Introducing a Low-Priced, Low-Risk Biotech Stock
This is a low-priced stock for a reason, but there's also reason to believe that there is something here. Here's my game plan with the name.
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I have a new name for you. Let me make an introduction.
ADC Therapeutics ADCT is a cancer stock, to put it bluntly. Headquartered in Switzerland, ADC Therapeutics describes itself as a clinical-stage oncology drug discovery and development company.
The company develops antibody drug conjugates (ADCs) for the treatment of both solid and hematological cancers. The idea is to employ monoclonal antibodies specific to particular tumor antigens conjugated to a class of pyrrolobenzodiazepine (PDB)-based warheads to selectively target and kill cancer cells.
ADC Therapeutics has multiple PBD-based ADCs in ongoing clinical testing, ranging from first in human to Phase II clinical trials. Its main candidates at this time are ADCT-301 for the treatment of lymphoma and leukemia and ADCT-402 for the treatment of non-Hodgkin's lymphoma and B-cell leukemia.
The company's target markets are the United States, Switzerland and the U.K.
Last Two Months
The stock sold off hard in mid-November in response to earnings, then rallied sharply in early December, only to sell off again within a few days' time. Tuesday morning, there was news, but no real movement in the stock other than an early upside head fake.
November
ADC Therapeutics reported a Q3 GAAP loss of $0.28 on revenue of $18.46 million. These top and bottom-line results both fell short of expectations despite revenue growth of 27.4%. Zynlonta contributed the lion's share of the revenue at $18 million (+25.9%). Zynlonta is a monoclonal antibody conjugate that targets B-cell lymphoma and high-grade B-cell lymphoma.
Earlier in December
ADCT stock rallied and then took a hit after the company reported data from Phase 1b testing of its Zynlonta drug in combination with a bispecific drug Columvi. The study showed that the combination of the two drugs achieved a best overall response rate of 94% and a complete response rate of 72% in treating patients suffering from relapsed or refractory diffuse large B-cell lymphoma.
Treatment emergent adverse events of grade 3 or higher occurred in 5% or more of patients, while CRS, or cytokine release syndrome, of grade 1 or 2 was observed in 34.5% of patients and resolved with standard treatment. Zynlonta had received accelerated approval from the FDA and conditional approval from European regulators.
Columvi is a Genentech product. Genentech is a subdivision of Roche RHHBY.
This Morning
ADC Therapeutics announced the completion of enrollment in a Phase 3 confirmatory trial for its FDA-approved drug Zynlonta. The two-line study is expected to generate top-line data on the primary endpoint of progression-free survival by the end of 2025, hopefully in preparation for a label expansion for the drug by early 2026.
Fundamentals
For the current quarter, ADC Therapeutics is seen posting a GAAP loss of $0.42 per share, which would be a narrower loss than the year-ago comparison of -$0.93. Revenue is projected at $18.85 million, which would be good for annual growth of 12%.
For the trailing 12-month period ending with the September quarter, ADC Therapeutics generated operating cash flow of -$133.6 million. Tack on capex spending of just $1.1 million and free cash flow landed at -$134.7 million.
Checking out the balance sheet, the company ended the quarter with a cash position of $274.3 million, inventories of $16.1 million and current assets of $333 million. Current liabilities added up to $67.7 million, which included shorter-term debt of just $7.2 million. Its current and quick ratios are both very strong at 4.92 and 4.68, respectively.
Total assets amount to $349.1 million that includes no intangibles. We like that. Total liabilities less equity came to $521 million, which includes long-term debt of $436.8 million.
Now, that debt-load is not an immediate problem, but it could become one. The cash burn for the past year ran at what is now roughly half the company's cash position. Then there's debt service for a huge amount of debt. It appears as if the company has two years to commercialize its best candidates while also rolling over huge chunks of debt as maturities loom.
My Thoughts
I don't think there's any reason to rush into this one, but I do think that I probably want to have some kind of long position in place by later this coming year.
As mentioned above, ADC Therapeutics has a couple of years to get its business right. The debt-load is huge, but the top drug is close to being fully marketable and there are a couple more candidates in the pipeline.
The company current situation is not a problem. That said, if by later in the year nothing is developing, this will have to be considered a low-risk, potential reward possibility that did not pan out.
Technicians will note that we do have a double-bottom pattern in place in the chart aboce. Whether it's a reversal or not remains to be seen and if it is, the pivot is all the way up at $3.47. That would be almost a doubling of the share price in its own right.
Let's be fair, this is a low-priced stock for a reason, but there is also reason to believe that there is something here. I may just initiate small and take it from there.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider ADCT to be small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
