Updates on AVLR, ARNA, RGEN and RANI
Avalara (AVLR) reported Q3 results yesterday that surpassed expectations with revenue up 42% to $181.2 million (versus $170.3 million consensus). Adjusted EPS of -$0.03 beat by $0.04. Several recent acquisitions contributed meaningful growth in the quarter ($16.2 million in revenue) which, if taken out, means the organic revenue growth rate was closer to 29%. The company added 830 core customers in the quarter, a little lower than the 840 added in the previous quarter, and management commented that a European partner channel has slowed a little. That is expected to impact Q4 somewhat as well. Growth in revenue per core customer continues to be impressive in the mid-teens range, well above the low single-digit growth rate of mid-2020. This helps to show the value of the investments Avalara is making to expand beyond what was mostly sales tax and returns-related products previously into a much broader market that spans sales and use tax, consumer use tax and international tax. Expect more expansion in the future. Despite all the good progress, the market isn’t loving the report and shares of AVLR are off roughly 10%. This can likely be explained by lack of formal guidance for 2022 and implications that the organic growth rate in Q4 will be around 23% and that 2022 would be roughly the same. There should be some conservatism baked in here and acquisitions are likely to boost the total growth rate, but of course those investments will consume some capital. My best guess is the stock will be under pressure today but isn’t broken and should be able to hold in the 165 to 200 range heading into the final weeks of the year. Longer term, I think the growth story will power AVLR much higher. However, without a beat-and-raise quarter we should be realistic. Moving to hold as we let the market digest AVLR’s report. HOLD
Arena Pharmaceuticals (ARNA) gave a business update that essentially confirmed the timeline. We are getting closer to data readouts that have been a long time coming, so speculation in the stock is going to begin to increase. To summarize, Phase 3 ELEVATE UC 12 and 52 (etrasimod in ulcerative colitis) were fully enrolled in August and data readouts are expected in Q1 2022. This will be a major announcement. In Q2 2022 we expect a readout on the Phase 2 CULTIVATE study (Crohn’s disease) after that trial was increased from 50 to 70 participants. A positive readout on ulcerative colitis would likely increase the probability of success in Crohn’s. In the current quarter (Q4 2021) a Phase 3 trial evaluating etrasimod in atopic dermatitis (2 mg) is starting while the Phase 2 trial for alopecia areata (2mg and 3mg) is ongoing with data expected in the second half of 2022. It’s going to be an exciting first half of 2022 and, clearly, we’re hoping for good news. BUY
A quick note on Repligen (RGEN) which is down roughly 5% today. The news of the Pfizer (PFE) COVID-19 pill, as well as one from Merck (MRK), is hammering a number of players in the bioprocessing space, including Repligen, Thermo-Fisher (TMO) and Avantor (AVTR). Note that this pill is not a vaccine, but a treatment. While it’s definitely good news that a COVID treatment should be coming soon it’s a little premature to say testing and vaccine manufacturing is going away. We’ll keep an eye on RGEN, but at this point there’s no change in my hold rating. HOLD
Finally, Rani Therapeutics (RANI) has been surging lately (was at 20 last week, hit 35 yesterday, back at 25 today). Clearly, this is an incredibly volatile stock, and prone to significant moves on no public news. It’s not practical for me to send updates on buy and hold guidance on an intra-day basis so please use some judgement when evaluating purchase decisions on any given day. We currently have the stock at buy, but I’ve also cautioned that averaging into a position is a wise strategy, especially with a stock like this. Smaller positions should be added when the stock is strong, and larger ones while it is weak. Will keep at buy a little while longer but considering moving to hold soon. BUY