Avalon GloboCare Stock Forecast

AVCO Stock Forecast: Not all biotech firms are created equal. Some companies specialize in drug discovery, or focus on a single aspect of a particular biomedical problem. These operations hope to array all their energies into solving one specific puzzle, and profit off of this by selling or licensing the results of their work at a later date.

Then there are businesses like Avalon GloboCare (AVCO), who, while operating a robust pipeline of drug development projects of their own, also offer industry consulting services and a pharmaceutical manufacturing wing too.

The benefits of this vertically integrated approach are obvious. Companies can take control of their own supply chain and mitigate the downsides of having to deal with suppliers who exercise superior market power. They can also better leverage economies of scale, eliminating overhead costs and streamlining industrial processes.

Additionally, vertically integrated businesses can get their product to the customer much quicker – which can be critical in the drugs market; see the rush to produce the first COVID-19 vaccine, for instance – and can price those products more competitively when they do.

However, there can be drawbacks. Larger enterprises often require extra capital to establish their operations, sometimes burdening the company with additional debt, and will usually need to spend more cash to maintain the efficiency of their infrastructure. And integration also comes with a competitive price, both through the loss of business flexibility and of mission focus.

So, is Avalon benefiting from its particular business set-up, or it could do better? 

What Does Avalon GloboCare Do?

Avalon GloboCare is a clinical stage biotech company specializing in cellular-based technology to treat diseases such as non-Hodgkin lymphoma, B-cell acute lymphoblastic leukemia and the COVID-19 virus.

The company has integrated a number of unique verticals, including research and development, product commercialization, clinical programs and automated bio-production to become a leading player in the immune effector cell therapy space.

Working in partnership with institutions such as Weill Cornell Medicine, Massachusetts Institute of Technology (MIT) and the Arbele Corporation, Avalon’s current principal research focuses on its Clinical-grade Tissue-specific Exosome (ACTEXTM) and the QTY-code protein as a therapeutic and diagnostic target.

Avalon GloboCare Has A Competitive Advantage

Avalon’s moat comes from its ability to generate revenues from multiple sources, and to use those funds to further finance its speculative research operations and clinical stage drug programs.

The company offers a range of services, from consultancy and research studies to executive education and tailored management advice. Avalon also makes money from the rents it receives on its New Jersey property portfolio.

A significant aspect of Avalon’s clinical-adjacent revenue sources is that the firm is able to deliver these services using an annual fee charging model.

This gives the company a reliable and recurring source of cash, and since it offers these options to existing clients as well, there is the sense that these “add-on” services are a revenue force-multiplier for the business overall.

Is Avalon GloboCare Growing Revenues? 

As a clinical stage biotech firm, GloboCare is not unlike many of its peers in that it runs its current research operation with the expectation of low revenue incomes and a high cash burn.

Indeed, the company posted a year-on-year loss of 11% on revenues of $1.3 million. Avalon also suffered a loss from operations for fiscal 2020 of $12.5 million, compared with a loss of $19.4 million the previous year. Its total net income for the same period was negative $12.7 million.

Avalon’s Price-to-Sales multiple is steep at 66x. This could in some circumstances be overlooked, given that it is an early stage pharmaceutical company; however, the sector median is only 8x, so this has to be taken into account in any kind of valuation. The firm’s low cash holdings of just $0.7 million is also another concern.

Price action for the company over the last 12-months has been fairly unconvincing. Avalon recorded a high in that time of $2.19, and now trades considerably lower at $1.10. Its share price saw a spike in mid-February of this year to $1.60, but has since lost all momentum to drop to its current number.

Avalon GloboCare: The Future Hurdles

One of the major issues for bio-pharm companies in the age of COVID is the impact the pandemic has had on clinical trials. Access to patient volunteers has been severely curtailed, and there’s little doubt that this has had, and will continue to have, a deleterious effect on organizations carrying out real-world research programs that require access to vulnerable study subjects.

Avalon has stated, however, that the firm’s work in China hasn’t been much affected by the virus outbreak so far. Most of its clinical trials there were being conducted at specialist hematology hospitals, and these experienced little disruption arising from the COVID-19 crisis.

That said, the company has warned that its operations in the rest of the world haven’t fared as well. Its property revenue has been depressed, with some tenants making late rental payments, and the firm’s partner laboratories and universities have been closed, further impacting its business.

A further worry for Avalon is the stability of its China operations. As its midstream processing plants are located in the country, Avalon’s management have issued guidance to the effect that the ongoing political situation between the US and China re: tariffs and the general trade war could have negative consequences in the future.

Avalon GloboCare Stock Forecast

Discounting the market-wide stock sell-off in March 2020, Avalon’s share price has not been as low as it now since 2017. It has also witnessed its price drop by half since its 2020 highs, and the trends don’t look promising.

However, biotech firms don’t play to the same fundamental rules as everyone else. And Avalon is no exception. Although the business is barely profitable, it does have income streams outside of its core competency drug development wing, and this is a major positive in its favor.

Ultimately, Avalon will stand or fall on the success of its pipeline. In this regard, its CD19-targeted CAR T-cell candidate, AVA-001, is showing great promise. The company is running a first-in-human trial at two of China’s most renowned CAR-T patient centers and has already shown strong anti-cancer properties in pre-clinical studies. Avalon is expanding the trial’s patient base, and hopes are high for the drug moving along in the regulatory process.

If success in any one of Avalon’s pharmaceutical programs pays off, and with the infrastructure there to leverage this success, Avalon could be a stock to watch. Now that its share price is at almost historic lows, this might be the vertically integrated biotech play you need to buy.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.