Cancer Genetics is a specialized company on the move, and while the current share price may lead investors to believe that Cancer Gentetics (NASDAQ:CGIX) is sitting idle and waiting for deals to come their way, nothing could be farther from the truth. Although the stock price sits at roughly $3.10 per share with a market cap of approximately $61 million, investors and analysts that follow CGIX realize that the valuation is less than fair for this emerging precision oncology company. This apparent mispricing of CGIX has led to the over 40 institutional shareholders taking a position in the company, accompanied by an insider team that owns just under 29% of the outstanding shares. To make the case stronger, CGIX has a consensus price target of $8.50 per share and holds Strong Buy recommendations from both James Dawson SE and Rodman & Renshaw based on each firms coverage of the company.
In addition to those, Benchmark has provided a Speculative Buy rating and a price target of $6.00 per share. For some investors, CGIX poses a new investment opportunity, and for those that search out innovative and specialized opportunities, CGIX may foot the bill. Cancer Genetic's, for that matter, can make most of its case for investment consideration on its own by consistently demonstrating the ability to capitalize on both market and strategic opportunity. Just recently, CGIX acquired yet another transformative piece to its strategic puzzle by purchasing vivoPharm. And, while that deal deserves special attention, a quick background of CGIX is in order.
Who Is Cancer Genetics?
It's okay if you don't already have the CGIX name as part of your emerging stock portfolio. CGIX is not the first under-the-radar stock that deserves significantly more attention than it gets, and with many in the retail investment class yet to discover this unique company, opportunity to take advantage of the markets current lack of attention signals a significant opportunity for investors. Investment is about creating value, and when the company is working hard to enhance its company share price, the case for focused attention is bolstered. The value proposition for CGIX is apparent, by the way, proven by the increasing base of institutional ownership, which is now approaching 30% of the outstanding shares. Thus, if the adage remains true that the "retail investor" is always the last to know about a great opportunity, the thesis to take a position sooner rather than later in CGIX is justified.
Of course, great investment opportunities still require a sound reason for action. In this case, CGIX meets the criteria by being one of the most innovative and balanced precision oncology companies in the market. Not only is CGIX specialized, but they have also been executing upon a strategic plan focused to achieve profitability and to become a recognized leader in the immuno-oncology field, providing unique and proprietary genomic tests and panels for the estimated $450 billion global oncology market. Establishing a global footprint is at the core of CGIX's plan, and with four transformative and accretive acquisitions complete, the company is proving that it can play with the large pharma companies. In fact, they are already on the same playing field, with client contracts already in place with nine of the ten largest biopharma companies in the market, which has led to an over 488% rise in revenues since 2013. In addition to the large contracts with major biopharma clients, CGIX has over 15 active research collaborations with leading cancer research institutions, with names like the Cleveland Clinic, Huntsman Cancer Institute, and Memorial Sloan Kettering just to name a few. What these renowned research centers recognize is what the institutional holders have known for quite a while, CGIX is on course to establish itself as a valuable and contributing player in the precision oncology sector. To get there, CGIX has identified its value drivers for the next two years, with a focus on immuno-oncology markers like PD-1 & PD-L1 that bring multiple partnership opportunities, especially with CGIX's current ability to provide virtually all the PD-L1 companion diagnostic tests available for immuno-oncology therapies.
Beyond the immune-oncology focus, the company is targeting opportunities in the broader scope of the healthcare system. CGIX is building its portfolio of innovative testing capabilities, recently launching a study with the Mayo Clinic to study Multiple Myeloma panels, and to secure additional partnerships with large pharmaceutical companies who need innovative testing platforms to provide novel insight and accurate data related to a cancers genomic makeup. Now, with the strategic drivers in place to move CGIX forward to take advantage of the estimated $11 billion dollar oncology testing market in 2020, the company proved commitment to its vision by securing yet another transformative acquisition that will provide an additional engine of support to reach near-term profitability.
Cancer Genetics Acquires vivoPharm
On Monday of this week, CGIX announced what may be one of the most significant acquisitions in its history, purchasing vivoPharm for roughly $12 million in a deal that provided approximately $1.2 million in cash (10%) and the remaining 90% of the acquisition price paid with common shares. The deal offers tremendous accretive synergies. For investors looking for growth, this deal provides it. The vivoPharm acquisition immediately strengthens the "bench-to-bedside" capability for CGIX, that is, they can move a project from clinic to patient in a relatively seamless manner. Not only does the deal strengthen that capacity, but it is also expected to bolster growth opportunity on a global scale and open the door to diversified and new partnership opportunity with a broad base of biopharma companies.
In addition to partnership opportunity, which is likely according to the company's recent conference call, the vivoPharm acquisition expands the company's discovery and early development revenue base with a highly complementary set of biotechnology and pharmaceutical customers, with substantial opportunity to develop alliances in both Europe and the Asia-Pacific. Next, the deal adds more than 55 new projects to the company's current 170 active studies with biotechnology and pharmaceutical companies. Of those 55, over 30 of the projects are immuno-oncology based, a market that CGIX is aggressively working to exploit as quickly as possible. In targeting the sector, the vivoPharm acquisition strengthens Cancer Genetic's position as the emerging and premier leader for oncology discovery on both an in-vivo and in-vitro development basis. Importantly, the merged companies can now take advantage of vivoPharm's decade long experience to deliver a broad range of developmental and preclinical services to support drug development, target validation and provide reliable biomarker analysis.
