HEPA stock price surged but beware of this glaring Hepion risk

May 23, 2023

Hepion Pharmaceuticals’ (NASDAQ: HEPA) stock price went parabolic on Monday after the company made an important announcement about its mid-stage trial. The shares jumpd by more than 110% and reached a high of $19.66, the highest level since January 17. So, is Hepion a good pharma stock to buy?

Hepion Pharmaceuticals trial

One of the biggest pharma news this week came from Hepion Pharmaceutical. In a statement, Hepion Pharmaceuticals announced that rencofilstat drug met initial goals of its mid-stage trial. Rencofilstat is a non-alcoholic steatohepatitis that aims to reduce fat accumulation in a person’s liver, a condition that is dangerous.

According to the company, the trial showed that patients saw improved liver function after four months of treatment among patients with stage 3 of liver fibrosis. The drug also met other important endpoints in liver injury, alanine, and biomarkers among others. Most of these benefits were seen in the 225 mg dose. The statement added:

“Our improved understanding of which subjects best respond to rencofilstat can be immediately applied to increase the likelihood of success of our larger and longer ASCEND-NASH paired biopsy trial.”

Therefore, HEPA stock price jumped as investors anticipate that the company’s drug will be approved once testing completes. 

HEPA stock dilution likely

Hepion Pharmaceuticals is still a highly risky company to invest in despite the positive results. For one, the firm, which is pre-revenue, has seen its losses jump. Its net loss jumped from over $7 million in 2019 to over $42.2 million in 2022. These losses widened as the company’s research and development (R&D) costs soared.

The challenge for HEPA stock is that the company’s balance sheet is not in good shape for now. This is expected since the company is just spending money without making any income. Its cash and short-term investments dropped from $91 million in 2021 to $51.2 million in 2022. The most recent results shows that the company had $43 million.

Therefore, I suspect that the company will need to raise capital to carry out the next stages of testing and development. Hepion has a history of diluting shareholders since the number of outstanding shares jumped from 248k in 2020 to almost 4 million now.

As such, the company could decide to use the current stock pop to raise more capital. The other risk is that the company is still far from launching its drug. As such, there is a likelihood that the ongoing momentum will fade soon.

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