CryoPort: Profiting From CAR-T
Summary
- Excluding a one-time stock compensation, the bottom-line improved by 28% for the 3Q2019 earnings report.
- Powering by growth synergy and riding the industry tailwind of CAR-T, CryoPort is enjoying an extremely high revenue growth rate.
- Despite strong developments, the bear market pushed CryoPort to trade at a deep bargain to its true worth.
- I do much more than just articles at Integrated BioSci Investing: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »
Don't fail to consider time as well as price in buying a true growth stock. - Philip Fisher
One of the secrets to successful bioscience investing is to buy a Philip Fisher's growth stock after it experienced a temporary depreciation. Better yet, the best time to purchase is amid a bear market. That's because you can pick up the same company at a deep bargain. At the turn of the next bull market cycle, your stock is most likely to gain multiple folds. Now, don't randomly purchase any stock that tumbled. That is to say, you need to check its fundamentals to see if there is an organic problem. If the stock is just undergoing market unpopularity, it'll rebound to a new high.
CryoPort (NASDAQ:CYRX) epitomizes the aforesaid phenomenon. The stock was on a tear, thus trading as high as $24.53 back on August 16, 2019. Thereafter, unusually strong pressure caused CryoPort to tumble to $13.84 two months later. It seems like market doubts are evaporating, as the stock is making a comeback. In this article, I'll present a fundamental update on CryoPort and share with you my forward expectations.
Figure 1: CryoPort chart (Source: StockCharts)
About The Company
As usual, I'll present a brief overview of the company for new investors. If you are familiar with the firm I recommend that you skip to the next section. Operating out of Irvine, California, CryoPort is operating a logistics business for the life science industry.
Banking on the industry tailwind of cell-based therapies, CryoPort provides the storage and delivery of biological specimens in a strict temperature-controlled environment. That way, they can ensure their livelihood, efficacy, and safety.
Figure 2: CryoPort logistics (Source: CryoPort)
Accordingly, there are three subsidiaries, including biopharma, human reproductive health, and animal medicine. Of those three franchises, the business generating the most value is biopharma, i.e. logistics for CAR-T and gene-based therapies.
That biopharma franchise is thriving because CryoPort can secure notable clients. They include Novartis (NVS), Amgen (AMGN), bluebird bio (BLUE) and Kite Pharma, i.e. a Gilead Sciences (GILD) acquisition.
Robust Growth In Biopharma Franchise
To assess CryoPort's fundamental strength, you should look at its 3Q2019 earnings report. It accounts for the period ending on September 30. As follows, CryoPort procured $9.6M in revenue compared to $5.2M for the same period a year prior. On a year-over-year (YOY) basis, that entails an 81.0% improvement.
Of that figure, the biopharma franchise delivered $7.5M revenues. In other words, it comprises the bulk (i.e. 78.1%) of total revenues. In my view, that's excellent to see the main business growing at 67% YOY.
Accordingly, you need to analyze the catalysts powering the growth for you to anticipate future growth rates. As it turned out, there were 12 new clinical trials added. This ramped up the total worldwide clinical studies to 425. Moreover, Phase 3 trials grew from 46 to 54. As such, it's not surprising to see revenue growth.
But what will enable more revenue growth is the new clients that CryoPort secured. The most notable one is Adaptimmune (ADAP). More importantly, the firm secured two mega partnerships, i.e. with Vineti and Lonza.
Lonza is an ideal partner because it has 24 major sites located worldwide. There are also four centers of excellence to support cell and gene therapy. Of note, the flagship center is located in Houston, Texas. That state-of-the-art manufacturing facility produces treatments for thousands of patients afflicted by rare genetic disorders or life-threatening diseases. As such, you can bet that Lonza will ramp up CryoPort's revenues in the coming quarter. Highly enthused by the partnerships, the President and CEO (Jerrell Shelton) remarked,
It is the intent of Lonza and Cryoport that through their new partnership, they will drive supply chain and manufacturing efficiencies in the cell and gene therapy manufacturing processes by integrating Cryoport's logistics and bio-services solutions with Lonza's manufacturing services and expertise. The Lonza-Cryoport partnership is expected to provide a best in class solution for outsourced manufacturing and logistics of cell and gene therapies.
That aside, CryoPort recently launched the industry's first Advanced Therapy Shipper. That's an unprecedented verification and supply chain support for bioscience companies focusing on cell and gene therapies. Taken altogether, it's spaghetti to sauce that revenues will climb much higher for the next quarter.
Financials Assessment
Just as you would get an annual physical for your well-being, it's important to check the financial health metrics of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow."
Because CryoPort is not the usual bioscience company innovating new drugs, you need to pay more attention to its sales and bottom-line earnings. That being said, there was a net loss of $12.4M ($0.35 per share) compared to $2.1M ($0.07 per share) decline for the same comparison.
At first glance, the widened net loss is a red flag. But if you look closer, there is a one-time $10.8M stock compensation expense. Now excluding that one-time compensation, CryoPort delivered $0.05 per share. Now that's a 28.5% bottom-line improvement!
I know you don't like management paying themselves a big check. However, after a good stock performance over the years, it's reasonable for shareholders to give the management some rewards. And, it's stock-based rather than cash.
You might not agree with me. However, this is prudent management. For instance, they realized the strong negative market sentiment in recent months. Hence, they started the $15M share buyback program that will run until December 2020. As such, you can expect the stock to make a big comeback.
And as the management is profiting from the stock appreciation, you can be confident that they'll do everything to make that happen.
Figure 3: Key financial metrics (Source: CryoPort)
About the balance sheet, there were $93.5M in cash, equivalents, and investments. Against the $16.9M quarterly OpEx, there should be enough money to fund operations into 4Q2020.
While on the balance sheet, you should check if CryoPort is a serial diluter. A company that serially diluted will render your investment worthless. Given that the shares outstanding increased from 28.7M to 35.6M, my math reveals the 24% annual dilution. At this rate, CryoPort easily cleared my cutoff for a profitable investment.
Potential Risks
Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are "growth-cycle dependent." At this point in its life cycle, the main concern for CryoPort is whether the company can continue to ramp up its revenues.
As a young company, CryoPort can grow too aggressively and thereby runs into potential cash flow constraints. Notwithstanding, I believe that this is an insignificant risk because CryoPort is narrowing its net loss. By maintaining this momentum, I expect that the company will generate positive cash flow within two to three years. The other risk is that CryoPort relies on several large clients (i.e. Gilead, Amgen, Novartis, etc.). Therefore, their earnings can take a big hit if they lose a large client like Gilead.
Final Remarks
In all, I maintain my strong buy recommendation on CryoPort with the five out of five stars rating. Profiting from the industry tailwind of CAR-T and cell-based therapies, CryoPort is poised to grow into a giant logistics operator. Since investors recently took profits, CryoPort is trading at a deep bargain to its true worth. Unless all companies stop making CAR-T, you can be sure that CryoPort will grow aggressively. The more the CAR-T market grows, the higher the business volumes for CryoPort.
As you can see, the revenues boosted from 65% for 1Q2019 to 83% for 3Q2019. That's due to previous growth synergy from the World Courier expansion. Looking ahead, I strongly believe that more synergy will be achieved due to new clients and the Lonza/Vineti partnership.
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