To date, vivoPharm is active in supporting over 200 IND submissions for innovative therapies, with a direct focus on immuno-oncology. In short, the combined company will offer the immuno-oncology industry recognized capabilities that can provide precise early phase development and discovery analysis, with a particular focus on immuno-oncology models, tumor and microenvironment studies, and specialized pharmacology services. Currently, vivoPharm brings with them more than forty biotechnology and pharmaceutical clients from across the globe, and more than 55 specialized studies and trials in progress to provide highly skilled services to support projects from the research and pre-clinical stage to the final development of drug or therapy.
vivoPharm Brings More Than Science
Importantly, the deal brings with it a good deal of current revenue, and investors embrace accretive deals. vivoPharm has provided impressive financial results, posting compounded annual revenue growth of 14% during the previous three years. The company is expected to post approximately $5 million in revenues for the current fiscal year which ends on June 30, 2018, generated from clients that range from "virtual" biotech research companies to the largest pharmaceutical enterprises in the world. What is unique about the acquisition is that it brings to CGIX tangible support for biopharma work and additional market share. With the extremely specialized services now part of the CGIX platform, the combination will offer specialized planning and unique study capabilities that captures the ability to guide drug discovery and development programs. While concentrating on both oncology and immuno-oncology, the combined company will provide client specific services ranging from early compound selection to developing comprehensive sets of both in-vitro and in-vivo data and analysis.
More importantly, for customers in need of supporting data for Investigational New Drug "IND" applications, the services offered by CGIX hold immense value to clients, who rely on the specialization and unique data profiles to support an IND. To date, CGIX and vivoPharm have provided support for more than 200 IND submissions targeting indications that include lymphomas, leukemia, GI-cancers, and liver cancer. The company has also worked on providing study data to support applications addressing drugs to treat pancreatic cancer, non-small cell lung cancer and a set of non-cancer rare disease indications. In addition to the bump in revenues from vivoPharm, the assets include a 14,000 square foot facility of accredited and GLP-compliant, state-of-the art facilities in Australia and Pennsylvania. The company will also maintain a facility in Munich, Germany that is dedicated to project management, client service, and clinical affairs from its over 32 full-time professionals and staff members. In a nutshell, the deal is immediately accretive, but it also opens the door to tremendous opportunity for the newly fortified CGIX.
The deal separates CGIX even further from its potential competitors, taking in additional protecting patents as well as adding a significant number of large industry clients to its revenue roll. Specialization is key, and at the essence of bringing both tangible and intangible value, it can be priceless. Like it does for CGIX, this announced deal should provide a transformative moment for investors, buoying the support for investment consideration into CGIX. While several small companies are working to develop similar processes to that of CGIX, few, if any, offer a combined and comprehensive package of services that CGIX has built to serve a broad base within the immuno-oncology market, or for that matter, in the even larger field of cancer genomics.
If CGIX Is Not Everything
Here's the question: If CGIX is not the stock that may offer investors a compelling case for investment in the immuno-oncology space, then which competitor is? CGIX is now expected to generate more than an estimated $30 million in revenue, has secured a $16 million equity raise of which $13 million remains available, and has built a somewhat firm position as an emerging leader in the field of cancer research. Not only have institutional investors noticed the opportunity, but significant research partnerships also believe in the capability and reliability that CGIX provides from its services. Now that CGIX has a healthy cash balance that provides long-term visibility, coupled with the management team's ability to build a global infrastructure to deliver worldwide opportunity, CGIX is a stock well worth investment consideration. At current levels, the stock is trading at barely 2X expected revenues and with just over an estimated 31.1 fully diluted shares, comprised of 22 million of common stock outstanding, 6.5 million in exercisable warrants, and about 2.6 million shares for options and restricted shares as of August 15, 2017, the capital structure is well positioned to add additional accretive value while at the same time maintaining a relatively small public float and liquidity to the trading shares.
As a company, CGIX has been looked upon favorably by the analysts, as well as by its clients for being a reliable and highly specialized company. Now, with vivoPharm in its arsenal of products, the company's strength is amplified significantly. With the vivoPharm platform enabling short term study results, the opportunity at current price levels may be less available as the combined results and partnership potential begins to get realized and announced to the markets. Putting the pieces together, CGIX is a stable company with ample opportunity. And, from an investment perspective, there is absolutely no reason to believe that CGIX is planning to slow down its recent pace of milestone accomplishments. For investors looking to capitalize on a flourishing immuno-oncology sector, taking CGIX at face value may be an inexpensive proposition. Institutional analysts believe that the stock is worthy of an averaged consensus target of a $7.66 price tag, and with the recent acquisition of vivoPharm, many new investors should place credibility in the price target as well.
Disclosure - The author has no shares nor intentions to open any position in any stock mentioned herein for a period of 72 hours.
This article was originally featured on CNA Finance.