Early-development-stage biosciences company Enveric Biosciences, Inc. (ENVB) is engaged in developing various cannabinoid-based solutions to treat those adversely affected by the side effects of cancer treatments. Its shares soared 10.5% over the past three months on the back of investor optimism surrounding the proposed acquisition of MagicMed Industries Inc. This could help ENVB expand its oncology and central nervous system (CNS) product portfolio.

However, investigations are ongoing against ENVB regarding the proposed acquisition, which could negatively impact the company’s business. The stock has lost 38.3% year-to-date and 60.4% over the past nine months to close Friday’s trading session at $2.63. Moreover, the company is yet to generate revenue, and its losses widened in the second quarter. So, its near-term prospects look uncertain.

Here’s what I think could influence ENVB’s performance in the near term:

Positive Developments

On July 8, ENVB announced that it received approval from the Israeli Ministry of Health to begin the Phase 1/2 portion of its study of its lead asset, EV101, designed to investigate the safety and efficacy of synthetic cannabidiol (CBD) treatment for glioblastoma (GBM). However, the product is not yet approved for marketing. Also, on May 24, ENVB agreed to acquire MagicMed Industries Inc., subject to shareholder approval.

Diverse Biotech announced in March 2021 that it had finalized a strategic transaction with ENVB to license exclusive worldwide development and commercialization rights for five novel compounds to address the side effects of cancer treatments. Also, ENVB launched a strategic development collaboration and exclusive supply agreement with PureForm Global, Inc. in February 2021 to treat pain and inflammation resulting from cancer treatments.

Click here to checkout our Healthcare Sector Report for 2021

Ongoing Investigation

Following ENVB’s announcement of the proposed acquisition of MagicMed, several law firms launched an investigation against ENVB on potential violations of the federal securities laws and breaches of fiduciary duties. Upon completion of the transaction, ENVB’s current shareholders are expected to own roughly 63.4% of the combined company's common stock. Moreover, class action law firm Purcell Julie & Lefkowitz LLP had launched an investigation against ENVB in January 2021 on a potential breach of fiduciary duty claim involving its board of directors.

Weak Financials

ENVB’s research and development costs increased 1,626.6% year-over-year to $879,843 for the second quarter that ended June 30, 2021. The company’s general and administrative expenses increased 222.3% from the same period last year to $2.31 million. While its loss from operations increased 338.2% year-over-year to $3.36 million, its net loss came in at $908,289, up 11% year-over-year. Its loss per share came in at $0.04 in the quarter compared to $0.15 in the year-ago period.

POWR Ratings Don’t Indicate Enough Upside

ENVB has an overall grade of C, which equates to a Neutral rating in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary ratings system also evaluates each stock based on eight different categories. ENVB has a C grade for Growth, consistent with analysts’ expectations that its EPS will remain negative in the current year and next year.

The stock has a D grade for Momentum, in sync with its 18.3% loss over the past six months and 60.4% loss over the past nine months. Moreover, ENVB has a D grade for Stability.

ENVB is ranked #149 out of 510 stocks in the Biotech industry. Click here to see the additional grades for ENVB (Value, Sentiment, and Quality).

Bottom Line

Even though ENVB did not have an impressive stock market debut last year, it has made several advances in developing solutions to treat cancer patients. However, it is still in the early stages of development. Moreover, its near-term prospects look uncertain due to the investigations against it regarding the proposed acquisition of MagicMed. So, it could be wise to wait before adding the stock to your portfolio.

How Does Enveric Biosciences (ENVB) Stack Up Against its Peers?

ENVB has an overall grade of C. However, check out these A-rated (Strong Buy) stocks in the Biotech industry: Sino Biopharmaceutical Limited (SBHMY), QIAGEN N.V. (QGEN), and Takeda Pharmaceutical Company Limited (TAK).

ENVB shares were trading at $2.66 per share on Tuesday morning, up $0.03 (+1.14%). Year-to-date, ENVB has declined -37.56%, versus a 21.45% rise in the benchmark S&P 500 index during the same period.

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...