Why Frequency Therapeutics (FREQ) Might Be a Risky Bet for Investors

On March 23, FREQ stock plunged significantly after the company announced the top line day-90 interim results from the FX-322 phase 2a study in adults with SNHL (sensorineural hearing loss). The results showed that four weekly injections of FX-322 didn’t demonstrate any improvement in hearing loss versus participants receiving the placebo. However, Frequency did notice that the placebo group experienced a great improvement in hearing, which hadn't been seen in any prior FX-322 trials.

Frequency also released new findings from a separate study that showed that a single injection of FX-322 improved hearing. As a result, the company will focus on developing single-dose FX-322.

According to estimates compiled by MarketBeat, analysts' consensus target price is $37 for FREQ stock, which is 363 percent above its current price. All of the three analysts tracking FREQ stock recommend a buy. None of the analysts recommend a sell. The highest target price of $56 is 601 percent above the stock's current price, while the lowest target price of $20 is 150 percent above the stock's current price.

Two analysts reduced their target prices on FREQ stock after the company announced disappointing trial results on March 23. Oppenheimer reduced its target price from $68 to $20, while B. Riley reduced its target price from $79 to $35.

While retail investors on the popular Reddit group WallStreetBets have been pumping stocks like GameStop and AMC Entertainment, FREQ isn't among the most active stocks on the subreddit. A user going by the name “u/BasicallyElonMusk” highlighted that Yahoo upgraded FREQ stock to a buy rating a day before the company’s disappointing trial results. The post was upvoted over 740 times as of 11:17 a.m. ET on March 24.

Another user going by the name “u/LividCurry” posted that FREQ stock could reach $60 if the FX-322 drug is approved or the stock could reach $5 if the drug doesn't get approved. The user added that most of the drugs fail in phase 2 clinical trials.

There are several risks that are inherent with an investment in the biotech sector. Frequency Therapeutics doesn’t generate a net income and its business model isn’t fully proven. The company’s overall value depends on the success of its lead candidate FX-322. The product’s value could be impacted negatively if it fails in the clinical study or regulatory authorities don't approve it. Investors face high risk since FREQ is a penny stock.