Market Commentary / Stock Analysis

You Have Never Seen a Biotech Stock Like This

  • Declan O’Flaherty

    Declan holds a Bachelor of Commerce from the University of Alberta and has over 4 years of experience investing in financial markets. As a fundamental investor, Declan embraces the investment principles of Warren Buffett and his disciples. This puts a focus on finding businesses with healthy financials, competent and accountable leader, enduring competitive advantages, and those that are selling at discount to what they are worth.

    View all posts

“Lost time is never found again.” ~ Benjamin Franklin

Time is fragile, fleeting, and desired above all else, yet it is not so easily obtained.

For most of us, time is something spent on work and family, with barely any left for ourselves afterward.

That is why we humans spend so much of our time pondering ways to create more of it.

Because whether it be “Prime delivery”, “Up-to-the-Minute News”, or a way to “Get Rich Quick”, what we value above all else, is more time to do what truly matters most.

Unfortunately, this often isn’t the case for biotechnology companies looking to save lives because the process of drug discovery and development “takes too long, costs too much, and fails too often.” (Carl Hansen)

To put this in perspective, drug development generally takes 5 to 15 years until completion, costs over $1 billion in R&D, and succeeds less than 5% of the time.

With odds like that, it is difficult to rationalize why investing in one of these companies would be worthwhile when there are so many options available that already have a proven product or service.

But what if there was a small-cap company helping biotech businesses save more time and money than they ever imagined?

If that were the case, then it would make sense why this company is backed by investors like Peter Thiel and Bill Gates, and partnered up with organizations like Moderna, Pfizer, DARPA, and more.

Not only that, but it would also explain how this company was able to achieve over $286 million in Free Cash Flow annually and 39.49% Profit Margins in just 2 years since its IPO.

Of course, this could all be hypothetical, but we would never want to waste your time.

That is why our team is very excited to share this small-cap pick with you.

Continue reading to learn more!

If you want to learn more about small-cap investing and what makes it an excellent investment strategy for the savvy retail investor, check out our “What is a Small-Cap Stock”.

Top Five Small-Cap Biotech Stocks

Two weeks ago, we shared with you our deep dive into the biotech industry at large and offered five small-cap stocks shaking up the market.

Now that some time has passed, we are ready to settle the debate once and for all by giving you our pick for the best biotech small-cap.

But before we do, here is our company comparable table so that you may decide whether we are hustling you or not.

Source: AbCellera Corporate Presentation

Two chronic risks associated with biotech companies are that they require both a lot of time and money, when developing drugs, to be successful.

Although society has certainly improved this process, it remains extremely inefficient since over 90% of pharmaceuticals that enter FDA clinical trials fail and the average cost of development is over $5 billion per drug (Joey Bose, President & CEO of Cynotics Corp.).

While investments in biotech stocks may eventually pay off exponentially, betting on a business that has yet to produce a commercial product is risky during a contracting economy where the threat of a global recession is high.

In times like this, finding companies with ample cash flows, little debt, and strong insider confidence is key because they are better equipped to endure economic hardship and overcome slowing demand.

Overall, if a business is profitable now, rather than in the future, and is capable of growing organically when its competition is struggling, it is a business that is likely to survive any storm headed its way.

So without further adieu, here is one the best small-cap biotech stocks in the market today…

AbCellera Biologics ($ABCL)

AbCellera is a full-stack, AI-powered antibody discovery platform that searches the immune system for natural antibodies which are then used to develop life-changing drugs.

Unlike most biotech companies, AbCellera does not produce the drugs themselves, rather they create value for their partners by saving them time and money during the research process.

Using its advanced AI systems, AbCellera sorts through trillions of antibodies and locates the best molecules to combat harmful antigens.

This translates directly to greater profits for their partners because they can produce successful products more consistently with less time and money invested.

As a bonus, AbCellera avoids many of the costs and risks associated with the industry because its partners bear the brunt of the risk and the company’s AI will improve over time.

As such, AbCellera is a valuable partner for any manufacturing company looking to develop the next revolutionary drug.

With 131 ongoing discovery and development programs and many reputable partnerships already, this business is bound to be at the forefront of biotechnology for years to come.

AbCellera’s Three Edges and a Risk

Source: AbCellera Corporate Presentation

Edge #1: A Proven Success Story

For those wondering who to thank for the record-break speed of Covid-19 vaccine development, you can partially tip your hats off to AbCellera.

