Cryoport: Great Buying Opportunity (CYRX. Buy, $10.44)
Quick Comment on 4Q, 2018 Sales and Earnings Report
Cryoport reported a spectacular 4Q, 2018 quarter last night. Biopharma revenues which are 84% of total revenues increased 94% to $4.9 million which compared to my estimate of $4.3 million. Total revenues increased 72% to $5.7 million as compared to my estimate of $5.2 million. The Company was also very close to reaching breakeven cash flow. It was just a colossal quarter.
I Am Projecting Explosive Sales Growth
I am in the process of updating my sales and earnings forecast for the Company and I will publish these in the near future. I have completed my sales estimates which project that sales will more than double over the next two years. Specifically, I am estimating an increase of 67% in 2019 to $32.7 million from $19.6 million in 2018 and a further increase over 2020 sales of 48% to $48.5 million.
A major driver of the sales estimates are Cryoport sales stemming from commercial sales of the CAR-T drugs, Kymriah and Yescarta, which were $2.1 million in 2018. I am estimating $5.6 million in 2019 and $10.2 million in 2020. I expect strong increases in sales continuing over the 2020 to 2024 period.
I do not include any revenue projections attributable to other products being commercialized, which is purposely intended to build conservatism into my estimates. I believe that CYRX is supporting two products that have filed BLAs in the US and three that have filed the equivalent to a BLA (an MAA) in Europe. These could lead to commercial approvals in 2019 and 2020. Also the Company is supporting 47 phase 3 clinical trials, some of which could also result in commercialization of products in 2019, 2020 and beyond. It is difficult to make sales projections, but I think that there is a strong possibility for very meaningful sales from new commercial products beyond Kymriah and Yescarta.
Thinking about Price Targets
Repligen is the closest peer company I can find for Cryoport. Repligen has given sales guidance of about $220 million for 2019 and has a market capitalization of $2.6 billion. Hence it is selling at 12 times projected 2019 revenues. Applying this 12 times ratio to CYRX sales projections of $32.7 million in 2019 and $48.5 million in 2020 would result in a market capitalization of $392 million in 2019 and $582 million in 2020. Dividing by 29.5 million shares currently outstanding would result in a price target of $13 in 2019 and $20 in 2020.
Repligen-as judged by sales- is 7 times larger than Cryoport making it more difficult to achieve rapid growth. Repligen projects organic sales growth of 10% to 15% while the organic growth of Cryoport is projected at 75% in 2019 and 52% in 2020. Perhaps this could translate into higher market capitalization to sales ratio for Cryoport. My intuitive guess is that Cryoport can trade at a market capitalization to sales ratio of 15 (or more) because of faster growth. If so, the 2019 price target would increase to $16+ and 2020 to $25+.
Successful Acquisition Strategy Could Boost Sales Estimates and Price Targets
One of the big drivers of Repligen has been a highly successful “tuck in” acquisition strategy that has roughly doubled the sales growth rate. Cryoport also has said it intends to begin to make “tuck in” acquisitions. It has $47 million of cash on its balance sheet and should achieve break even cash flow in 2019. It has the financial ammunition and intent to make acquisitions in 2019 and beyond. It remains to be seen if they can be as successful as Repligen with an acquisition strategy. If they are successful, it could meaningfully increase the sales growth rate.
Why Did the Stock Price Decline on These Spectacular Results?
Following the sales and earnings report last night the stock traded up $1.50 in the aftermarket. It opened up about $0.50 in the weak stock market of today and then dropped like a rock, down nearly $1.00. What happened? I warned in my last report that this stock is generally not covered by analysts with biopharma expertise. I was concerned that their estimates were too aggressive and might have to be trimmed even as sales exploded. Sure enough, two analysts dropped their 1Q, 2019 sales estimates from $7.2 million to $6.7 million; the latter represents an impressive 66% increase in sales. By the way, my estimate is $6.7 million.
Apparently this lowering of sales estimates was picked up by computer algorithms which led to a sharp selloff. This was likely abetted by hedge funds who are aware of this algorithmic trading strategy. We live in a strange would in which mindless computers and hedge funds who specialize in stock manipulation (especially on the downside) can lead to paradoxical stock price behavior as we have seen with Cryoport. I have seen the same thing happen to other companies. It is part of the wolfpack playbook. I believe that the CYRX stock price has the potential to double over the next two years and regard this as a great buying opportunity.
Tagged as Cryoport + Categorized as Company Reports, LinkedIn
One possibly negative factor in the call related to the number of clinical trials and the way the company reports this data. With Q4, the company started reporting trials in Europe, Middle East and Africa. This addition of 40 trials created the appearance of an acceleration in trial activity. However, when you back out the EMEA additions one could interpret a slowing in clinical trial growth based on sequential quarters.