Stemline Therapeutics Still Has The 'Big Mo'

Summary

• Stemline Therapeutics bucked the downward tilt of the market late in the week and was up nearly 15% in trading Friday.
• Q2 results show the company's recently approved compound ELZONRIS is ramping up much faster than expected.
• We examine the key highlights of the quarter and what is on the horizon for Stemline in the paragraphs below.
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"Arguing with anonymous strangers on the Internet is a sucker's game because they almost always turn out to be-or to be indistinguishable from-self-righteous sixteen-year-olds possessing infinite amounts of free time." - Neal Stephenson, Cryptonomicon

Investor sentiment and the overall market turned south in a big way after Thursday afternoon's announcement that additional tariffs on Chinese imports are on the way. Equities spent the rest of Thursday and all of Friday largely down across the board, with the energy sector taking one of the hardest hits late in the week on plunging energy prices.

One small-cap stock that held up well and even advanced nicely despite the negative headwinds in the market was Stemline Therapeutics (NASDAQ:STML). This holding in the Busted IPO Forum model portfolio posted outstanding Q2 results Friday morning and was rewarded Friday as its shares rallied just under 15% in a bearish market. In today's article, we revisit this promising "Tier 3" biotech concern and looks at the highlights of its second-quarter results.

Company Overview

Stemline Therapeutics is a New York based biotech concern. The company is focused on developing novel oncology therapeutics. The company has one approved product called ELZONRIS and its other clinical candidates include: SL-701, SL-801, SL-901, and SL-1001. Stemline Therapeutics currently has a market capitalization of roughly $600 million and trades for just under $15.00 a share after Friday's rally.

Second Quarter Earnings Highlights

The company posted a loss of 42 cents a share, 14 cents a share above the consensus. More importantly, Stemline delivered $13 million in revenue from ELZONRIS which had its commercial launch in January of this year. This was approximately double expectations and a 157% increase from the first quarter. This compound was approved to treat blastic plasmacytoid dendritic cell neoplasm (BPDCN) cancer late in 2018.

R&D costs fell $300,000 from the same period a year ago to $10.9 million. Selling, general and administrative expenses were $19 million, which is up substantially from $10.4 million in 2Q2018, thanks to costs associated with the launch of ELZONRIS. Stemline had a $16.8 million loss for the quarter and burned through just over $20 million in cash during the second quarter.

The Centers for Medicare and Medicaid Services (CMS) recently assigned a J-Code for ELZONRIS that came one quarter ahead of expectations. This should help the sales ramp up in the quarters ahead.

In addition, an ELZONRIS marketing authorization application (MAA) is under review in Europe on a standard timeline. If things go as planned, ELZONRIS should be approved for BPDCN and hit the market across the pond in mid-2020.

Balance Sheet & Analyst Commentary

The current median analyst price target on STML is just under $30.00 a share. Wedbush upgraded STML late Friday from a Neutral to Outperform. It also bumped up its price target two bucks a share to $20. Previously, JPMorgan was the last analyst firm to chime in on Stemline when it reissued its Overweight rating on June 20th.

The company ended the second quarter of 2019, with just over $103 million in cash and marketable securities on the balance sheet. Quarterly cash burn should incrementally come down in the quarters ahead as ELZONRIS sales continue to increase.

Verdict

It is nice to see a "Tier 3" concern blow through initial revenue expectations for a recent approved product for a change. This bodes well for the company's future prospects in our opinion. Looking ahead, investors can expect a Phase 2 readout for SL-701 for second line glioblastoma (GBM) cancer by the end of the year. Some results for a mid-stage study around ELZONRIS to treat cancer - adult relapsed or refractory acute myeloid leukemia - also should be out by the close of 2019. Not to mention third-quarter sales numbers for ELZONRIS.

In summary, Q2 results were encouraging for long-term bulls on Stemline, and the company has a few other potential catalysts coming up before the end of year to keep an eye on.

Option Strategy

An efficient way to add exposure or initiate a new position in Stemline is via a Buy-Write order. Using the December $15 call strikes (just above the current price of the stock), fashion a Buy-Write order with a net debit in the $12.30 to $12.50 range (net stock price - option premium). This mitigates a good amount of downside risk and sets up a solid potential return for its almost five-month hold period.

"You cannot reason people out of a position that they did not reason themselves into." - Ben Goldacre, Bad Science

Bret Jensen is the Founder of and authors articles for the Biotech Forum, Busted IPO Forum, and Insiders Forum.

Analyst’s Disclosure: I am/we are long STML. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.