 107% for Avenue Therapeutics stock. Most likely, meme stock traders drove this price action. They may have been in a bullish mood as Avenue Therapeutics recently enacted a reverse stock split – yet, this development shouldn’t be interpreted as a positive catalyst.

A press release reveals that, on July 25, Avenue Therapeutics’ shareholders approved a 1-for-15 reverse split of the company’s common stock. To put it in simple terms, the shares are being lumped together so that each share is worth 15 times as much as before, but the total number of shares will be reduced in proportion to this.

Avenue Therapeutics already started trading on a split-adjusted basis on September 23. The company’s stock had been on a steep downward trajectory since mid-2020.

Here’s the unsettling part. Avenue Therapeutics fully admits, “The reverse stock split is primarily intended to bring the Company into compliance with Nasdaq’s $1.00 per share minimum bid price requirement for continued listing.” Really, it’s an act of desperation as Avenue Therapeutics relentlessly heads toward zero and faces a potential delisting threat.

Conclusion: Should You Consider Avenue Therapeutics Stock?

Meme stock traders seem to have taken control of Avenue Therapeutics stock for a day, and it’s certainly exciting to watch a tiny company get so much attention on social media. However, cautious investors need to know the full story before jumping headlong into the trade.

The fact is that Avenue Therapeutics is an unprofitable, single-product biotech business that could get delisted at some point in the future. So, don’t get caught up in a tricky meme trade, as Avenue Therapeutics stock could easily resume its relentless slide to the downside.

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