Penny Stock Scancell Holdings (LSE:SCLP), has seen its share price jump more than 50% in the last four months. The biotech group has been on a bit of a roll, hitting some solid milestones in its drug development pipeline while also bringing in new expertise to the management team.
So, it’s not surprising to see investors take an interest in this little enterprise. But the question is, at around 15p, is it among the best penny stocks to buy right now?
A year of progress
As a quick crash course, Scancell is an immunotherapy drug research business focused on various forms of cancer. Its primary development pipeline currently consists of four vaccines, two of which are in Phase 2 trials, and four antibodies.
Over the last few months, the board of directors has been getting some fresh talent. In July, Dr Florian Reinaud joined as a non-executive director. A few weeks later, Dr Nermeen Varawalla joined the group as chief medical officer. And shortly after that, Dr Phil L’Huillier was appointed as the new chief executive officer.
Each appointee has an impressive amount of experience within the healthcare industry, both from a medical and managerial perspective. And with L’Huillier having already served as CEO at another biotech group in Germany, steering the business to success, there’s reason for optimism, in my opinion.
Meanwhile, the latest clinical trial results continue to look promising. Its flagship SCIB1 drug, which targets unresectable melanoma, has delivered encouraging results from its ongoing Phase 2 trials so far. Its Modi-1 drug, which targets a variety of other cancers, is also showing good safety, with the expansion of cohorts on track.
In other words, the drugs are seemingly meeting expectations so far. And should these trends continue, Scancell could be getting primed to reap enormous future revenue.
Taking a step back
Seeing solid progress being made in the fight against cancer is terrific. But from an investment perspective, it’s impossible to ignore the risks associated with Scancell. Penny stocks are already high-risk opportunities. But this risk skyrockets when entering into the world of biotech.
Based on current timelines, SCIB1 isn’t expected to complete Phase 2 trials until 2026. And looking at industry averages, it could be as late as 2030 before Phase 3 trials are completed.
In the meantime, Scancell has no revenue stream, which makes it entirely dependent on external financing. Right now, there’s around £15m in cash on its balance sheet, helping keep the lights on. But sadly, that won’t be nearly enough to fund research and development over the next six+ years.
What does this mean for investors? Most likely, shareholders can expect a lot of equity dilution moving forward as Scancell looks to raise capital. We’ve already seen a 50% dilution over the last five years, with the number of shares outstanding rising from 476m in 2020 to 929m today.
In the long run, this may not matter. After all, if Scancell is successful, even after dilution, shareholders could reap enormous returns. However, clinical trials are notoriously difficult. And with the firm’s fate entirely dependent on external investors offering capital, all it takes is one bad result to send the share price plummeting.
That’s why, despite the explosive opportunity, this isn’t a penny stock I’m rushing to buy right now.
