Will FDA Approval Spike TVTX Share Price?

TVTX Stock Forecast: For investors looking for small-cap companies with the potential to produce large returns, the biomedical industry is fertile ground.

 

Biotech companies often trade at reasonable prices and offer considerable upside when they successfully bring innovative drugs or medical devices to market.

 

One stock in this category that may soon gain FDA approval for its treatments is Travere Therapeutics (NASDAQ:TVTX). Here’s what you should know about TVTX stock and where it will go from here.

 

Travere Therapeutics is a biomedical company that is attempting to develop and commercialize treatments for rare kidney diseases.

 

The company has developed a candidate drug, sparsentan, that it believes is an effective treatment for two such disorders. Travere was founded in 2011 and formerly went under the name Retrophin.

According to Travere’s Q3 earnings call, the company reported $54.2 million in sales during the third quarter. During the same period the previous year, sales totaled $51.1 million. Despite being a modest gain, the year-over-year increase in sales points to a positive growth trend for TVTX.

Travere did report losses in Q3, which is quite normal for a biomedical company that is still trying to commercialize a novel treatment. The net GAAP loss for the quarter was $35.6 million, while non-GAAP losses totaled $7.9 million. Travere’s losses were in large part a result of increased research and development spending. During Q3, the company spent $48.4 million on R&D.

 

One of the most promising metrics in the Q3 report was Travere’s cash reserve. The company is currently sitting on $551.2 million in cash and cash equivalent assets. This amount gives Travere enough money to fund ongoing research and development spending through 2022 and into 2023. Operating expenses are expected to rise slightly going forward.

 

At the time of this writing, TVTX held four Buy ratings and one Hold rating. The average price target for the stock was $32.40, representing an upside of about 15%. The highest price target is $42 and the lowest is $19.

 

Based on these targets, Travere Therapeutics appears to have a respectable upside potential over the next 12 months. At more than 15 percent, the stock would beat the average return of the S&P 500 index if it meets its average price target. With that said, the upside also isn’t disproportionately large.

 

The highest current target price for TVTX is $42. At this price, the stock would have an upside of about 49 percent.

 

This number likely represents the highest probable price for Travere in the coming 12 months. However, as with all other stocks, it’s best not to assume the most optimistic case for TVTX.

 

Even if the stock does outperform the average price target of $32.40, its high will likely be somewhere between that target and $42.

 

The biggest risk factor for TVTX is the possibility that sparsentan could fail to gain FDA approval, an outcome that would undermine the company’s growth prospects dramatically.

 

At the moment, the company hopes to gain accelerated approval for the drug sometime in mid-2022. If that approval fails to materialize or is delayed, however, the company could have difficulty generating significant revenues.

 

Travere also has a considerable amount of debt, though its cash reserves are sufficient to cover its obligations. In total, the company has about $467.7 million in total debts. Of that, $113.2 million is due within the 12 months following Q3 2021. This amount of debt is slightly concerning, especially if FDA approval of the company’s key drug doesn’t come through this year.

 

It’s also worth noting that TVTX carries the risk of being a company that hasn’t yet reached profitability. Though such companies can produce considerable gains when they eventually become profitable, they typically carry higher levels of risk than companies that are already generating profits.

 

Finally, Travere’s standing book value is just $4.14 per share. This puts the current price at more than 6.5 times the stock’s book value. While not necessarily out of line, this is a fairly high price-to-book ratio. As a result, there’s little reason to consider TVTX to be potentially undervalued. This could make the stock unattractive for value investors hunting for bargains.

 

Travere Therapeutics seems to be a bit of a mixed bag. On the positive side, the company has a promising drug candidate that could gain accelerated approval sometime this year. If that happens, there’s a good chance Travere will see its revenues jump in 2023 and beyond. The company also has a good cash reserve and enough potential upside to deliver reasonably strong returns for investors.

 

On the other hand, Travere is also a fairly risky stock to purchase. Biomedical stocks of this type are notoriously volatile, and delayed approval from the FDA could cause serious problems for investors. The stock also trades at a relatively high price-to-book ratio, which could be a concern.

 

The deciding factor seems to be the stock’s upside potential. At around 15 percent, TVTX could certainly produce strong returns for investors if it hits its average target price. With that said, the company seems quite risky for a return of just a few percentage points over the historic S&P 500 average. Unless Travere outperforms the average analyst price forecast, it may carry too much risk for too little additional reward.

 

Overall, TVTX is a stock that seems set to perform well enough but which is likely too risky for most investors. If you’re a risk-tolerant investor, there are companies with more upside potential at similar risk levels. More conservative investors, meanwhile, will likely shy away from Travere Therapeutics because of the uncertainty that comes along with it.

 

So, even though Travere is a decent company with real potential, there may be relatively few investors for whom the stock is a good fit.

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