This Small-Cap Biotech Firm is Making Hand-Over-Fist Profits – Let’s Buy In
Action to Take:
- Buy-to-open a 50% position in Innoviva Inc. (INVA) at market. Plan on adding the second half of the recommendation at $12.00.
With markets drifting lower and most small cap stocks taking it on the chin during the slide, it’s more important than ever to limit our new capital to stocks of companies that have real numbers – and have seen shares hold up since the beginning of the Fed’s rate-hiking cycle.
With that said, this week, we’re going to target Innoviva Inc. (INVA), the Burlingame, California-based diversified biotech holding company with a portfolio of royalties producing assets partnered with Glaxo Group Limited (GSK), as well as a growing portfolio of innovative healthcare investments and assets.
Unlike a lot of biotech companies that are years away from any commercial drug, Innova Inc. already has two commercial products (marketed by Glaxo Group Limited), that generated nearly $250 million in revenue over the trailing twelve months.
Additionally, the company generated $58 million (over the trailing 12 months) from a growing therapeutic platform anchored by two marketed products, an upcoming launch, and a late-stage pipeline candidate.
Bottom line, this is not your typical biotech company that’s years away from profitability. In fact, over the last 12 months the company has generated more than $230 million in net income on $290.42 million in revenue.
If you’re doing your math, that amounts to a profit margin north of 80%.
On top of the revenue-generating products and partnerships, Innoviva also boasts a diversified portfolio of promising healthcare assets with high growth potential currently valued at over $430 million.
That’s a quick overview, but I want to take a moment to bring things back to its GSX-partnered products: Relvar/Breo which is the first once-daily inhaled corticosteroid / long-acting beta-agonist for asthma and chronic obstructive pulmonary disease; and Anoro/Ellipta, a best-in-class long-acting beta-agonist /long-acting muscarinic antagonist for COPD.
First up, over the last 12 months, global sales of Relvar/Breo have been $1.4 billion and looking ahead, the 5-year consensus of sales is $6.6 billion. Given Innoviva’s 15% royalty rate, that amounts to approximately $1 billion coming to Innoviva.
Second, the projected 5-year sales for Anoro/Ellipta are $3.0 billion, of which Innoviva gets a 6.5% royalty. That adds up to an additional $200 million in projected royalty revenue over the next five years.
Combined, projected 5-year revenue for just its Relvar/Breo and Anoro/Ellipta products amount to approximately $1.2 billion.
That’s some serious cash for a company with a market cap of just $870.36 million!
Technically, the stock has held up very well during the recent selloff, trading in a sideways range since May 2023, unlike so many of its small cap peers that have been trading lower and lower with every hint at higher rates.
The company is expected to report earnings in the second week of November, so we could be looking at an earnings catalyst that could drive shares higher, on their own. If that happens, we could get a double push higher as “short-traders” are forced to cover a short of float position that is currently sitting at 21.82%.
Action to take: Buy-to-open a 50% position in Innoviva Inc. (INVA) at market. Plan on adding the second half of the recommendation at $12.00.
Cheers,
Shah
