Daily Stock Watch: Should You Invest in EVFM?

By Duncan Ferris

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Birth control specialist Evofem Biosciences has seen its share price rocket after the highest court in the US announced the reversal of abortion rights. But is EVFM a good investment?

Photo by Reproductive Health Supplies Coalition on Unsplash

EVFM stock leapt by more than 200% on Monday and has climbed by more than 10% on Tuesday, with Evofem Biosciences appearing to benefit from Supreme Court Action, which has us considering whether you should be adding this to your portfolio.

This resurgence in share price clearly follows the court’s decision to overturn Roe v Wade, the 1970s ruling which recognized women’s right to undergo an abortion. With more than 10 states having already moved to ban abortion within their borders, investors clearly think Evofem’s non-hormonal birth control could be set for a surge in sales.

What is Evofem Biosciences Inc?

Evofem (NASDAQ: EVFM) is a biopharmaceutical company headquartered in San Diego, California.

The company develops and commercializes various products to address unmet needs in women’s sexual and reproductive health. Its commercial product is Phexxi, a vaginal gel for the prevention of pregnancy.

The company is also involved in the development of EVO100, an antimicrobial vaginal gel for the prevention of urogenital transmission of Chlamydia trachomatis infection and Neisseria gonorrhoeae infection in women.

How Does Evofem Make Money?

Evofem makes its money by selling Phexxi, its hormone-free, on-demand prescription contraception. The appeal of the product is that it is intended to allow women to enjoy the benefits of birth control without suffering the side effects that can be caused by some hormonal methods, which can include depression, mood swings and irritability.

Prescriptions for this product grew by 69% in the fourth quarter of 2021 from the prior quarter and the company has said it is in discussions with potential partners for the commercialization of the product in international markets.

EVFM Stock Financials

During its most recent quarter, the company recorded net product sales of $4.3m. While this represented 19% growth against the prior quarter, it is nowhere near covering the total operating expenses for the period, which stood at $33.2m.

The consequent loss from operations has narrowed compared to previous periods, but the company remains reliant on capital raising efforts. For example, the first quarter of its 2022 financial year saw Evofem raise $10m in gross proceeds from registered direct offerings of notes and receive net proceeds of approximately $5.4m from its equity line of credit.

But with quarterly operating expenses in the tens of millions of dollars, the company is under significant pressure. That’s because, as of 31 March, it had just $2.8m in unrestricted cash and $4.2m in restricted cash.

Indeed, May saw the company list 22,665,000 shares of its common stock in an effort to raise more money, though this has led to a significant decrease in share price.

EVFM Growth Potential

The company’s stock price has fallen significantly from highs reached back in 2018, when the company listed on the NASDAQ. The company’s share price has sat at well over $100 but is now languishing at $1.29 per share at the time of writing.

This certainly indicates that there is a lot of room to grow, or at least recover.

There is a significant market to address as well, with Evofem noting that more than 23 million women in the US are not using hormonal contraceptives. Evofem and its investors will be hoping that the recent Supreme Court action against abortion will precipitate an environment where these women are keen to access birth control.

EVFM Stock Risks

The basic fact of the matter is that Evofem’s expenses hugely outweigh its sales figures. This means the company is on a bit of a timer to switch these two figures around. Until then, the business will remain reliant on fund raising tactics that are likely to see shareholders investments diluted in value.

It’s also worth noting that Evofem does face significant competition. Other birth control methods that don’t affect hormones include condoms, which have the added benefit of protecting against sexually transmitted diseases. Additionally, condoms are 98% effective at preventing pregnancy, compared to just 86% effectiveness from Phexxi.

Further competition comes in the shape of longer term measures, like intrauterine devices.

Should You Invest in Evofem?

While Evofem’s share price has exploded in the wake of the US Supreme Court’s overturning of Roe v Wade, it’s difficult to see this as anything more than a kneejerk reaction. 

There may be an increase in demand for products like Phexxi following this landmark ruling, but the share price increase seems to make a lot of assumptions about consumer behaviour.

Is the assumption that demand for birth control products will increase when abortions are less available to pregnant women? Because that assumption seems to infer that a significant amount of women have been relying on abortion as a primary method of birth control, rather than as a last resort.

Indeed, data from research by the Guttmacher Institute indicates that more than half of women who get abortions used birth control in the month in which they fell pregnant. That indicates that there might not be a huge increase in demand for birth control in the wake of the Supreme Court’s ruling. 

That’s not great news for Evofem, as the company will be reliant on capital raising efforts that could further dilute its share price if it is unable to boost sales figures significantly over the coming months.   

The share price is cheap and the company’s fortunes may turn around, but right now Evofem looks like a risky investment.

If you're interested in life sciences stocks have a read of our Cardiol Therapeutics online report.

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This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Duncan Ferris does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Duncan Ferris has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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