Should you add predictive oncology to your portfolio?
Biotech company Predictive Oncology Inc. (POAI) operates a data-driven and artificial intelligence (AI) platform to develop personalized cancer therapies. The company’s subsidiaries – Soluble and TumorGenesis – are building new GMP facilities, which have caught the attention of investors. Its shares have jumped 20.2% in the past month and 78.9% since the start of the year. However, the stock is trading 43.9% below its 52-week high of $ 2.30, indicating a near-term decline.
POAI’s strategic collaborations help create next-generation tools for the treatment of complex diseases and unique services to better meet the needs of its patients. This could generate new opportunities for revenue growth. However, the highly competitive oncology drug market and the company’s faltering financial situation could be of concern to investors.
Here is what could influence POAI’s performance in the short term:
An increasingly competitive oncology market
The global oncology drug market is expected to reach $ 167.52 billion in 2021, growing at a CAGR of 4%. With several pharmaceutical companies increasingly investing in technologies such as artificial intelligence (AI) to identify potential drug candidates with higher success rates, the oncology drug market has become increasingly competitive. While major industry players remain committed to controlling costs and reducing drug development time to win the race to launch new treatments, competition is expected to remain fierce for years to come. This competitive landscape could make it difficult for relatively smaller players like POAI to survive in the market.
Offer of shares on the market
In June, POAI closed its previously announced direct offering of 15.5 million shares of its ordinary shares at a price of at the market, with gross proceeds of approximately $ 21.34 million. In addition, it issued warrants with an exercise price of $ 1.25 per share which would become exercisable when the company increases its share capital to 200 million shares. It plans to use the net proceeds of the offering to finance its working capital. However, this could have a negative impact on its share price as it would lead to a dilution of the existing shares.
POAI generated total revenue of $ 350,207 for the second quarter ended June 30, 2021, up 91.6% year-over-year. However, its loss from operating activities was $ 2.6 million, while the net loss was $ 2.57 million for the quarter. In addition, POAI’s loss per share was $ 0.05. In addition, its operating expenses jumped 9% year-on-year to $ 567,796 during that period, mainly due to higher personnel costs and higher AI compute costs.
Its ROE, ROA and ROTC over the last 12 months are respectively negative by 76.6%, 42.6% and 20.3%. In addition, its operating cash flow over the past 12 months was $ 11.06 million. In addition, POAI’s asset turnover rate of 0.03% is 90.8% lower than the industry average of 0.4%. Additionally, the stock’s 12-month CAPEX / sales of 64.7% compares to the industry average of 4.1%.
In terms of EV / forward sales, the stock is currently trading at 21x, which is 202.8% above the industry average of 6.93x. Likewise, its forward price / sales ratio of 42.19x is 448.7% higher than the industry average of 7.69x.
Unfavorable POWR ratings
POAI has an overall rating of D, which translates into a Selling Score in our POWR rating system. POWR scores are calculated taking into account 118 different factors, each factor being weighted to an optimal degree.
Our proprietary scoring system also rates each stock against eight different categories. POAI has a D grade for quality. The negative profit margin of the share is reflected in this note.
Additionally, it has an F rating for value, which is consistent with the share’s higher EV / sales than the industry.
In terms of Grade Stability, POAI has a D. This is justified given its relatively high beta of 2.
Beyond the ratings I highlighted, you can check out additional POAI ratings for sentiment, growth, and momentum here.
Of the 505 stocks in the F-rated biotechnology industry, POAI is ranked 305.
Click here to view our health sector report for 2021
While POAI’s new GMP facilities, expected to be completed by the end of this year, should help it deliver more targeted approaches to cancer therapy, the company’s weak fundamentals in a highly competitive oncology market could threaten its growth. Meanwhile, its stretched valuation and negative profit margin could pose a risk to the stock. So, you better avoid the stock now.
How does predictive oncology (POAI) compare to its peers?
While POAI has an overall D rating, you may want to consider taking a look at its industry peers, Qiagen NV (QGEN), Gilead Sciences Inc. (GILD) and Exelixis, Inc. (EXEL), which have d ratings. strong buy.
POAI shares were trading at $ 1.34 per share on Thursday morning, up $ 0.05 (+ 3.72%). Year-to-date, the POAI has gained 82.96%, compared to a 17.34% increase in the benchmark S&P 500 over the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with a passion for financial research and writing. She started her career at Kantar IMRB, a leading market research and consumer consulting organization. Following…