At the peak of the pandemic, the company partnered up with Eli Lilly & Co. and was tasked with finding an effective Covid-19 antibody.

From start to finish, it took AbCellera just 90 days to discover the ideal antibody candidate, and initiate its first human testing on June 1, 2020.

As a reward for their efforts, the company has received over $500 million in revenue since it hit the market, less than two years ago.

Here’s how they did it:

  1. AbCellera retrieves one of the first US Covid-19 survivors.
  2. The company screens 5.8 million cells to identify antibodies against the virus (3 days)
  3. From these cells, over 2200 single cells are sequenced to analyze the antibodies (3 days)
  4. 500 unique fully human antibodies are identified (3 days)
  5. 250 000 data points are gathered by evaluating each antibody against 500 different qualities of the virus.
  6. 24 lead antibodies are determined.
  7. Selected the single best antibody based on how easy it was to manufacture, and its effectiveness against the virus.

Edge #2: Major Partnerships

Source: AbCellera Corporate Presentation

Edge #2: Major Partnerships

There are a few small caps stocks out there with a client base as impressive as AbCellera’s.

With multiple $100 billion partners, the company has access to the biggest organizations, tackling the most challenging problems, in all of the largest biotech markets.

This is both valuable for its bottom line and its growth as a business because AbCellera gains access to the most incredible resources within this sphere.

In addition, having reputable partners like Moderna, Denali, Merck, and more, improves its likelihood of success since these businesses are already producing effective products and can invest more in their R&D.

To ensure that AbCellera is closely aligned with its clients, the company receives most of its revenues from product royalties and often acquires equity stakes in the businesses they serve.

This is a fantastic model for maximizing returns over the lifetime of the drug because the company sees its development through until the end, even after its services are no longer needed.

Edge #3: Insider Confidence

Source: Simply Wall St

Despite its stock falling over 81.94% since its IPO in 2020, AbCellera’s management team remains as confident as ever with plenty of stock purchases over recent months.

This is one of the best indications that a business’s management team is directly aligned with its shareholders because it means that they are putting their money where their mouth is.

Additionally, if the executives are smart, they will make these purchases when they believe the business to be undervalued, thus indicating a strong buy signal to investors.

This seems to be the case with AbCellera after its CEO, Carl Hansen, purchased over $14 million worth of stock in the most recent quarter.

While this seems promising, what is even more impressive is that Dr. Hansen owns 19.59% of the company with over $600 million of his net worth invested.

For anyone wanting to know what a trustworthy and dependable management team looks like, it doesn’t get better than this.

Risk: Client Dependence

Source: AbCellera Corporate Presentation

Since AbCellera’s success is so closely aligned with the success of its partners, the company may fail to produce consistent revenues if it is unable to discover ideal drug candidates.

As such, much of AbCellera’s growth depends on its ability to find effective antibodies and couple them with strong clientele who are more likely to develop premium products than not.

While this business model does lead to greater returns overall, this may cause problems if its reputation fails to uphold itself or if its technology struggles to provide value for its customers.

All-in-all, AbCellera has demonstrated its ability to consistently exceed expectations, but this may change as new players enter the market or if the technology becomes obsolete.

However, for now, it appears that it is smooth sailing ahead for this wonderful small-cap biotech company.

Disclosure/Disclaimer:

We are not brokers, investment or financial advisers, and you should not rely on the information herein as investment advice. If you are seeking personalized investment advice, please contact a qualified and registered broker, investment adviser or financial adviser. You should not make any investment decisions based on our communications. Our stock profiles are intended to highlight certain companies for YOUR further investigation; they are NOT recommendations. The securities issued by the companies we profile should be considered high risk and, if you do invest, you may lose your entire investment. Please do your own research before investing, including reading the companies’ public filings, press releases, and risk disclosures. Information contained in this profile was provided by the company, and extracted from public filings, company websites, and other publicly available sources. We believe the sources and information are accurate and reliable but we cannot guarantee it. The commentary and opinions in this article are our own, so please do your own research.

Copyright © 2022 Edge Investments, All rights reserved.

  • Declan O’Flaherty

    Declan holds a Bachelor of Commerce from the University of Alberta and has over 4 years of experience investing in financial markets. As a fundamental investor, Declan embraces the investment principles of Warren Buffett and his disciples. This puts a focus on finding businesses with healthy financials, competent and accountable leader, enduring competitive advantages, and those that are selling at discount to what they are worth.

    View all posts

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