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Penny Stock: Ritter Pharmaceuticals Has Potential, But Don't Buy Yet
RTTR stock price and volume trend
The rundown on Ritter Pharmaceutical equity
Ritter Pharmaceuticals is focused on developing and marketing RP-G28, an oligosaccharide with some apparent potential in relieving lactose intolerance (LI) symptoms without much complications and side effects. In essence, the drug is reported to function by accelerating gastrointestinal bacteria growth that work to help metabolize lactose.
Before we get any further, fair warning: The company's stock is not for the faint of heart. It has traded under $1/share since July 2017, and with the exception of February - December 2016, the stock has dropped far more than it increased.
As of now, the success of RTTR depends entirely on bringing its one drug to market. If Phase 3 trials show questionable data, if the FDA does not approve Ritter's product, if sudden competitors for the LI symptom treatment market lessen the company's competitive strengths, or if cash flow problems interrupt the manufacture and sale the lactose intolerance treatment, this business is in trouble. I will grant that the company's research team is reported to be exploring other related uses of gut microbiome alterations and consequent treatment of health issues such as liver disease, metabolic issues, and the like. However, such research is far away from approving Ritter's one drug for treatment of such diseases or from introducing another marketable drug that could bring revenue. For now, the company has no other product to offer, so no other enticement for equity investors.
Regarding the market opportunity for alleviating lactose intolerance symptoms:
"Current annual spending on over-the-counter lactose intolerance aids in the United States has been estimated at approximately $2.45 billion ... there is no long-term treatment available."
This is an enticing investor proposition. I won’t speculate on what percentage of the market Ritter might grab if it commercializes its lactose intolerance treatment, but even a few percent of that $2.45B market would result in tens of millions in revenues. Some may argue that this is a deceptive picture of demand. After all, people could simply switch some dietary habits to avoid dairy products, fixing their lactose intolerance before it starts.
However, dietary habits are not static, and people are not strictly logical, even when, I will grant, it would be in their best interest. I have to believe that this business knows what it is doing. It has institutional investors and serious scientists on board. These people understand the company's value proposition much better than I, and I don't think they would want to swim upstream and interrupt successful on an unlikely bet .
First, the scepticism. "Significant irregularities" is a painfully vague phrase when describing clinical trial results. Apparently, Ritter's drug met Phase 2 goals only after these irregularities were removed from the statistical analysis generated by the study. I would raise a very big eyebrow at this kind of alleged clinical success. On the other hand, this data adjustment may be valid. Proper paperwork was filed with the SEC and Ritter plans on firing up Phase 3 trials in the near future. I don't think Ritter's own research team and management would continue burning cash and spending time on a drug that doesn't show at least some promise. So with that said, we will continue with the product overview, keeping in mind that any further news on "significant irregularities" in the studies should be very carefully scrutinized before throwing cash at RTTR.
Ritter's main product has passed Phase 2 studies. These were the clinical results:
notable reduction of common LI symptoms in approximately 50% of the patients.
no significant adverse side effects.
elimination or near-elimination of LI symptoms in about 30% of the patients. Notably, gas movement had a significantly lower success rate, with only 16% of patients reporting elimination of this symptom with RP-G28 treatment.
Only the last statistic (40%) being a cause for concern since it implies a majority didn't report positive lactose intolerance symptom alleviation results from RP-G28.
Ritter Pharmaceuticals has updated FDA guidance under its belt. The results of the FDA meeting and consequent Phase 3 goals are to supplement the RP-G28 data supporting LI symptom suppression with a six-month observation period for patients participating in Phase 3 trials. This will help establish RP-G28's effectiveness on a longer timeline as well as assuage concerns about possible longer-term side effects or complications as a result of altering the GI tract microbiome.
Cash Pile and Drug Manufacturing
Ritter's arrangement for manufacturing and related patent protection in USA, Europe and Australia bodes well for RTTR stock if RP-G28 is approved by the FDA and brought to market before the cash runs out.
Speaking of cash, the startup seems to have a solid cash position with $5.4M the latest reported quarter, up from $5.1M. Combined with its recent stock sale worth $23M, cash flow and liquidity are not likely to be concerns in the near future.
Lacking manufacturing facilities for RP-G28 is, for me, a substantial risk. Ritter Pharmaceuticals specifies that
"We do not own or operate manufacturing facilities for the production of RP-G28 or any other product candidates we may develop, nor do we have plans to develop our own manufacturing operations in the foreseeable future."
On top of the regulatory and commercial hurdles Ritter must overcome to generate profits from RP-G28, there's this. I would feel more comfortable if, after FDA approval and some signs of demand for its LI treatment, this company took steps to produce the drug in-house.
Even the low end of reported analyst opinion places RTTR stock at $1.50 a year from now, more than quadruple current price of $0.37/share. However, the generally upbeat tone of this article and seemingly favorable analyst opinion should not be an invitation to dive in. Again, this business is betting on one product tested for one particular product: lactose intolerance. Promising results are not a promise of further progress, nor of approval, nor of commercial success.
The vast majority of publicly traded companies have more than one revenue stream even if they market a very narrow product or service. By contrast, this company is a one-shot deal. If regulators or future findings about RP-G28 cast doubt on the enduring efficacy or safety of the drug, company shareholders will have a bad day. Also, there's an outside chance that the recent stock offering may not be enough to fund the company until it pulls in organic sales revenue. More stock offerings to raise cash and the consequent dilution of existing equity won’t be pretty in the short term.
On the other hand, of course, lactose intolerance is widespread; the demand for better symptom treatment is there. With only 13% of the company owned by institutional investors, there’s plenty of room for opportunity and gains.
Buying into this stock is buying into one drug that is not yet thoroughly tested, nor approved; it has a ways to go before it can be sold on the market. Ritter has impressive cash on hand at the moment, but Phase 3 trials and/or subsequent manufacturing/commercialization complications could boost cash burn rate to uncomfortable levels and derail equity gains in the near future.
Stay on the sidelines unless you love low stock prices at the expense of low liquidity.
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© 2017 Rob Bristol