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In March of this yr, I used to be loading up on shares of Concord Biosciences (NASDAQ:HRMY) because it noticed sturdy and really worthwhile progress. After the corporate noticed approval for WAKIX in 2019, the corporate has seen speedy and worthwhile progress, permitting for additional R&D funding and bolt-on dealmaking in an effort to diversify the enterprise.
Whereas the dependency dangers on a single drug have been massive, attraction was imminent in my opinion. Continued progress is seen in WAKIX gross sales, however some controversy is seen as effectively, though the corporate labored arduous to create some diversification. Nonetheless upbeat based mostly on the numbers, I worry to extend my place right here on this battleground inventory.
Neurological Problems
Concord focuses on the event and commercialization of neurological dysfunction therapies, and the enterprise loved sturdy momentum following FDA approval for WAKIX in 2019, which was designed to extend histamine ranges which give alerts to the mind.
The drug is permitted for EDS, which stands for extreme daytime sleepiness, a sign which impacts some 150,000 Individuals, representing a $2 billion market alternative, with commercialization beginning in November 2019. Being the one devoted drug for EDS, many sufferers have been utilizing generic and different medication corresponding to Ritalin, Xyrem, Adderall, medication which create dependency dangers and lack efficacy.
Priced at $24, shares doubled on their opening days, granting the enterprise a $3.0 billion valuation, all whereas WAKIX gross sales solely totaled $6 million in 2019 (which isn’t any shock with approval solely coming in late throughout the yr).
The corporate noticed sturdy progress with first quarter gross sales for 2020 coming in at $20 million, to almost double to $38 million within the second quarter. The $150 million run price is substantial because the FDA permitted the remedy of catapelxy, with third quarter gross sales growing to $45 million, and fourth quarter gross sales reported at $56 million.
After this spectacular progress in 2020, revenues rose additional to $305 million for all of 2021, with working income reported at $87 million. In February 2023, Concord posted a 43% improve in 2022 gross sales to $438 million, with working income reported at $120 million, even after accounting an enormous R&D cost. Furthermore, fourth quarter working income of practically $48 million on $128 million in gross sales have been large, translating right into a profitability run price of $2.50 per share.
With shares buying and selling at $43 per share, and the corporate holding about $2 per share in web money, valuations regarded affordable at 16-17 occasions earnings, because the enterprise was nonetheless posting 40% income progress. The difficulty was that traders have been constantly involved in regards to the enterprise being a one-trick pony, in addition to the truth that CEO John Jacobs left the agency.
And Now?
Having been bullish on Concord at $42 that upbeat stance was a bit too preliminary. By the tip of the month, shares plunged to the $30 mark on the again of a brief report.
In Might, Concord posted a 40% improve in first quarter gross sales to $119 million on which the corporate posted an working revenue of $40 million, with web earnings of practically $30 million coming in at $0.48 per share. This and a few analysis outcomes made that shares recovered to the $35 mark over the summer time, as the corporate announced a $125 million share buyback program in August.
This buyback program was introduced alongside the discharge of the second quarter earnings report. Whole revenues rose some 25% to $134 million, though that the proportion tempo of progress slowed down fairly a bit. This was achieved based mostly on a mean of 5,450 sufferers throughout the quarter, with the corporate ending the quarter with 5,600 sufferers, as the corporate refinanced present debt holdings as effectively, leading to an estimated $6 million in annual curiosity expense financial savings.
The corporate continues to be very worthwhile, positing earnings of $0.56 per share as 61 million shares granted the enterprise a $2.13 billion fairness valuation, which even included a $238 million web money steadiness, implying that working belongings are valued at $1.9 billion. This can be a modest valuation with gross sales surpassing the half a billion run price, and being very worthwhile.
Later that month, Concord announced the acquisition of Zynerba Prescription drugs (ZYNE). This was a reasonably modest deal valued at $60 million, excluding a $140 million contingent worth proper, though that the enterprise will after all damage backside line outcomes a bit for all of Concord. Zynerba focuses on the event of a remedy for FXS, a gene dysfunction which impacts about 80,000 folks within the US.
In September, Concord announced that the FDA granted the enterprise an Orphan Drug designation for the remedy of idiopathic hypersomnia as IH impacts about 80,000 folks within the US as effectively, half of which have been recognized.
What Now?
Proper now, shares nonetheless commerce across the $35 mark, with shares down some 15% since March, whereas the general outcomes have been fairly good. Whereas the corporate stays a one-trick pony, WAKIX sees continued progress, Concord has grown earnings energy and constructed up its web money place.
Moreover, Concord introduced an enormous buyback program and a bolt-on deal, whereas some fascinating knowledge is anticipated within the coming quarters in its R&D packages.
Therefore, I discover myself performing a balancing act. There are after all issues being a one-product enterprise and the allegations of a brief vendor, however alternatively there may be worthwhile progress, a considerable web money place, a latest deal, R&D progress, all of which makes that traders need to carry out a balancing act right here.
I hate to be in such battleground inventory and whereas I maintain a protracted place, I worry to have conviction so as to add up on the latest dips, as I anxiously await additional developments from right here.
Editor’s Word: This text covers a number of microcap shares. Please pay attention to the dangers related to these shares.