Is Satsuma Pharma Stock A Buy?

Is Satsuma Pharma Stock A Buy? Migraines are more than just bad headaches. For many, they are a debilitating full-body experience that can last for days. An estimated 39 million people suffer from migraines in the United States alone. Collectively, they take 157 million days out of work each year, which comes at a cost of $36 billion in lost productivity and medical expenses. 

The trouble is that migraines are not well-understood, so they aren’t always easy to treat. Often, oral medications aren’t powerful enough to bring difficult migraines under control, and patients must self-administer injections. Even then, some patients don’t get relief through use of the existing drug therapies. 

Satsuma Pharma wants to reduce the need for injections, which can provoke anxiety and discomfort in patients. The company is well into development of a new delivery system for the most effective injectable treatment – dihydroergotamine mesylate (DHE). Satsuma has created a formula and a device to administer DHE intranasally.  

What investors want to know is whether Satsuma’s product will come to market, and if so, will demand for the new version of DHE make Satsuma’s investment profitable? In other words, is Satsuma Pharma stock a good investment? 

 Is Satsuma Pharma A One Drug Wonder?

For the moment, Satsuma has one drug in the works – STS101. The goal is to give patients a new delivery option for dihydroergotamine mesylate (DHE). DHE itself isn’t new. It’s been available in the United States since 1946, and it has been thoroughly vetted as a safe, effective treatment for migraines. 

The downside to DHE is that it has to be injected, unlike somewhat newer drugs. For example, triptans like rizatriptan and zolmitriptan are available in oral and intranasal forms. However, triptans aren’t a perfect solution, because they don’t ease symptoms for every patient.

More importantly, even among patients that benefit from triptans, the relief is only temporary. Triptans don’t prevent migraine episodes or reduce the number of headaches chronic sufferers experience. 

When triptans don’t work, many patients move on to DHE injections. Though effective, some patients struggle with the delivery system, so they choose less-effective treatments over self-injection. Satsuma’s goal is to offer DHE in a nasal powder form that gives the same relief without the needle. 

Satsuma had two challenges in developing STS 101. The first was to create a dry-powder DHE formulation without losing effectiveness. The second was to leverage drug particle technologies to develop a simple, fast system of getting DHE into the body. 

For a time, Satsuma’s results looked promising. The company applied technology developed by Japan-based Shin Nippon Biomedical Laboratories to create a dry powder formulation of the drug and a device to deliver an effective dose intranasally. In early studies, STS101 appeared to benefit patients. The DHE formula was absorbed by the body quickly, and the device was easy for patients to use independently. 

Unfortunately, STS101 hit a roadblock during Phase III clinical trials – the one that biotech investors fear most. The drug failed to meet its objectives. 

Risks of Investing in Satsuma Pharma

The biggest risk facing Satsuma Pharma investors has already come to pass. In early September 2020, the company announced that STS101 did not meet Phase III clinical trial goals.

While the nasal powder formula and delivery device offered relief from acute migraine symptoms roughly three hours after it was administered, those results fell short of Satsuma’s expectations. The Phase III trial was intended to demonstrate that STS101 could provide statistically significant improvement within two hours of administration. 

Both the 3.9 and the 5.2 mg doses failed to meet the stated goal, so the only really good news from the trial was that patients tolerated the drug well and side effects were minimal.

Upon release of these results, it was only a matter of hours before Satsuma’s share prices dropped nearly 75 percent, and they have continued down further since.

It’s been a difficult time for investors, who as recently as June held stock valued at $36.10 per share. Within months shares dropped to around $4 per share.

Given that the worst has already happened, some new investors are curious about the company’s potential. Can it recover? If so, perhaps the opportunity to buy in at rock bottom prices will lead to large future gains. 

Is Satsuma Pharma Stock a Buy?

Satsuma announced the poor Phase III results on September 10th, and next steps for STS101 are still unknown. Researchers will return to the data for more analysis before making any decisions.

Perhaps information collected during the study will offer clues about what went wrong. If so, and the issue is one that can be corrected, Satsuma may forge ahead. 

From the perspective of investors, the problem is this: for the moment, STS101 is the only product Satsuma is working on. It has nothing else in its pipeline. There is inherent risk when investing in any biotech, but the risk grows substantially when success or failure lies with a single drug.

Given the circumstances, Satsuma stock isn’t suitable for the vast majority of investors at this time. If the company continues to pursue STS101 or develops a more robust pipeline, there will be plenty of chances along the way to reconsider. In the meantime, those that want to add biotechs to their portfolios have a number of other, somewhat less risky options. 

Will Satsuma Pharma Competitors Beat It?

From a financial perspective, most biotechs are now stronger than Satsuma. There are a few standouts that look particularly promising, though they still carry the industry’s higher-than-average risk. Examples include Axsome Therapeutics (AXSM), Bluebird (BLUE), Novavax (NVAX), and Vertex Pharmaceuticals (VRTX). 

When researching biotechs, take a close look at their pipelines. What’s in the works? How far along is the research? How large is the addressable market if the drug succeeds?

It’s also important to consider what the company has already accomplished. Some are more stable than others, because they already have top sellers in the market and/or they own the only available treatment for a particular condition. 

Finally, examine any partnerships the company has with leaders in the pharmaceutical industry. Often, major players like Pfizer, Novartis, and Merck offer financial support to the up-and-comers – but only if they are fairly confident that those drug candidates will be successful. 

Is Satsuma Pharma Stock a Good Buy? The Bottom Line

The bottom line is that Satsuma might successfully reconfigure its product, restart clinical trials, and eventually bring the drug to market, but it’s going to be a long, hard road.

Investors with high risk tolerance might want a limited number of shares at today’s rock bottom prices. After all, there is always the off-chance that Satsuma is eventually successful.

For the rest of the world, Satsuma Pharma is likely not a good buy until it has another viable drug candidate in the works. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.