Read onwards for information about a biotech stock trading on the TSX that:
Has an interesting pipeline with recent FDA clearance
Is making money now and is particularly profitable when flu pandemic concerns arise
Is tightly traded for tremendous upside potential
And, most importantly, a near billion dollar Canadian pharmaceutical company bought a significant stake in the company at market price
After my successful trade of TRE from the $2's to my $5 target, I have been looking for a new stock to place those gains in addition to Futura Loyalty. And then I found the perfect one which has had a ton of excellent news over the last couple of days, and yet the price of the stock is still relatively capped at a little less than its 52-week high.
A lot of people have heard of Cold-FX. Its an herbal treatment to reduce the frequency and severity of colds and flu symptoms and is supported by the likes of Don Cherry. What many people might not know is that the parent company, Afexa Life Sciences Inc, trades on the TSX under the symbol FXA. Cold-FX has been an incredible seller for the company, as evidenced by their company year end financials. Despite having a market cap of just under $60M, their revenue for the past year was $40M with a slightly positive EBITDA and a slightly negative net income. These numbers in themselves would look great for a junior biotech company. But if we look at prior years' financials where the flu pandemic was at large, sales and profits were much higher. If concerns of a flu outbreak rise once again, sales of the product will increase.
Even if today's sales were 0, the company makes a very compelling case for it being valued at much higher than $60M market cap with their pipeline. Their goal is to become one of the first FDA-approved medicines in the polymolecular botanical drug category (a type of natural medication) and they took a significant step in that by gaining clearance for a Phase 1B clinical trial for AFX-2. The drug's goal is to help cure people with a type of Leukemia as outlined below:
"EDMONTON, ALBERTA -- Afexa Life Sciences Inc. (TSX:FXA) today announced the U.S. Food and Drug Administration (FDA) authorization of a Phase 1B clinical trial of AFX-2 (CVT-E002™) as an Investigational New Drug (IND) in adults with Chronic Lymphocytic Leukemia (CLL).
The successful completion of this milestone for AFX-2 marks the initiation of the Company's strategy to obtain FDA approval as one of the first medicines in the polymolecular botanical drug category. The FDA clearance of this important initial step affirms the Company's regulatory, scientific, and quality capabilities in developing novel polymolecular medicines.
Although numbers vary, current estimates suggest approximately 130,000 individuals in the United States suffer from CLL. CLL is the most common type of leukemia, representing roughly one third of all leukemia cases in the U.S."
130,000 cases means 130,000 potential clients. A poster on Stockhouse put it very simply today. Although the math seems a little off, the idea is right. 130K clients spending $2K a year (a fair amount, but not financially impossible for someone who wishes to cure themselves) leads to $260M a year in revenue, much of that going straight to the bottom line. And remember the company trades at less than $60M in market cap. Of course there's a ton of biotechs out there that trade at similar market caps vs potential markets of their drugs. But the difference between them and FXA is that they heavily burn through cash and need venture capital investors who dilute the stock at low prices in order to remain liquid until they receive revenues. All Cold-FX needs to do is make enough money to offset the costs related to getting AFX-2 to market and we are looking at a company of $260M a year purely in profits.
I can write a fine story like this, telling you how undervalued this company is and you can choose to believe me. Or you can choose to believe Paladin Labs, a pharmaceutical company that has doubled its market cap over the past year to nearly $900M.
Refer to the Financial Post article here
Now, the article states that Paladin bought a stake in the Cold-FX maker Afexa, but logic stands to reason that they have researched AFX-2 and that's the reason why they bought shares at market. Reading the Financial Post article as well as Afexa's News Release with respect to the issue, you can see that Paladin bought shares indiscriminately up to 55 cents from the 30's. Do you think they intend to breakeven on those 55 cent purchases?
If you take a look at how the stock trades, you can see it is thinly traded and that just a small amount of volume can really move the stock. Paladin accounted for nearly all the volume on Friday July 15th, and less than 500K shares were responsible for a 20% leap in price on July 18th. The stock's jump is not the work of day traders or momentum players - yet. This is all based purely on significant investor purchases and positive news releases. Imagine what will happen once the day traders and momentum players get in on it. Remember when the Gene Simmons joining Ortsbo craze started? Originally INT's stock jumped from the 50's to low 70's before taking off to the $3's a couple of weeks later.
The difference between INT and FXA is that there is a strong chance that FXA would stay at those levels as Paladin's investment is likely just the first of many and that Afexa will end up being bought out by Paladin. You could say that I'm trying to start a buyout rumour, except that the Financial Post article already started it for me:
"Market watchers saw the buy as a hint that Paladin might eventually move to acquire a bigger stake in the Edmonton-based developer of naturally sourced supplements.
Douglas Loe, an analyst with Versant Partners, said in a research note Monday that it could signal a growing interest in the firm and was relatively positive about the prospect.
“Investment itself could be mildly positive to future earnings, since Afexa looks attractively valued to us,” he said."
Note the underlined part of the quote. This is not myself saying it, but an analyst. While FXA might be too small to gain coverage, the purchase from Paladin Labs and the positive view of this from an analyst shows you what they think of Afexa.
Investing in FXA means you're investing in a company with revenues today and huge future revenues tomorrow. They have a tremendous potential for a buyout and unlike other biotechs which invest in hard drugs with potentially severe side effects, Afexa's alternative medicine remedies may unleash a huge positive influence on society and the industry where people can actually improve their lives 100% through the use of drugs.
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