Champions Oncology Inc (NASDAQ: CSBR)
Everyday, investors tell the tale of literally hundreds of potential breakout stocks, each absolutely steadfast in their belief that they have found the perfect stock, one that is going to rip higher in the days to come. I have one as well – Champions Oncology (CSBR). If you have never met CSBR, let me provide the intro.
Hello, Champions Oncology, My Name Is Investor
I know, its a corny headline, but, throughout the day, I read through a continuous feed of social media, each presenting fresh data and opinions about a trending stock or that can’t lose retail “momo play” – the one that investors typically get in five minutes after the stock has hit the high of the day. C’mon, admit it; we have all gotten caught holding the bag at some point, and its nothing to be ashamed of, especially if the practice of investing based on a twitter-based “momo play” is replaced with good ‘ole due diligence and a well planned investment strategy.
I was introduced to Champions Oncology a few weeks ago and have been keeping a keen eye on them ever since. The stock was trading at $1.54 a share at the time I took my first bite of the CSBR pie. Since then, CSBR is trading nicely higher, closing at $1.90 a share on Tuesday.
Although luck may play a role somewhere in the life cycle of a trade, I find that due diligence and getting to know the stock prior to buying it offers a far greater chance of success than does abiding to the strategy provided by a 100 character twitter feed. I didn’t find CSBR on social media, by the way. I was provided a lead from a friend that thought CSBR might be an emerging star, ultimately destined for much higher share prices. My buddy knows that I take my time before purchasing stock, and I am sure he was eagerly awaiting my call to confirm that his purchase into CSBR was well founded. And, yes, I did call and confirm.
Hello Investor, I’m Champion
CSBR is a company engaged in the development of advanced technology solutions and services that personalize the development of oncology drugs. The technology is literally 22nd century stuff, but investors can buy it now.
The company has a proprietary technology platform, Champions TumorGraft®, that is a novel approach to personalizing cancer care based upon the implantation of primary human tumors into immune-deficient mice. Yes, you read that correctly. CSRB has a stable of mice that have been stripped of their immune systems. These mice then act as a vessel that allows TumorGraft technology to determine various aspects of the implanted tumor. For instance, once the mice are implanted with the actual tumor and tissue samples that are patient-specific, CSBR and its medical team can then perform propogations of the resulting engraftments in a manner that preserves the biological characteristics of the original human tumor in order to determine the efficacy of a proposed treatment regimen.
In other words, the medical team at CSBR, usually in association with their client, can use this implanted animal to test various focused treatments as a gauge for efficacy signals. Imagine, a company that is in clinical trials working on a cure for colon cancer that can literally contract the services of CSBR, implant the disease, and then define different and alternative treatment methods to attack the cancer. The option for a company to contract with Champions Oncology to test treatments can literally save millions of dollars in cash and a considerable amount of time.
CSBR is able to implant disease or other client-specific illnesses in a pre-clinical setting to provide some initial and reliable data about a planned trial. No, mice can’t mimic humans precisely, however, CSBR is able to maintain the integrity of the targeted illness and offer a client the opportunity to treat the animal with multiple therapeutic treatments. Failing to find a meaningful treatment is bad for the mouse, but CSBR doesn’t feel the same regret.
CSBR is not affected by trial success or failure. CSBR is simply the conduit between, say, a pre-clinical trial and a planned phase I trial. They are a contract provider that has nothing at stake except the need to offer a top quality, 100% reliable, and scientifically sound study of the treatment. If a drug fails, the headline risk does not fall on to CSBR’s shoulders. By that failure, the company can generate additional business from the client to test the next most viable option for treatment.
By utilizing CSBR’s TumorGraft technology platform, clients in the drug development field can lower the cost and increase the speed at which they can develop and deliver new drugs to market. All this without the glaring eyes of the FDA constantly looking over their shoulders.
Other than PETA, the scientific community is beginning to embrace the idea of treating immune-deficient animals in a humane and scientific manner, which can generate meaningful benefit for the advancement of therapeutic treatments to address a host of disease and illness.
Champions Oncology is well on their way to emerging into a respectable and profitable company. CSBR has a market cap of roughly 20M dollars after Tuesday’s close and has been trading well north of their prior average monthly trading volume of 56K shares per day. Today, the average runs at 81K shares per day, well up from the September averages. As the CSBR story continues to be told, the shares are finding more liquidity.
