What happened
Atai Life Sciences (ATAI 2.40%), a small-cap drugmaker developing psychedelic-based treatments for drug dependency and mental health disorders, posted strong gains during the first four days of trading this week. Specifically, the biotech's stock gained a healthy 34% over this four-day period, according to data provided by S&P Global Market Intelligence.
The big gain came in response to the company's 2022 fourth-quarter and full-year financial report, which was released last Friday. Investors were apparently pleased with Atai's announcement that it had funding to continue operations into the first half of 2026.
So what
Atai has long been one of the best-capitalized makers of psychedelic drugs in the game. The problem has been its progress in the clinic. Since going public in mid-2021, Atai has been stung by underwhelming clinical results for lead candidates KUR-101 in the opioid use disorder setting and PCN-101 as a candidate for treatment-resistant depression.
In its Q4 report, Atai put the spotlight on midstage candidates RL-007 for cognitive impairment associated with schizophrenia and GRX-917 for anxiety. The company also reminded investors that it sports a wide range of ongoing collaborations, which could provide a surfeit of catalysts in the coming months.
Now what
Is Atai stock still a buy after this sudden trend reversal? There is definitely a case to be made that this biotech stock might be significantly undervalued right now. Almost all of its clinical assets are targeting large markets, after all. That said, Atai is a high-risk, high-reward play no matter how you slice it. Investors shouldn't buy this stock unless they are comfortable with this dynamic.
