Shares in Aussie biotech hopeful Innate Immunotherapeutics Ltd (ASX: IIL) have gone into orbit today despite the company revealing a quarterly cash flow statement that hardly inspires evangelical-like confidence in the future.
For the quarter ending December 31 2016 it delivered a net operating cash loss of $1.78 million, with just $6 million of cash left on its balance sheet at the end of the period.
What must be exciting investors is the potential of what the company claims are its unique drugs that could be used for the treatment of patients suffering from multiple sclerosis. It's a condition that attacks a patient's immune system and Innate Immunotherapeutics currently has a Phase II B clinical trial underway to part test its MIS416 drug's efficacy in treating patients with secondary progressive multiple sclerosis.
Despite the business having nothing in the way of operating revenues the market is now ascribing it a valuation around $173 million, after shares rocketed 50% to $1.17 today.
Mysterious price action
On January 27 the stock hit a high of $1.83 only to close at 78 cents just one trading day later on January 30 in some wild price action that has already attracted the attention of the regulator in terms of an ASX price query.
The trading action is also seeing relatively heavy volumes which makes the price action all the more mysterious, with the most likely explanation that it is being driven by day traders seeking to make quick profits.
For long-term investors it looks a business to watch from the sidelines and not just because of the huge share price swings increasing the likelihood of a visit to the burns clinic.
Anyone considering an investment should note that the company is currently is still at a relatively early investment stage, with just one product at Phase II trial status. This means it probably has expensive and time consuming Phase III trials ahead of it before it could seek any commercial approval to sell its drugs.
Evidently with multiple hurdles to jump, no revenues, and significant costs ahead, it looks an extremely speculative investment prospect and one to watch from the sidelines in my opinion.
Of course if it does ever get approval for its drugs it will be great news for potential patients and the company's investors, although that seems a long way off for now.
If you're looking to make money out of the tailwinds supporting the healthcare industry, why not buy profitable companies with products that create high barriers to entry and competitive advantages?
Two businesses that come to mind are Ramsay Health Care Limited (ASX: RHC) or Cochlear Ltd (ASX: COH). Both look far superior investment options for now in my opinion.