CSBR is a revenue-generating company, recording $11.2 million dollars thus far in 2016. With a cash burn rate of roughly $800K dollars per quarter, the company has guided to becoming break even within the next several quarters. Currently the company is cash-flow positive before R&D expenses and has cash and cash equivalents on hand of $4.46 million dollars as of July 31, 2016. CSBR management has guided for FY2017 revenues to be between $16 and $18 million dollars.
The five year core revenue growth rate has been an appreciable 34%, and the company has tremendous insider ownership levels and an extremely low public float.
During the third quarter, CSBR signed significant AML study contracts with a major pharmaceutical company, signed a second co-clinical trial, and enrolled the first patient in the co-clinical trial as well.
Upcoming milestones that investors might expect to hear about from management in the coming months include strategic commercial partnerships, sponsored R&D collaborations, and new product introductions.
Why invest In CSBR?
So, when I reported back to my buddy that CSBR appears to be on track to becoming a huge winner in a technology space that they can potentially dominate, I substantiated my belief with a few quick facts that I will share with you as well.
First, CSBR has an experienced management team that is well trained in the oncology space. Second, CSBR may very well have one of the most innovative technology platforms that I have ever seen. Next, CSBR has a potentially endless flow of oncology customers, and, when CSBR further markets itself, chances are that the laws of supply and demand will take hold, driving contract prices higher for CSBR as they book additional trials.
And, finally, CSBR has been relentless in demonstrating its commitment to increasing shareholder value and to the further advancement of their technology. CSBR has five consecutive years of revenue growth and is well on track to post record results in 2017. From a scientific and technology perspective, CSBR is building a very respectable bank of tumor and tissue samples that can be used in future contracts with new clients.
The thesis at CSBR is relatively simple from a business strategy point of view. CSBR is wedging themselves into a market where most large pharmaceutical products fail to get approved, spend billions in clinical design and trial, and, despite the incremental advances in many of the drugs being brought to market, the response rates are getting lower as the body builds up resistance to incrementally improved compounds.
The Champions Oncology Way
Here is the scenario in even simpler terms. First, an oncology company can expect to spend over $100K dollars per patient during a clinical trial. Second, it takes an average of eight years to complete a trail, and third, the chance of the trial being successful is roughly 7%, meaning millions of dollars and valuable time is wasted over 93% of the time.
CSBR’s solution? Conducting a simple, clinical trial simulation platform from anywhere between 50K and 500K dollars that has produced positive predictive power in between 77% and 97% in the models tested.
CSBR is no rank amateur, either. The company has completed over 500 trials and served over 120 clients, with over 16 of those clients being in the top 20 largest pharmaceutical companies. CSBR has also recorded a cumulative 30% growth rate over the previous five years.
The company recently completed a cash raise and has guided to have enough cash on hand to achieve cash flow positive status. Further, the cash raise was done at $2.25 per share with no warrants, thus no overhang. While the company was certainly interested in the cash, a key driver of the offering was to increase the o/s count and to provide liquidity to the stock. The o/s count on September 2016 was 10,967,491, with a float of about half of that number.
Nice To Know You, CSBR
Final thoughts on CSBR go like this. Rarely do investors find a stock that is this cutting edge, while at the same time has a strategic path directly in front of them to achieve profitability. The science and technology at CSBR is of cutting edge quality and the high cost of drug development processes are going to lead clients to the front door of CSBR sooner rather than later.
It makes enormous financial sense for large pharmaceutical companies to take advantage of this low-cost alternative to test and treat experimental products in a pre-clinical setting at a fraction of the cost of starting an actual phase I trial, or even performing an in-house pre-clinical study.
CSBR, at these levels, and with the tiny float is perhaps a quarter or two away from a strong surge higher. Why? Because this is the period at which management has guided to be cash flow positive, taking the lid off of the can of worry and setting the stock free.
I wish I would have bought CSBR a few cents cheaper, buying on the initial tip. But, I feel better knowing that this company is primed for bigger things, and, while I paid a few cents more per share, my comfort level is high. As for my friend who purchased at much lower levels, I am sure he will be relieved when he reads this as well.
Champions Oncology is a budding winner.
[Image Courtesy of Geograph]