Neurobo Pharmaceuticals (NASDAQ: NRBO) is generating chatter today after its share price jumped on the back of a reverse stock split. However, while a share price rise looks great, a reverse stock split is not necessarily a sign that everything is rosy.
That’s because companies with floundering share prices will sometimes conduct a reverse split, which consolidates existing shares into a smaller number of more valuable units, to raise the profile of the business or avoid de-listing.
So, with that being said, is NRBO stock a good investment?
What is Neurobo Pharmaceuticals?
NeuroBo Pharmaceuticals is a clinical-stage biotechnology company which provides therapies for neurodegenerative, infectious, and cardiometabolic diseases.
The company’s therapeutics programs include ANA001, an oral niclosamide formulation, which is in Phase 2/3 clinical trials to treat patients with moderate coronavirus disease (COVID-19).
Other programs include NB-01, which is for the treatment of painful diabetic neuropathy, NB-02 to treat the symptoms of cognitive impairment and modify the progression of neurodegenerative diseases associated with the malfunction of tau protein, and Gemcabene, an acute indication for COVID-19.
NeuroBo Pharmaceuticals is headquartered in Boston, Massachusetts.
How Does Neurobo Make Money?
The company has not yet returned any revenues as it has yet to commercialize any of its therapeutic candidates.
In its most recent quarterly filing, the company stated:
“To date, we have not generated any revenue from product sales, collaborations with other companies, government grants or any other source, and do not expect to generate any revenue in the foreseeable future, and have been dependent on funding operations through the sale of equity securities.”
Neurobo's Strategic Collaboration
Along with the reverse stock split, Neurobo has recently announced a new strategic collaboration with Dong-A ST Co., Ltd, a South Korean healthcare company with a focus on developing, manufacturing and distributing pharmaceutical products and medical devices worldwide.
The collaboration is a conditional exclusive license agreement for Neurobo to develop and commercialize Dong-A’s DA-1241 and DA-1726 treatments, which are currently being evaluated for the treatment of non-alcoholic steatohepatitis, obesity and type 2 diabetes.
Neurobo will be responsible for global development, regulatory and commercial activities other than for certain Asian-Pacific geographies. Dong-A will manufacture clinical supplies and initial commercial supplies of the product at its manufacturing facility in Korea.
Gil Price, M.D., President and Chief Executive Officer of NeuroBo, commented:
"Once the transaction has closed, which is contingent upon certain closing conditions, we will be uniquely positioned to initiate a phase 2a study of DA-1241 in NASH in the first half of 2023, with data expected in the second half of 2024. We also intend to initiate a phase 1a safety study of DA-1726 in the first half of 2023, for which data is expected in the second half of 2023.”
Under the terms of the license agreement, Dong-A will receive an upfront payment of $22m in Series A convertible preferred stock, which will automatically convert into common stock upon receipt of requisite stockholder approval, and will be eligible to receive commercial- and regulatory-based milestone payments.
Dong-A will also be entitled to single digit royalties on net sales of the two assets. Dong-A has also agreed to commit $15,000,000 toward financing the assets, subject to NeuroBo's ability to obtain additional financing under the terms of the license agreement.
NRBO Stock Financials
Across the year-to-date NRBO shares have fallen in price by 43.04% at the time of writing. The stock has a 12-month high of $128.68 and a low of $7.40, compared to a current share price of $22.88.
In its latest quarterly update, he company said it had cash and cash equivalents of $8.85m as of 30 June 2022, compared with $16.39m 12 months prior. Neurobo had stated at the start of the year that if it continued operating at its current level of clinical activity its cash position will be adequate to fund operations into the fourth quarter of 2022.
However, the business appears to have reduced cash burn slightly, with its net loss for the first six months of the year coming in at $6.09m compared with $7.26m in the same period in 2021.
The company does not currently distribute a dividend to its shareholders.
NRBO Investment Risks
With no candidates yet at the point of commercialization, the primary risk for investors in NRBO stock is that the company will run out of money as funds appear to be running low even with a reduction in cash burn. Additionally, new rounds of funding could see investors’ interest in the business diluted.
Additionally, there is the issue that the business’ primary treatment candidate is for the treatment of COVID-19 and remains some distance from commercialization. The World Health Organisation announced just this week that the end of the pandemic is “in sight” and worldwide weekly deaths from the virus are at their lowest level since March 2020.
Indeed, the company even commented in its most recent quarterly report that it had struggled to find patients to enrol in its ANA001 clinical trials due to a “decreased number of eligible subjects”.
It seems that Neurobo could have missed the boat when it comes to treating the pandemic.
Is NRBO Stock a Good Investment?
The danger that the company will run out of money is very real. There are no real prospects for the company to start bringing in revenues in the near future and, judging by the company’s current spending habits, it will be out of money in less than a year unless some sort of funding is arranged.
While the new strategic collaboration with Dong-A adds some interesting treatment candidates to the company’s arsenal, they will still take time to develop. This appears problematic as it doesn’t look like the business has time on its side.
Additionally, the company’s share price has demonstrated extreme volatility across the last 12 months, dropping by more than 90% until the impact of the reverse stock split gave the share price a boost in recent days.
As such, NRBO stock looks like an exceptionally risky investment.