Wednesday, January 29, 2020

IBI Research On Avalon: Mega Partnerships For Rapid Pipeline Advancement

Summary
Despite its young age, Avalon Globocare is aggressively progressing on multiple fronts.
In mid-2019, the company secured a colossal partnership with GE Healthcare.
Avalon recently revealed another partnership. That is with China Nanjing Cell Valley.
This collaboration enabled Avalon to expedite its clinical advancement for the next-generation CAR-T.
Amid strong fundamental development, the stock is trading at a deep bargain to its true worth.
Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble. - Warren Buffett 
As you can see, all giant biotech companies have to start from somewhere. That is to say, Merck (MRK) didn't become a mega bio-stock overnight. It takes time, tremendous intelligence, and capital to nurture a young biotech to become a giant pharma of the future. Hence, if you invest in a powerful young bio company, you just found your ticket to a luxurious retirement. Now doesn't mean that you'll suddenly become rich overnight. You need to conquer the volatility associated with your bio-stock. And you can do that by being patient in holding your shares for the long haul. Better yet, you should build more stakes at opportunistic occasions, i.e. at the dips.
That being said, I'm attracted to Avalon Globocare (OTC:AVCO) because of its stellar management, premier chimeric antigen receptor (CAR-T), regenerative medicines, and exosomes empowered diagnostics. If you've been following my work on CAR-Ts, you'd know that I like Kite Pharma (KITE) and Juno Therapeutics (JUNO) that are acquired. Make no doubt, they have excellent CAR-Ts. Nevertheless, Avalon's CAR-Ts are far more advanced than any first-generation drugs. With signs of rapid advancement, it's spaghetti to sauce that Avalon will become a giant pharma one day. In this research, I'll feature a fundamental analysis on Avalon and provide my expectations of this Philip Fisher growth equity.
Figure 1: Avalon chart (Source: StockCharts)

About The Company

As usual, I'll present a brief corporate overview for new investors. If you are familiar with the firm, I suggest that you skip to the subsequent section. Based in Freehold, New Jersey, Avalon is engaged in the innovation and commercialization of novel medicines and disruptive diagnostics. Driven by tireless efforts, the company is poised to serve the global unmet needs in cancer and various conditions.
Of corporate strategy, Avalon employs a trident-like approach of Poseidon. In other words, the company captures opportunities in three lucrative niches. They include exosomes diagnostics, regenerative medicine, and cellular immunotherapy (i.e. CAR-T). As shown below, there are several potential blockbusters, including AVA-101, -201, and -203.
Figure 2: Diagnostic and therapeutic pipeline (Source: Avalon)
Regarding the diagnostic portfolio, Avalon reaps the ingenious science of "exosomal biomarkers" to launch an avalanche against oral cancer, nonalcoholic steatohepatitis ("NASH"), leukemia, colorectal cancer, and macular degeneration. Though there are different biomarkers, I strongly believe that exosomes are best. In my view, exosomes can pinpoint the diagnosis to confer physicians an edge against deadly conditions.

Mega Partnership To Signal Rapid Pipeline Advancement

Shifting gears, you should analyze important growth catalysts. Notably, I pay close attention to a bioscience innovator's ability to form partnerships. That's because it foretells pipeline advancement. After all, it's extremely difficult for a small company to go at it alone in development and commercialization. By collaborating, a young company can leverage its partner's expertise and infrastructure to expedite the drug development process.
So back on June 22, 2019, Avalon revealed a highly strategic partnership with GE Healthcare. It enabled Avalon to improve business logistics such as automation and standardization for good manufacturing practice (i.e GMP). It's a huge step in expanding Avalon's global cell production capabilities. Ultimately, it positioned the firm to become an undisputed leader in cell-based medicine. I wrote in the prior article,
The partnership will galvanize Avalon's capability to answer the strong demand for cell-based therapies worldwide. The company can now ramp up its supply of clinical-grade cellular products consisting of CAR-T, CAR-NK (natural killer cells), and stem cell-derived exosomes. Specifically, it ensures an adequate supply of biological specimens through scale-up manufacturing throughput and efficiency. Moreover, standardization and automation improve the specimen's uniformity.

China Nanjing Cell Valley Catalyst

Aside from GE Healthcare, Avalon disclosed another powerful partnership on December 20, 2019. That is to say, the company is collaborating with China (Nanjing) Cell Valley (i.e. Cell Valley). The aim is to push forward therapeutics and diagnostics innovation.

In my view, Cell Valley is special! As one of the largest biotech zone initiatives in China, Cell Valley is nurturing translational and technological advancement in the CellTech sphere. As you can see, Cell Valley is expanding its reach beyond China into the global scene.
You already know that the U.S. market is extremely lucrative for biotech. Just as important, China has a vast population that is highly educated and becoming increasingly wealthy. A company that is building a presence in both the U.S. and China like Avalon is positioned to seek huge gains for their shareholders. More importantly, Avalon is poised to deliver hopes to countless patients worldwide.
Here are the solid proofs in the pudding of Avalon's strong presence in China. First, the stellar Lu Daopei Hospital Network already cemented Avalon's reputation in China. Now Cell Valley is another strong infrastructure that Avalon can leverage for further expansion. The partnership combined Avalon's expertise in CAR-T with the infrastructure and resources of Cell Valley.
Standing on the shoulder of Lu Daopei hospitals, you can bet that Avalon has powerful growth catalysts for its CAR-T advancement. That is to say, Avalon will leverage these hospital networks to boost its therapeutic innovation. As such, I believe that Avalon will be able to easily secure patient enrollment.
That aside, Cell Valley will help Avalon with the technical training, bio-production process standardization, and harmonization. As he captured the recent development in the most poignant terms, the President and CEO (David Jin, M.D., Ph.D.enthused,
In conjunction with the operation of Nanjing Epicon Biotech, which is Avalon’s core GMP bio-manufacturing facility, this partnership with Cell Valley empowers Avalon to further extend our repertoire of cell-based technology and therapies, with the opportunity to streamline and expand the bio-manufacturing throughput of our clinical-grade cellular products, including CAR-T and stem cell-derived exosomes. This premier regional hub of CellTech resources and ecosystem will accelerate our clinical programs and contribute to Avalon’s leading role in cellular medicines.

