This Stock Is Up by 800% This Year -- but Is It a Buy?

Key Points

• Abivax's shares skyrocketed following positive clinical trial results for its lead candidate, obefazimod.

• This investigational medicine could prove more effective than existing drugs for ulcerative colitis.

• There might be plenty of upside left if obefazimod produces more positive results in further trials.

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If you had invested money in Abivax (NASDAQ: ABVX) at the beginning of the year, you would be sitting pretty right now. The French biotech's shares recently skyrocketed and are up more than 800% year to date. As investors can probably guess, Abivax's gains are tied to impressive clinical progress for its leading pipeline candidate.

However, some might worry that it's too late to buy the stock now. Is that the case? Let's look deeper into what's going on with Abivax and determine whether there's any upside left.

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A potential first-in-class drug

Abivax's leading pipeline candidate is called obefazimod, a potential treatment for ulcerative colitis (UC). It could be a first-in-class drug, meaning a medicine that has a novel mechanism of action distinct from those of existing therapies targeting the same condition. First-in-class drugs sometimes prove more effective than standard existing treatments, so there is significant potential for a smaller biotech company working on a medicine like this one, if it can ace clinical trials.

Image source: Getty Images.

Abivax has just achieved exactly that, with strong results from a pair of phase 3 trials for obefazimod. The medicine led to a high rate of remission among participants with moderate to severely active UC, compared to a placebo. Importantly, the studies included patients who had never received any advanced therapy for UC, as well as some who had but had previously failed to achieve remission. According to Abivax, 47.3% of participants in these trials had an inadequate response to prior therapy.

In other words, obefazimod succeeded in helping some patients achieve remission where other medicines had failed. And this isn't an obscure therapeutic area with just a couple of options, either: It's actually a highly competitive market. There are numerous advanced therapies for UC, including some produced by several of the world's largest pharmaceutical companies. That makes obefazimod's success all the more impressive.

Why it may not be too late to buy the stock

Abivax's market capitalization is now 3.7 billion euros (about $4.3 billion). Some analysts estimate that obefazimod could hit peak sales of about $4 billion. Of course, it won't get there anytime soon, even if it earns approval. Though the data looks strong so far, there is more to come.

The recent results Abivax shared were from induction trials (to see whether a medicine can reduce the symptoms of a disease). The biotech has an ongoing maintenance study (to check whether it can keep the disease under control), the results of which it plans to share in the second quarter of 2026. If this data isn't up to Wall Street's liking, Abivax's shares might plunge.

That's to say nothing of potential regulatory setbacks, which aren't that rare with smaller biotech companies and could also sink the company's stock price. So there are some risks involved, but the stock might be worth it for those who can stomach the volatility. Abivax has developed a medicine with a novel mechanism of action that performs well in clinical trials, and that ability speaks volumes about the company's innovative capabilities.

Meanwhile, although funding was an issue at the start of the year, it should no longer be a problem. Abivax ended the first quarter with 103.6 million euros in cash ($120.1 million), which management thought would only last until the end of this year. Thanks to obefazimod's phase 3 results and the company's stock price soaring, Abivax announced a secondary offering, during which it expects to generate gross proceeds of 637.5 million euros ($747.5 million). That should be plenty of money for the company to keep the lights on, even beyond next year.

There's still significant upside left if the ongoing phase 3 clinical trials for obefazimod in UC also yield strong results. Additionally, Abivax is testing its lead candidate as a monotherapy for Crohn's disease, as well as a potential combination treatment for UC.

Consistent positive clinical and regulatory developments could lead to even more gains for patient investors. That's why it might still be time for those with above-average risk tolerance to initiate a small position in the stock.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.