To The Moon

Shares of $Canopy Growth Corporation(CGC)$ soared 235% between August 11 and September 15; at the same time, drugmaker $Taysha Gene Therapies, Inc.(TSHA)$ in clinical-stage jumped 345% during the same period. Could even more eye-popping rallies be next for these two healthcare stocks? Or have investors already stepped out of the market?

To answer that question, firstly, we need to understand the catalysts behind these two healthcare stocks’ skyrocketing.

 1. Canopy Growth $Canopy Growth Corporation(CGC)$

Investors in Canopy Growth have been rejoicing lately because the company has decided to stop "bleeding" BioSteel, a dietary supplement company that has been underperforming, and focus on the sale of related products.

Specifically, BioSteel's revenues increased to C$32.5 million (more than $24 million) in the first quarter, up from C$13.7 million (more than $10 million) in the same period a year earlier; however, the cost of manufacturing and warehousing these supplements was much higher than the company had anticipated. Even excluding selling, general and administrative expenses (SG&A), BioSteel generated a loss of C$0.24 for every C$1 of revenue generated. Simply speaking, the higher the revenue, the higher the loss.

It’s wise for Canopy Growth to abandon the supplement business, but it's still not a good time to buy this stock, as BioSteel isn't the company's only business with negative gross margins. While it's a big improvement over the negative 24% gross margin from a year earlier, the company is still teetering on the edge of life and death.

According to Canopy Growth's own projections, the company is on track to achieve positive adjusted earnings before taxes, interest, depreciation, and amortization (EBITDA) by the end of fiscal 2024. Until it delivers on that expectation, investors are advisable to wait and see.

2. Taysha Gene Therapies $Taysha Gene Therapies, Inc.(TSHA)$

Taysha Gene Therapies is a clinical-stage biotechnology company developing new gene therapies for inherited neurological disorders. The company's shares jumped after it posted positive results from a Phase I trial of its Brett syndrome therapy, TSHA-102, which contains a shortened version of the MECP2 gene. What’s more, the first patient with Brett syndrome receiving a single dose of the treatment not only had no negative safety signals after 4 weeks, but also showed improvements in several tests of disease severity, as well as improvements in patients' motor skills and vocal abilities.

The global patients for Rett syndrome are approximately 350,000, resulting in an annual sales potential of over $300 million for TSHA-102, compared to Taysha Gene Therapies' current market capitalization of only $213 million. The company expects TSHA-102 dosing in the second patient to start in the third quarter, and if subsequent results are in line with the first patient, the stock will continue to soar. However, gene therapy trials are extremely uncertain, and any negative safety signals could cause regulators to call off the company's development program and drag the stock price into a dive.

Before investing in this high-risk biotech stock, it's important for investors to learn about that Taysha had just $45 million in cash left at the end of June, but has burned through a whopping $124 million in cash over the past 12 months. The company recently raised $150 million, but that's only enough for it to spend through 2025, while increasing the number of shares issued and outstanding to more than three times the original amount. Therefore, investors should ideally remain on the sidelines until more clinical trial data is released.

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