Financial Assessment

Just as you would get an annual physical for your well-being, it's important to assess the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." Therefore, I'll analyze the 3Q2019 earnings report for the period that ended on September 30. Keep in mind, I'll make this brief because I already covered the financials in great detail in the previous article.
Accordingly, Avalon procured $264.1K in revenues this quarter. This is remarkable because an early-stage biotech isn't expected to generate any revenues. That aside, the research and development (R&D) registered at $2.1M compared to $569.9K for last year. The higher R&D spending is due to the robust pipeline advancement. I view the 269% R&D increase positively because the money invested today can turn into blockbuster profits tomorrow. After all, you have to plant a tree to enjoy its fruit.
Due to the higher R&D spending, Avalon incurred $4.4M ($0.05 per share) net loss. Nevertheless, I'm not worried because Avalon is a young company without an approved medicine. If it's a matured blue-chip equity, then I'd analyze it differently.

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strength. At this point in its growth cycle, the main concern is whether Avalon can generate strong data for its Trifecta franchises. In my view, there are 25% chances of clinical failure for AVA-101 and AVA-001. Simply put, the chances of failure are slim. But if that happens, you can expect the stock to tumble over 50%.
Avalon might also grow too aggressively and thereby runs into the potential cash flow constraint. Though the risk is there, it's insignificant because Avalon has the backing of the Titan Lu. Furthermore, Avalon's assets are still early in their developmental stage.

Conclusion

In all, I maintain my strong buy recommendation on Avalon with the five out of five stars rating. On a one to two years horizon, I expect the $12.5 price target to be reached. I also scored the firm with medium investment risk. And, I ascribed it with the 75% investment profitability. In a nutshell, you're going to make money on Avalon, provided that you hold it for at least a year.
From the trading viewpoint, my gut feeling (i.e. instinct) tells me that Avalon will rebound going forward. Investors who built shares when Avalon dipped significantly (and then took profits when the stock was trading at its high) already made substantial gains. Now is a good time to ride another profit cycle. Be sure to tune into IBI for ongoing updates. More importantly, I encourage you to share your own forecasting to help one another.
Despite being a relatively new company, Avalon is already making huge progress and thereby positioned itself as the premier CAR-T innovator. As you know, CAR-T is the best treatment option for various cancers. Hopeless patients got their second chance to live due to CAR-T.
Riding the ingenious mind of Dr. Jin, Avalon is rapidly advancing the cutting edge CAR-T dubbed AVA-101. It's like the Bentley of the CAR-T meds. By harnessing the therapeutic prowess of transposon, AVA-101 has a much larger bandwidth. That enabled it to hit both cancer cell targets (i.e. CD19/CD220) simultaneously. As a result, AVA-101 fits within the fundamentals of cancer management, i.e. combination therapy. In this case, the combination aspect is ingeniously built into one molecule. Ultimately, it limits the time that these rogue cells have to evolve for escaping immune detection.
Looking ahead, I expect AVA-101 to be in the clinic soon. The recent partnership with Cell Valley is the catalyst that will expedite clinical enrollment. Therefore, it'll enable Avalon to send the silver bullet, AVA-101 to countless patients from Lu Daopei and Cell Valley hospital networks in China. Essentially, you can bet that Avalon has a one-two knockout punch combination catalyst against these deadly diseases.
That aside, AVA-001 is already available to patients oversea. And the exosomes-empowered regenerative medicine (AVA-202) is on the same track. When investing in a young bio-stock, you only need one blockbuster to get multiple fold profits for your investment. As you know, Avalon has three big franchises. Therefore, it significantly increased your chances of getting a blockbuster. Investing is a game of odds/chances. And, you can't get better odds than Avalon. If you're patient, you'll be hugely rewarded.
As usual, I'd like to remind investors that the choice to buy, sell, or hold Avalon is ultimately yours to make. In my view, you should build more shares while the stock is trading at a deep bargain. As for all bio-stocks, you should accumulate your shares in a "stepwise" fashion to get the best average cost.
I hope you enjoy my free sample of the higher-level intelligence research. Thanks for reading. And I wish you all a great day.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business disclosure: Due to my medical and market expertise, companies and third parties like GuidePoint Advisors hired me as a paid consultant. As such, my views may not be completely objective. On October 4th, 2019, I established a paid consulting relationship with Avalon. However, I'm neither paid for nor required by the company to publish this research.
Disclaimer: As a medical doctor/market expert, I’m not a registered investment advisor. Despite that I strive to provide the most accurate information, I neither guarantee the accuracy nor timeliness. Past performance does NOT guarantee future results. I reserve the right to make any investment decision for myself and my affiliates on any security without notification except where it is required by law. I am also NOT responsible for the actions of my affiliates. The thesis that I presented may change anytime due to the changing nature of the information itself. Investment in stocks and options can result in a loss of capital. The information presented should NOT be construed as a recommendation to buy or sell any form of security. My articles are best utilized as educational and informational materials to assist investors in your own due diligence process. That said, you are expected to perform your due diligence and take responsibility for your actions. You should also consult with your financial advisor for specific guidance, as financial circumstances are individualized.
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