As you may be aware, some business combinations with special purpose acquisition companies (SPACs) have not gone well. But one exception — at least so far — is eFFECTOR Therapeutics (NASDAQ:EFTR) and EFTR stock.
This clinical-stage biotechnology firm focuses on selective translation regulation inhibitors (STRIs) in cancer. EFTR stock is currently up some 43% year-to-date (YTD).
How is EFTR different from the pack? And does it mean you should invest? Here’s what you should know about the company and its stock moving forward.
EFTR Stock: Potentially on the Cutting Edge
There are three key reasons why shares of this name have moved against the SPAC grain so far. But first, let’s address the obvious: EFTR stock is incredibly popular on social media. Whether it’s a meme trade or not, I’ll leave to readers. Still, it certainly has some similar qualities.
Secondly, EFTR stock has lit up the charts because of its relevance. Leading up to mitigation protocols addressing Covid-19, the pharmaceutical industry was hotly pursuing oncological drugs. Sector analysts saw the enthusiasm as unprecedented. So, given that eFFECTOR could hold the key to groundbreaking cancer therapeutics, it’s only natural that interest has reignited. (Plus, with the easing of the pandemic, more patients are willing to visit treatment facilities, indirectly helping the case for the stock).
Thirdly, though, the pandemic itself has been a boon for novel therapeutics. Prior to companies like Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA) rolling out their mRNA vaccines, the U.S. Food and Drug Administration (FDA) had never approved nucleic-acid-based vaccines. Because of research insights into various new biotechnologies, eFFECTOR has a much more credible investment profile.
Despite Industry Gains, eFFECTOR Is Still Risky
However, although the experiences of the pandemic have improved EFTR stock’s probability of success, where that improvement puts it against the bigger picture is still unclear. For instance, an improvement of probability from 1% to 2% is a difference of 100%, yet a 2% probability is still not at all encouraging.
To be absolutely clear, I’m not saying that EFTR has a 2% chance of success. Frankly, I’m not even sure you can accurately measure the success rates of biotech names because they’re so volatile. With both investors and scientists pouring over the data left and right, all it takes is one small aspect to go wrong and the name in question can crumble.
And that’s really the point of EFTR stock. Yes, it has enjoyed great returns over a short period of time. But never forget the cruel nature of biotech investing — you can lose those gains (and then some) just as quickly.
Of course, bulls will be quick to point out that the company has an ongoing collaboration with Pfizer. Fresh from its Covid-19 vaccine success, Pfizer has nothing but momentum on its side. At the same time, though, big pharmaceutical firms don’t necessarily have a great track record of delivering clinical results.
At least, that’s according to a Stat op-ed from December 2019, right before the pandemic. The piece found that “large pharmaceutical companies did not actually invent most of the drugs they sell.” Many of the drugs that reached the commercial phase came from third parties. In other words, the Pfizer name could end up being a red herring here.
Ultimately, though, many (if not most) of the new therapeutics attempting to go through various clinical phases simply never make it to market. Therefore, you’re taking a huge risk with EFTR stock regardless.
EFTR Stock: Beware of the Crowd
The appeal for eFFECTOR investors is that — should the company reach commercial success or be bought out by another firm — the price you pay today for EFTR stock could turn out to be a tremendous discount.
And after all, you don’t gain anything if you don’t risk anything. I invest in cryptos, so I totally understand the nature of the beast.
Still, if you’re thinking about EFTR stock, you’ve got to be careful. When looking at many of the meme (or meme-like) trades, the technical patterns can be stunningly nonsensical. Is this the next generation of group dynamics? Whatever it is, you’ve got to know what you’re doing and the risks involved.
If you’re okay with that, then EFTR might work out for you. But I hope you’ll excuse me for not joining in on the fun.
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On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.