Clinical-stage biopharmaceutical company Seelos Therapeutics, Inc. (SEEL - Get Rating) in January became a publicly traded company by listing  its shares on the Nasdaq stock exchange via a reverse merger with Apricus Biosciences Inc. However, the stock  witnessed  price weakness through the end of 2020. So far, this year has been favorable for the stock, however. SEEL has gained 158.9% year to date.

The stock has gained 15.9% over the past month to close yesterday’s trading session at $4.09, after hitting its all-time high of $5.89 on March 12. This can be primarily attributed to optimism about the name driven by the initiation of coverage of the stock by BTIG Research. It gave the stock a Buy recommendation and a high price target. BTG analysts based their recommendation on the high potential of SEEL’s intranasally delivered racemic ketamine — SLS-002.

But given the company’s weak financials, and with no major portfolio diversification in sight, we think it may not be easy for the stock to maintain its momentum.

Click here to checkout our Healthcare Sector Report for 2021

Here are the factors that could shape SEEL’s performance in the near term:

Narrow Focus

SEEL is focused  primarily  on developing technologies and therapeutics for the treatment of central nervous system and respiratory disorders. This is in contrast to other  the top players in the biopharma space, such as Gilead Sciences, Inc. (GILD) and Regeneron Pharmaceuticals, Inc. (REGN), which are involved in developing solutions for several other areas. SEEL’s lead development  programs are  SLS-002 and SLS-006. However, the company incurred a $18.76 million loss from operations during fiscal 2020 and its net loss came in at $19.10 million.

Selling Shares to Fund Company’s Growth Activities

Last December,  SEEL sold  $12 million of senior secured convertible notes and shares of its common stock to investors including Lind Global Asset Management II, LLC. The company received $10 million in gross proceeds, which it plans to use  for general corporate purposes and to advance the development of its pipeline candidates. SEEL also generated roughly $6.20 million in  proceeds in September 2020 from a registered direct offering.

Poor Profitability and Unfavorable EPS Estimates

While SEEL’s trailing-12-month gross profit margin of 100% is higher than the industry average, its ROE and ROA are negative 1489.4% and 82%, respectively. Its levered free cash flow margin is also negative 4697.5%. Moreover, analysts expect the company’s EPS to remain negative in fiscal 2021 and fiscal 2022.

POWR Ratings Reflect SEEL’s Bleak Outlook

SEEL has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. SEEL has a D grade for Quality also, which is  in sync with its disappointing profitability ratios. The  stock also has a grade of D for Stability.

We have also graded the stock for Growth, Value, Momentum and Sentiment. Get all SEEL’s ratings here.

Out of 488 stocks in the Biotech industry, SEEL is ranked #239.

Better than SEEL: Click here to see 29 top-rated stocks in the same industry.

Bottom Line

SEEL is a relatively new company in the biopharma space and it has been struggling to stay afloat amid intense competition. The company has also been incurring losses. Furthermore, Fields Kupka & Shukurov LLP has been  investigating a potential breach of fiduciary duty claims  involving SEEL’s board of directors. As a result, we think it is wise to avoid betting on the stock now.

Click here to checkout our Healthcare Sector Report for 2021

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SEEL shares were trading at $4.20 per share on Friday morning, up $0.11 (+2.69%). Year-to-date, SEEL has gained 165.82%, versus a 4.03% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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