Why This Small Biotech May Be Ready to Explode
Fundamentals
##Symbol##ENTA ##***Biotech ##Date##24 Aug 2015 I want to introduce you to a small biotech ($760 million market cap) that may be on the verge of a large break out. It doesn't get much fanfare, nor are its products known to the consumer, but it has its hands inside the guts of a potential blockbuster drug. Enanta Pharmaceuticals is a research and development-focused biotechnology company that uses its robust chemistry-driven approach and drug discovery capabilities to create small molecule drugs for viral infections and liver diseases. ENTA has a clever business model, cash on hand, and one big success already called protease inhibitor paritaprevir. That product goes into AbbVie's ground breaking hepatitis C treatment known as Viekira Pak (Source: The Motley Fool). The product is taking off and ENTA gets a 3% royalty fee from it, while carrying none of the large risks associated with a launching, marketing and selling and new drug. There is a non-trivial chance that this drug becomes a blockbuster hit and that means massive margins for ENTA. Let us not forget the success the Gilead had with its Hep C drug, Sovaldi, and $10 billion in revenue in its first year (the largest new drug success ever). According to WHO, there are over 180 million people worldwide with Hep C, and 3 million in the US. Yes, the blockbuster drug in this area was created by Gilead (GILD), but competition is coming. ENTA has seen revenue (TTM) rise over both one- and two-years by 221% and 358%, respectively. Revenue in the most recent trailing-twelve-months is $149 million. Last year ENTA reported $46 million and two-years ago annual revenue was $33 million. It has over $223 million in cash and equivalents and carries zero debt. It spends less than $20 million a year in R&D, which gives it future product capacity at a low cost. Further, the company went from less than ~$2.85 million in levered free cash flow a year ago, to now over $76.5 million in the trailing-twelve-months, which yields the ridiculous 2,600% year-over-year comparison.
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— Ophir Gottlieb (@OphirGottlieb) August 28, 2015
➜ ENTA has 1 products in Phase II trials and 4 products in the Phase III trials. Everything about the company's fundamentals can change in a single day when the FDA makes a definitive decision on a late stage drug trial. ➜ ENTA generates $1.17 in revenue for every $1 in expense, which is very high and considerably above the sector average of $0.70 and remarkable for a small biotech. ➜ ENTA generates $918,000 in revenue per employee which is above the sector average of $589,000.
Technicals | Support: 38.92 | Resistance: 42.03
Swing Death Cross Alert: The short-term 10 day MA is now below the 50 day MA. ENTA is hitting a technical breakdown right now. The stock has a one bull (lowest rated) technical rating because while it's trading above its 10-day moving average, it's down on e the day, trading below both the 50- and 200-day moving averages and the 10 day MA is below the 50 day MA ("swing death cross"). I remind all readers that a report just like this one is available for any company for free on CMLviz.com. No e-mail. No login. Free. Forever. Period. Let's quickly look at the core elements that drive the company's fundamental rating.
Fundamentals Rating Summary
Stock Returns and Chart
ENTA is up +1.2% over the last three months and up +14.5% over the last six months. The stock has returned -6.5% over the last year. Before we dig into the fundamental trends that drive the rating, let's look at an all-time stock chart with regression channel and 10-day momentum (on the bottom). Click here to interact with this stock chart Now let's examine the visualizations of the critical financial measures.
METRIC CURRENT 1YR AGO 2YR AGO DIRECTION Revenue (TTM US$ Millions) 1494633RISING
ENTA is not only growing revenue by 221.0% year-over-year, but it's 4 fundamental (star) rating implies that the revenue acceleration is pushing the core fundamentals of the company forward. While massive revenue growth often times comes at the expense of earnings, free cash flow and operating margins, that is not at all the case for ENTA. This is how little boitechs turn into monsters, and while ENTA doesn't quite have the business model to turn into a true mega cap, it does have a big winner on its hands, and that means more money to try to repeat the success. What do all these numbers mean? ENTA's fundamental rating benefited these results: 1. The one-year change was positive. 2. The one-year change was greater than +20% (an extra boost to the rating). 3. The two-year change was positive. Let's look at Revenue (TTM US$ Millions) in the chart below. Click Here to Interact With This Chart Click Here for a Head-to-Head Trade Card on Any Companies
METRIC CURRENT 1YR AGO 2YR AGO DIRECTION Net Income (TTM US$ Millions) 683510RISING
Net Income (after tax profit) over the trailing twelve months (TTM) for ENTA is rising, up 95% year-over-year. That net income number could multiply several fold if Hep C drug Viekira Pak really does prove to be a monster. In our next chart we plot Net Income (TTM US$ Millions) in the blue bars. Click Here to Interact With This Chart
METRIC CURRENT 1YR AGO 2YR AGO DIRECTION Research and Development (US$ Millions) 654RISING
Research and Development (US$ Millions) in the most recent quarter for ENTA was $6 million, up 37% year-over year. Further, we can see that R&D today relative to two-years ago is up 55% from $4 million. While those R&D comps sound like spending gone wild, in absolute numbers it's quite controlled and methodical. In our final time series chart we plot Research and Development (US$ Millions) in the blue bars. Note that the green bar represents the all-time high. Click Here to Interact With This Chart
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— Ophir Gottlieb (@OphirGottlieb) August 28, 2015
Summary ENTA presents a small biotech with a market cap of about $760 million that has earnings, positive free cash flow and a success on its hands. At $160 million in sales in the trailing-twelve-months, the company trades at a rather tepid 5.3 to 1 price to sales. This isn't a company that is likely to become a mega cap, but it certainly has the possibility to expand its market cap rather substantially if the success it looks like it has on its hands does pan out. As with all small biotechs that have a success, the question (and risk) is, what's next?
