CareDx (CDNA), Arena Pharmaceuticals (ARNA) and Repligen (RGEN) Report
CareDx (CDNA) reported Q1 results yesterday that were strong enough to put the bull case back in focus and ignite a nice little rally in the stock, which is up over 15% today. The headline numbers included 85% revenue growth to $26 million and adjusted EPS of $0.05, which beat by an impressive $0.09. Testing services revenue (83% of total revenue) was up 103% while product revenue (from next-generation sequencing products) was up 34%. Management bumped up 2019 guidance from $105 million to $107 million to a range of $113 million to $115 million.
AlloSure (the fastest growing test) was used to generate 5,710 patient results for 4,300 kidney transplant patients from 101 transplant centers (which drive 60% of transplant volume in the U.S.). And the AlloSure Registry (K-OAR) enrollment continued with 50 centers initiated and 1,006 patients enrolled. AlloMap heart transplant tests (the slower growing test) grew 11% to 4,280.
Management talked a little about the OTTR software acquisition (transplant patient tracking software) and how it should help simplify the workflow for transplant centers that order AlloSure and AlloMap. And it touched on the in-licensing agreement with Cibiltech. The big-picture goal here is for CareDx to add machine learning and artificial intelligence capabilities to its transplantation testing offering. With all the data the company collects regarding transplant patients it has the ability to stratify patients based on potential outcomes, and such offerings could be very helpful for transplant centers.
There’s no update on the litigation against Natera (NTRA). Management says Natera still has the month of May to respond. I expect this will remain unresolved for some time.
The bottom line here was a really solid quarter and a relief rally in the stock, which had corrected significantly from 39 in March to 25.5 in April. We took a quarter position off the table in an effort to be a little conservative and avoid a “round trip” back to no gain. That risk seems to have been lifted with this quarter, at least in the near term. The stock is up 18% from last Thursday’s close and our total gain is now 40%. Let’s enjoy this run and continue to watch the stock before moving back to buy. HOLD.
Arena Pharmaceuticals (ARNA) reported yesterday and while automated reporting platforms say revenue was up 45,414% to $801 million, those of us following the story know this doesn’t reflect product sales, just an upfront payment from United Therapeutics.
The main takeaways from the report were all about the pipeline, and mostly about trial designs for the ELEVATE ulcerative colitis (UC) phase 3 studies with 2 mg etrasimod. There will be two trials, one 12 weeks and one 52 weeks, both run through the same global network of 450 sites. The goal here being to meet global regulatory requirements and get a product to market as quickly as possible and show differentiation from potentially competing treatments. Data should be coming in 2021.
Beyond UC, management talked about the rest of the pipeline. It should start a phase 2 study this year for etrasimod in atopic dermatitis this year, with data due out in 2020. And it is finalizing plans for phase 2/3 trials in Crohn’s disease. The early-stage asset olorinab should move into a phase 2b trail for irritable bowel syndrome (IBS) pain this year. And Arena is getting ready to start a program for APD418 for decompensated heart failure later this year too.
As before, this is a stock with huge potential given the extremely valuable pipeline. But investors have to be patient. Could it be dead money for a while until more data comes out? Possibly. The challenge with these types of stocks is whether you try to move money in right before an anticipated surge or just buy it and wait. The smartest move is to average up as the story progresses. I’ve had Arena at buy for a while and plan to keep it there. BUY.
Repligen (RGEN) reported a sweetheart of a quarter, which came as no surprise given the pre-announcement two weeks ago. Revenue was up 35.3% to $60.6 million (beating expectations by $7 million) while adjusted EPS of $0.28 beat by $0.09. Growth came from Filtration (+50%), Chromatography (+40%) and Proteins (+25%), the latter of which was expected to be down modestly this year but should now grow around 5%.
Management raised revenue guidance (from $218 million to $225 million) to $235 million to $241 million (+22% to 25%). And it bumped up EPS guidance (from $0.81 to $0.86) to $0.84 to $0.90. But this doesn’t include the C-Tech acquisition, which should close in June and could drive roughly $8 million more in revenue this year ($16 million to $17 million annualized).
I said you can buy into the strength when Repligen pre-announced two weeks ago, and you can continue to do so now. The story looks great and shares of Repligen are probing their all-time high. I think this result and forward guidance will help them punch through. BUY.